The conversation around housing always seems to be one of demand. We need more affordable housing! There are homeless people who need a safe place to live! There aren’t enough rental units!
What if, instead of demand, we thought in terms of the supply. Not even necessarily in terms of the supply of the physical structures as much as the physical structures in conjunction with the neighborhood attributes.
For instances, there are several examples in Rochester and Perham MN where businesses have banned together get involved in the process of suppling workforce housing. It came about because they had jobs to fill and potential employees could not afford to live within a reasonable driving distance of the workplaces.
There is a history of missionary types of people hosting new immigrants to our country, of supplying them with housing until they get on their feet.
Maybe if more thought was put into supply-side housing, instead of incessantly pounding the drum of demand, we could see our way to more solutions. Or maybe if we could see the constraints that are holding back the natural inclinations of supply, we could ease them to allow for more forms of shelter.
It might be my imagination, but I sense a subsurface tension in the teaching community around the issue of the extended Covid school closings. It lurks like other things you can’t quite detect: a high pitched dog whistle or the floor beneath your feet right before a quake. Or even more material things like the moisture on your brow and that earthy smell in the hour or so before thundershowers roll in.
As long as the virus is still taking lives, the topic is off the table. But soon everyone will be vaccinated. Soon the teachers will be taking account of where exactly their students are at in the curriculum. Some who normally enjoy the challenge of working with the most in need, may find their charges have have slid in arrears, past due even for assignments pre-Covid.
Without the structure of school, without the routine, without the expectation of someone waiting for them, recognizing them, without the the fun as well as the drudgery of the school environment, they simply stopped paying any attention to their education.
As an outsider looking in, it seems the teacher’s union towed a tough line. The virus put teachers’ lives at risk. The end. Apparently their work is not essential to the functioning of society. Decades of negotiating wages and benefits right down to each and every minute of their instructional day has made it easy to disregard any intent of the job and only see their work from a pecuniary point of view.
How the teachers who carry an old school sense of service to the community feel about this very privatized manner of handling their chosen profession is yet to be seen. Unions deserve credit for elevating teachers’ wages, and after all, spirit or no spirit, one has to pay the bills. Still–in years gone by, teaching was more of an employment of the heart, it involved a sense of duty, and was regarded as such.
So this cocooning of teachers away from the public while grocery workers and nurses became celebrated frontline workers, this buffering of their duties to educate seven, eight and nine year olds through Zoom screens can’t possibly fulfill the desire to be in good standing within the community. Some might feel the dignity of their work has been stolen out from under them.
Maybe when they were young pups trying to figure out their career choices, they absorbed the fact that teaching would pay less than other professions in business or law, but as a counter balance, they valued the sense of contributing to a greater cause. Teachers are trusted. Teachers are a source of advice. Teachers have the ability to play the role of a connector. At least for now.
For every minute of labor, the union has monetized their job. Perhaps the process has squeezed out any compensatory allocation to good will, to the noble cause. The power of the union is to talk in one voice. Then there is little hope of those within, who oppose its direction, being heard in any way.
This is all speculation on my part, of course! Classes are resuming, and by next fall all the soldiers will be marching to the old familiar cadence. Everything will be chalked up to the unprecedented and unanticipeted year of the plague. No matter. A little inkling persists. If you strip all the community value out of a labor force who is inspired by it, has worked for it, defends it; if you monetize every last moment of their day, at some point workers will revolt.
Whether intended or not, whether considered or not, the copyrights holders of Suess’ life work have realized a windfall. We can’t look into the hearts of men to know if they strategized for the money. Since Ted Geisel had no children of his own, we do know that these people are not his blood relatives.
I don’t think they expected the cash. They probably were horrified by the thought that they could be earning money off of anything of a systemic nature, and more than likely move in circles who feel the same way. Removing the books was a public service, a response, a tangible action.
Buyers thought otherwise. Some might say the buyers who pushed up the prices are part of ‘the problem.’ But I think most realize this is a group of people who feel this judgement-from-on-high of a beloved author is a miscarriage of cultural perspicacity. It follows a long list of similar actions that have yet to prove useful in tempering or solving this High-Stakes-Social-Issue (HSSI).
The fact remains that by withdrawing the product from the market, demand rose, and a pot of gold was found at the end of the rainbow. Indeed– signaling occurred. A signal to others who understand the social component of price and will now look for other opportunities to leverage and create their own pot of gold. It’s happened before. People were steered, profits were realized. Others found their nest egg fleeced.
Parents beware- Watch out for children’s books! First Laura Ingles Wilder’s memoires of life on the prairies of Minnesota and Wisconsin were warping young minds with an inaccurate portrayal of a free and self-reliant frontier. Now the linguistically entertaining word-strings penned by Ted Geisel are riddled with caustic racism.
Today’s price on Amazon for a copy of On Beyond Zebra is $650. What accounts for the 38 fold price increase? (Barnes and Noble still has the ‘out of stock’ hardcover listed at 16.99.) Cutting off supply seems like the traditional way to look at it. Stopping the presses from printing such offensive material indicates a future scarcity. This isn’t the first book to become dated so as to be dismissed by the publishers. Most of these tomes are simply forgotten, found for a few dollars on a table at a church sale.
In this case, the books are being withdrawn them from the market by those who hold their copyrights. On Beyond Zebra, however, is a relatively unknown Dr. Suess book. There are other discontinued books for sale by famous authors. Zane Grey’s The Vanishing America can be had for $3.79. Cass Timberlaine by Sinclair Lewis is posted at $5.39. And Pebble in the Sky by Isaac Asimov is $3 even. (So much to read–so little time)
The extra $633 dollars is the result of a social or community change. The premium for this copy, on this day in March, is a social component arrived at through the market pricing system we know as Amazon.
A recent report by LendingTree analyzed mortgage requests and offers in 2020 for borrowers across the 50 largest metros. The report ranked the metros by the percentage of total purchase mortgage requests received. The report found that millennials made up at least 50% of purchase mortgage requests in most metros.
The top 5 metros ranked by millennial homebuying popularity
#1: San Jose Share of mortgage requests: 61.8% Average down payment: $158,040 Average requested loan amount: $704,318
#2: Boston Share of mortgage requests: 59.1% Average down payment: $78,062 Average requested loan amount: $416,267
#3: Denver Share of mortgage requests: 59.1% Average down payment: $56,937 Average requested loan amount: $354,433
#4: Minneapolis Share of mortgage requests: 58.8% Average down payment: $38,833 Average requested loan amount: $252,163
The majority of the Greek Jews lived in the new section of the city which had sprung up on Mount Scopus outside the ancient walls, opposite the Sheep Gate. Accustomed to spacious houses, with gardens and colonnades, they could not find room in the old, crowded sections. The house of Miriam, sister of bar Naba, built in the Cypriot style, resembled a Greek temple; behind it was a garden, enclosed in a peristyle, and here she arranged frequent banquets for the leaders of the Greek-Jewish community of Jerusalem.
The drum beating earlier in the week about cancelling student loan debt was abruptly muffled by the president. In response to Chuck Schumer (D-N.Y.) and Elizabeth Warren’s (D-Mass) proposal to forgive up to $50,000 in student loans:
“I will not make that happen,” Biden said when asked at a Milwaukee town hall hosted by CNN Tuesday night if he would take executive action on loan forgiveness beyond the $10,000 his administration has already proposed.
Some people think student loan forgiveness falls into a moral category. Society has an obligation to advance citizens through education; that college is an extension of the k-12 necessity to set a youth up for a productive life. The debt should be waived on principle. Of course this gets a little messy post grade twelve, as vocational choices, and the education they require, vary tremendously. And for this reason I think free college will always be a non-starter.
But why waste good numbers when they are out there for consumption? The debt figures can be, and should be, put to good use. When aggregated up to the federal level they loose some nuance. But at the local level it maybe possible pull some levers and leverage a few social objectives at a time. The results maybe more interesting than a simple money transfer.
Case 1. Say there were two objectives on the table: student loan debt and career advancement. One would look for organizations at this intersection. There are hundreds of business associations in Minnesota. Local Chambers of Commerce might be first to mind, but there is the Iron Mining Association or the Minnesota’s Corn Growers Association or even local PTA’s. Say an association was given access to a pool of federal funds marked for student debt relief, with a catch. There is a trade involved. Once the Mining association, or corn growers, show proof of employment of a new-to-the-profession worker (for at least x-amount of time), then they can allocate relief to the student they deem eligible.
It’s a community grant (given to an individual) in exchange for making an effort to lift a worker up and into a new stage of professional development. Many of these associations have a history of giving out scholarships, and a process in place for evaluation. They are well regarded in their communities and have a reputation to protect in the administration of debt forgiveness.
The relief recipient advances economically from the removal of the debt. The business community can justify the extra work or training necessary to bring an inexperienced employee into their field. The new employee hopefully evolves to see the rewards of elevated employment and not just feel the demands of the additional expectations in a challenging position. All those who step outside their norms to make this happen find comradery with others not like themselves.
Case 2. Here’s another example. Say an elementary school attendance area is experiencing a sharp downward trend in enrollment–and the demographics confirm the trend to be long term. The risk of school closure is high. Closing a building is not only expensive for a school district, but the loss to a neighborhood can be devastating. Short term it brings angst to the families who now send their young children to a building out of the neighborhood. Long-term it can be difficult to reverse the negative impact from the closure.
Say the federal government allocated a pool of student debt relief money to the elementary school’s attendance area. Now imagine that there is a household with young children who would qualify to purchase a home in the area if a portion of student loan debt was forgiven. The local PTA in conjunction with a local mortgage bankers’ association could be in charge of distribution. This scenario leverages three objectives: debt relief, school support and housing.
Local control over distribution of funds could refine distribution in a way which engages incentives to accomplish other objectives within communities.
I’m a sucker for images, and these new graphic representations at the intersection of maps and data are lovely.
A consulting firm out of North Carolina, Urban3, has a new measure for assessing the productivity of land in an urban environment. It’s an interesting new twist.
Urban3 makes maps that show the value of city buildings on a per-acre basis. That last detail is the kicker.
“We make the models to provide information equity,” explained Joe Minicozzi when I asked him about his approach. “We show a financial picture of what’s going on with the cash flow. You see where the holes are, what’s doing well, what’s not doing well. You can’t see where you’re leaking your money if you don’t know what’s going on.”
The general process is to take the tax revenue on the section of land and divide it by a spatial measure. Under this calculation, downtown buildings are more ‘efficient’ than suburban malls with lots of surrounding acreage of asphalt parking spaces. And in this way the analysis has flaws. Consumer (pre-covid) enjoyed the ease of mall access. Downtowns discourage shopping traffic. So if the objective is to encourage downtown visits, an understanding of transit and traffic and parking would be more valuable.
Reframing a means of analysis is exciting, but there are many more features of the built environment than simply tax collection and land space.
Elon Musk has stated that 2021 will be a key year for the Solar Roof, with the CEO noting that its potential would be evident this year. Considering the company’s ongoing rollout of the integrated PV system and the development of better Solar Roof designs, it may only be a matter of time before more customers of Tesla’s flagship residential solar product would have more design options available.
Aesthetics is one stumbling block in consumers’ embrace of solar energy. A look that blends into the standard architectural asphalt shingles, or clay roof tiles, would be more consumer friendly than panels.
Attractive shingles will undoubtedly command greater appeal than shiny 24 x 24 inch panels set into a large framework.
Tesla’s Solarglass Roof tiles are already among the most aesthetically-pleasing PV systems in the market. A Solar Roof installation involves the setup of both PV and non-PV roof tiles, and according to Tesla, this could present some issues. Since some tiles do not have solar cells in them, there will be some angles or times when it is possible to distinguish which tiles have solar cells and which do not.
Tesla also produces a lithium home battery, called a powerwall, which can store energy from the panels to be used after dark, during peak pricing hours.
The Tesla Powerwall pairs well with solar panel systems, especially if your utility has reduced or removed net metering, introduced time-of-use rates, or instituted demand charges. Installing a storage solution like the Tesla Powerwall with a solar energy system allows you to maintain a sustained power supply during the day or night, as long as you store enough power from your panels when the sun is shining.
With cost for the battery alone running around $8-9K, installation of an entire solar system is upwards of $20K. For comparison, a forest air furnace runs around $4-5K. That said, people pay extra for all sorts of social reasons. They use their son-in-law for their mortgage despite higher fees, they buy Girl Scout Cookies (OK, they are delicious too) and bid triple the value of a vacation package at a charity auction. There is an additional expense in buying organic vegetables and sometimes loyalty to one’s barber requires a drive across town. There are many circumstances where one pays above the going rate so that a portion of the price supports a social objective. Still- the premium has its limits. And solar power isn’t quite affordable enough to reach the mainstream concerned, yet.
In the end it is all about the payback and reliability, especially in a harsh climate. Natural gas is very affordable, but its infrastructure is not available throughout the state. Homes that rely on electric baseboard heat will most likely be the first to tackle the significant upfront investment and convert to solar.
Pioneer Press North Dakota had adopted a law, proposed by the state’s Industrial Commission that oversees oil, gas and mineral removal, that gave energy companies broad power to continue injecting salt water, an unwanted byproduct of their drilling, and added rights to pump carbon dioxide deep underground and leave it there for eternity. This is becoming important as the cheapest method of “carbon sequestration,” which is deemed vital to reducing greenhouse gas emissions.
The law was very favorable to companies wanting to inject. It stiffed owners of land overlying the areas that might be filled. This created strong opposition, and a landowners association challenged it.
North Dakota had made an environmental claim on the subterranean space, but the landowners, who felt shafted by the fracking boom, said not so fast. They wanted in on the deal that seemed to pad everyone else’s pockets. So who owns the ‘pore space’ and who gets to benefit from it economically?
In mid-January, a state judge amped up the controversy in a broad decision favoring the landowners. He struck down the whole law as violating both the North Dakota and U.S. constitutions. He ruled it was a “taking” of private property as banned by our Fifth Amendment.
One can speculate on the line of thinking the legislators in North Dakota may have been following. Since everyone would benefit from the purging of by-products into the depths of the earth, than the assignment of the use of pore space to the energy companies is fulfilling a traditional public good.
As I’ve said here many times before, I do not believe in natural public goods. And this is just another example. Although the act of burying the carbon dioxide has a positive environmental outcome for the citizens of North Dakota, it is the land and the rights attached to the land that are under discussion. The land is privately owned by the landowners.
My view is that what is pubic and what is private comes about through tradition and legislation and cultural norms. In this case the courts decided. As the author says, there will be more to follow regarding “pore space.”
Legal scholars will write scholarly papers and economists will construct mathematical models. There are precedents in water and oil laws going back decades, but compressed gases that should stay there for millenia differ enough to open new controversy and give topics to hundreds of grad students who need thesis topics. And the outcomes will affect all of us.
It’s old news that folks having been abandoning New York and San Francisco. Not surprisingly many of these coastal creatures are staying in the east or the west.
LEAVING NEW YORK CITY
Top destination cities for U-Haul customers leaving New York City during the pandemic include Bridgeport, Poughkeepsie and New Haven. Outside the Northeast, the top destination is Chicago in the Midwest and Atlanta in the South.
The top 10 states DIY movers from New York City are migrating to are: New York (outside NYC); New Jersey; Pennsylvania; Connecticut; Massachusetts; Virginia; Maryland; Florida; Rhode Island; and North Carolina.
LEAVING THE BAY AREA
Top destination cities for U-Haul customers leaving the Bay Area during the pandemic include the Sacramento/Roseville corridor, San Diego and Stockton. Outside of California, the top destinations are Reno, Las Vegas, Portland, Phoenix and Seattle.
The top 10 states DIY movers from the Bay Area customers are migrating to are: California (outside the Bay Area); Nevada; Arizona; Oregon; Washington; Colorado; Texas; Utah; Idaho; and New Mexico.
What’s nice to see is the middle of the country states filling out many of the spots in the top 20. A bunch have also moved up significantly in their standings.
While the government will need to employ short-term measures to avoid a wave of displaced households, one major step toward resolving the underlying problems in the housing market would be repealing an obscure 22-year-old addition to the Housing Act of 1937, the Faircloth Amendment. Passed in an era when the reputation of housing projects was at a low, the amendment prohibits any net increase in public-housing units.
Say an individual, Bob, is concerned about a public good, like the environment. He decides to make a new year’s resolution to do something about it. Over a two to three year period, he activates others in his industry to legislate a testing requirement that costs the consumers, say, $200 on average per transaction. Note that this organizing and petitioning and writing communications and attending meetings was all done outside of the pay-check sphere of life.
One of the objectors to the added commission-for-the-public-good points out that, other than providing information, the testing will not give rise to any tangible reductions in green house emissions. Bob and his cohorts respond that doing something is better than doing nothing. Is he right?
Now let’s say that instead of doing the testing one could give the $200 to the client to not use their personal vehicle for a month, or to not take an airplane trip. In both scenarios there would be a measurable and immediate impact on green house emissions. Given these choices, it’s fair to say that there are other ways to spend $200 which would result in a greater impact on the goal to reduce global warming.
Numbers must be run so the public has a means of comparison. While everyone is working on (lobbying for, debating in favor of) one idea, other more valuable ideas are neglected, omitted from the realm of public consideration. Even though no one received payment for their time, the capacity of a community to engage and respond was tapped. So despite Bob’s sincere interest in climate change, doing nothing is, in fact, better than advocating for an unsubstantiated claim.
Now let’s say Bob was particularly talented at organizing and galvanizing folks around a cause. And due to this success he continued to seek approval and status through this type of work. The impetus for action transforms to status seeking, increasing Bob’s private persona, versus the stated tangible impact to any group concern. Now, in an error of commission, a form of corruption, starts to germinate.
The answer is not to stop the Bobs of the world. Hardly. The intent of this blog is to encourage the meaningful enumeration of choices; to clarify the resources used as inputs and record the increases in public capacity and capital; the intent is to provide the information necessary to steer Bob’s ambitions to the most productive choices.
In South Africa a start-up called Bitprop is helping with affordable housing by building and securing tenants for backyard rental units (in return for a percentage of the income stream from the rentals for a set number of years).
Our duties include locating investors, drawing up professional building plans, sourcing reliable local builders, and enforcing good environmental practices. Furthermore, we work with the homeowner to develop landlord, financial and entrepreneurial skills.
It is estimated that 30 million people in South Africa do not have formal property titles to their homes. So a significant outcome of the process is securing a recordable claim to the property for the owner.
Bitprop works to “Enable micro property development at a macro scale”. We want to prove that previously ‘invisible’ property assets, which are not recognised by normative legal or financial institutions, can be developed into valuable investment opportunities. We do this by taking each homeowner that we work with through the process of securing their title deed.
The focus is on generating income from the renters. But property ownership does more for homeowners including incentivizing repairs and improvements. Perhaps, more importantly, the titling process enables people to buy and sell their property more freely should their circumstances warrant a change. If Bitprop is as successful as they wish to be, they will create a valuable public good.
Our dream is that we do this so well—because we have the commercial incentives to do it well because if we do, the risk in our property investment goes down—that we, on a voluntary, private basis, start mapping land, step by step, and then we get the council to acknowledge this as a low-cost, digital- and- technology-based title deed.
This afternoon, as a lingering glow alights the World Trade Center and the lights go on at the Empire State Building, as the glimmers extinguish off the Hudson River, and the sun’s rays slide down New Jersey, Pennsylvania, Ohio, across the prairies, and silhouette the mountains of the West until finally slipping off the coast of California, Oregon and Washington, as the rays sink past Hawaii and into the Pacific, we say goodbye to 2020 with a wave. And a wish that we could give it a good kick in the petuti.
But this year allowed me to start this blog and I am very thankful for that. Readers have shown up in the hundreds, well over my expectations. I have relished every like and comment. Thanks so much for visiting.
The most popular article hands down was Is it so simple? A response to Nathaniel Rachman’s article in Persuasion allowed me to unabashedly promote the view that drives me to write this blog. These last three months have been devoted to laying some ground rules to how things work. There’s really no point to continue, if folks don’t see the definitions clearly of the economic nature of public and private transactions.
Since this is an economic philosophy I need to get around to tying it to material values, and I will get to such an accounting in due course. I could bring in the numbers, and show how they are assigned to forms of capital. But should people not accept the actors and the types of activity they do, all will be explained away, talked over. There will be references to cloaking and embedding and behavior.
For people to see the hard cash, they will have to see that private individuals employ time and resources to public endeavors everyday throughout; that governments are riddled with private transactions everyday throughout; that businesses develop goodwill on their balance sheets and accommodate labor demands everyday throughout; that associations are motivated by private ambitions while supporting the group’s goals everyday throughout. Until there is an acknowledgment of this type of dual structure–there is no point to assigning slices of material wealth to each and every activity.
Economics is not just represented with dollars. There are two natures to transactions. The value does show up in capital and dollars, most obviously when being externalized or internalize. Although-that moment is but a snapshot in time, a frozen price point, that could be simultaneously the result of the in-hand trade as well as the tapped capacity accumulated over generations. Hence the necessity to understand time.
For a generation, those who control the public purse have developed a party line, with nationwide control of talking points. They’ve developed an activist type of one issue dominance, with the devastating inability to see subtle trade-offs. They’ve basically obliterated the concept of varying degrees of importance. Covid has made this glaringly obvious.
So happily ring in the New Year! And ring out the old ways, while keeping an open mind to the new.
Katherine explains that the title of her new book, Neighborhood Defenders, comes from the notion that people who show up at city council meetings feel they are speaking on behalf of their neighborhood; they view themselves as representatives of that public.
So, first on the motivation side, the term NIMBY implies sort of a selfish motivation. It implies, Not In My Backyard, a very individually motivated view. And, in our research, we actually find that the folks who show up to oppose the construction of new housing often view themselves as representing their community’s interests and are motivated by protecting their neighborhood, their surroundings. Right? So, their motivations are not so individualistic.
The conversation flushes out the reality that people who have time to devote to the work of public affairs do not necessarily reflect the width and breath of the constituency. In fact there are noticeable groups missing from these planning and approval meetings. As Russ says:
So, talk about that tension between the idea behind saying ‘a public hearing.’ Wouldn’t you want a public–I mean: Let the public be heard. And yet it’s not really the public.
Groups are further delineated in the failure of the California legislature to approve SB 50 which would have streamlined the approval process for developers. It seems that the environmental folks found common ground with NIMBY’s.
So, one set of interests, which doesn’t surprise anyone, would be opposed to something like this is communities like Beverly Hills. Like, very privileged places with lots of white homeowners who are strongly opposed to the construction of new housing. So, those folks were like, ‘No, we do not want to have fourplexes all over the place here.’ So, they were a natural oppositional constituency.
But, other groups also came out in opposition. So, Sierra Club and a few other environmental groups were strongly opposed because they thought this would lead to the degredation of sort of existing green spaces.
And, that I think, and this is the oppositional group that was to me most interesting, is sort of left-leaning tenants’ rights organizations and some of the socialists organizations in California that are quite powerful, especially in Los Angeles and San Francisco.
Those groups worried that this up-zoning would actually lead to gentrification. If we think about areas in Los Angeles that are near transit stops, that many of those are less -privileged areas with larger Latin X or black populations. And, that those were places that might face development pressures, and, you know, the construction of new luxury housing, should zoning codes be relaxed.
And, so those really diverse constituencies all came together. Both times they killed SB-27 and they essentially killed SB-50 as well.
As they pull apart the thorny issues around community support for affordable housing, they not only talk groups, interests and work, but also how the public’s impact on timeframes have economic consequences.
Usually it would take like three to six months, I assume, to build a grocery store–I don’t know, maybe. But, for some reason it takes forever. And, of course the answer is, ‘They didn’t get the permit yet. They’re working on it.’ But, talk about–these things, some of them are ten years. And, after the 10 years, they get a building of four units down to three. But these are often 90 units of affordable housing were planned and they end up with, like, 40, ten years later.
In addition to these public sphere definitions and mechanics, they talk externalities and corruption. Well worth a listen!
The November 2020 tally of Realtor members of the National Association of Realtors totaled 1,460,397, making it the largest trade association in the U.S. There are just shy of 21,500 Realtors in Minnesota alone. The group is nonpartisan with a stated “mission … to empower REALTORS® as they preserve, protect and advance the right to real property for all.”
Maintaining property rights, so that their clients can buy and sell homes and investments, is an unwavering shared value amongst this group. Not only because it facilitates their clients’ and in turn their own private interests, but also because stagnant unproductive real estate becomes a drain on public interests in the form of crime, blight, and inefficient use of public infrastructure.
The good and the bad of it is that once you build an open and reliable system, everyone wants to use it–including the criminals.
Globally, real estate is one of the “laundromats” of choice for criminals seeking to legitimize their ill-gotten funds. Using shell companies and other shady venues, they annually funnel more than $1.6 trillion into real estate investments around the world. Despite federal efforts to crack down on the illegal transactions in the United States, money launderers continue paying top-dollar for purchases, driving up real estate prices in many cities.
NAR and other housing groups are urging Congress to stem the tide of dirty money by passing effective anti-money-laundering legislation. The organization is also launching an education campaign to help Realtors® identify the risks to their businesses and use best practices to protect themselves against liability.
More dollars chasing real estate means higher prices. Since a pricing system is dynamic and interdependent throughout an entire network, it means higher prices across the market, not just in apartment buildings or the venue of choice for foreign or domestic racketeers. So we could say that money launders are externalizing unaffordability to lower income homeowners, while internalizing the benefits of our property rights institution–including the work done by NAR and its members.
Wouldn’t it be interesting to know the tranche of the value that illegal activity adds to the price of a home, apartment or investment property? Even if it were only an estimate. Across a metropolitan area this maybe a small amount say half a percent, or around $1500 on the Twin Cities’ median priced home. Barely perceptible with all the other costs and expenses involved in a home.
But if the criminals did their business primarily in one neighborhood, (a neighborhood where people don’t have time to wonder why a property is left vacant, nor know where to file a complaint for snow covered sidewalks) their stake could have an outsized impact. It is in these locations that a large number of REIT’s and creatively named groups tend to appear, especially since the recession of 2009. If a large sell-off of their position swung pricing, say ten percent, it would have a destabilizing effect, especially if that neighborhood was already experiencing a variety of negative externalities.
Note the groups. There is the overall housing group of buyers and sellers (personal or investors) who are buying real estate to be used as places to live. The pricing system is a reflection of the value property commands as places of residence. The criminals are not participating in that market. They bring money into the market because it is reliable environment to launder their funds. While the criminals internalize this as profits, first time buyers in the large group can no longer afford to buy a home.
The presence of washermen (and women) in the marketplace also necessitates an increase in the stream of funding used to subsidize those of the larger group who are unable to provide for their own housing. It would be useful to know some of these numbers. Knowing the financial drain of the money launderers on our real estate market tells us how much the Justice Department can spend to pursue and capture these ne’re-do-wells. This is the housing justice we need to see happen.
Not by dictionary.com’s definition: [ˌjentrəfəˈkāSH(ə)n] NOUN the process of renovating and improving a house or district so that it conforms to middle-class taste.
That doesn’t sound too controversial. People go in and clean up an area, make it more livable. There must be more to it to explain how the word gets heated up and shot out like a bullet. This popped up on the CDC site under Health Effects of Gentrification:
Gentrification is often defined as the transformation of neighborhoods from low value to high value. This change has the potential to cause displacement of long-time residents and businesses. Displacement happens when long-time or original neighborhood residents move from a gentrified area because of higher rents, mortgages, and property taxes.
Gentrification is a housing, economic, and health issue that affects a community’s history and culture and reduces social capital. It often shifts a neighborhood’s characteristics (e.g., racial/ethnic composition and household income) by adding new stores and resources in previously run-down neighborhoods.
I’m truly not sure how the Center for Disease Control underwrote a housing topic. Gentrification= Disease? (to be fair, they do start the page with this disclosure: “This website is archived for historical purposes and is no longer being maintained or updated.”) However this definition does a great job of setting up the issues which incite a passionate response. And setting up the issues is all this first post will do for this complex scenario.
Straight off, in the first line, is the accurate observation that the process of replacing roofs, tightening wobblily rails and putting in new windows increases property values in a neighborhood. This should not be controversial–ideally owners at all levels of housing can keep up on maintenance (and if you own a home you know that this is a dependable demand). The controversy arises when the change in the value of property, and hence rents, makes it unaffordable to the current residents.
Be sure to understand that this is about value, and who ends up with it. The motivation to build equity drives, in part, the purchase and renovations of a home. A home to do with as you choose and to make your own. Property owners increase their net worth when more buyers want to move in. So gentrification is a good thing, not bad for those whose names are on the deeds.
The passionate objection to gentrification lies in the garbled mess of the second paragraph. Let’s try to pull it apart–but first understand the scenario. An investor, or a homeowner, has to receive some compensating factors to dive in and do the work to repair a home which is begging for all the big ticket items: new heating systems, siding, windows, roof. And that’s before you even get to all the interior stuff like new kitchens, bath, maybe even rewiring the old knob and tube wiring which is known to cause house fires. The compensation is a higher valued home.
To turn a whole neighborhood, where the majority of houses find themselves in a similar state of deferred maintenance, would take a while. We’re not just talking one spring sales season following a year of living with contractors coming and going. Elevating a neighborhood to a new standard is pushing a decade’s worth of work.
Gentrification is described with a sense of immediate turnover, which simply isn’t how it happens.
What is upsetting to people is that a sweeping renovation to an area produces a negative externality for the folks who were benefiting from the low cost of substandard housing. Furthermore, if these renters leave the area, they may leave behind favors accumulated through other social groups with geographic anchors. They take a loss for the chits left on the table for non-fungible work.
At the core of much of the renter’s rights activism you will find this concept of value and who gets it. There is a sense that despite contributing to their neighborhoods of their time and activity, renters fail to earn value. Only property owners do. So the policy is to divert equity from property owners to renters through initiatives like TOPA.
We can do better. But first we have to understand how to calculate value.
TOPA (Tenant Opportunity to Purchase Act), a proposal to offer renters the first right of refusal when their landlord wants to sell the property, is back on the front burner at Minneapolis City Hall. Some politicians see giving tenants part of a landlord’s property rights as a way to mitigate the expense of housing. The only perspective where this is at all rational, is from the view that property owners are simply sitting on a sack of gold coins which they refuse to share.
A story which is meant to support the tenant’s first right of refusal as a valid policy is told here: Tenants of Five Minneapolis Buildings Now Own Their Homes. Yet this suite of buildings was owned by a truly poor landlord. And because the guy was a fraud, the tenants acquired the buildings without TOPA. It will be interesting to watch the unfolding of this tale as more than likely these properties are run down and will have expensive repairs in the coming years. I’m expecting buyer’s remorse.
To understand the process and in turn the length of time a property could be tied up before sale, here are TOPA process charts from Washington DC. The financial power behind owning an asset is the ability to sell it and obtain your investment. When that ability is in question, markets do not respond well, hence value is affected. The TOPA process is considerably uncertain.
I attended this TOPA forum at the UMN presented by CURA. The presenters were Dominic T. Moulden is a longtime resource organizer at Organizing Neighborhood Equity and Michael Diamond, Professor of Law at the Georgetown University Law Center, teaches corporations, contracts, and a seminar in affordable housing. The non-profit housing community in attendance seemed skeptical.
NBC news covered how TOPA rules tie up the sale while parties arbitraged the TOPA rights to the highest bidder. (video) Although in effect since the 1980’s, it was more or less forgotten until Andrew McGuire Esq started a business ‘getting renters maximum dollar’ for their TOPA rights. He estimates it’s a 100 million a year market.
In San Franciscothey call it COPA. And it is not the tenants who make the purchase but a pre-selected non-profit. Also from 2019:
If approved, the COPA would give the first right to purchase (this includes a first right to offer to purchase and a first right of refusal to match an existing offer) vacant lots or residential rental buildings with three or more units to nonprofit housing organizations. This means that when an owner of a multi-unit building puts it up for sale or has received an offer to purchase, nonprofit housing organizations that are pre-selected by the City would have a chance to bid on the building first or to match an existing offer.
Externalities can be difficult to calculate. What is the cost per person to a community exposed to smog, or the damages from water laced with lead in Flint? Often times these figures are settled in court. But management consulting companies can also be in on the game. Take this story about Purdue Pharma as reported in the New York Times.
When Purdue Pharma agreed last month to plead guilty to criminal charges involving OxyContin, the Justice Department noted the role an unidentified consulting company had played in driving sales of the addictive painkiller even as public outrage grew over widespread overdoses.
Documents released last week in a federal bankruptcy court in New York show that the adviser was McKinsey & Company, the world’s most prestigious consulting firm. The 160 pages include emails and slides revealing new details about McKinsey’s advice to the Sackler family, Purdue’s billionaire owners, and the firm’s now notorious plan to “turbocharge” OxyContin sales at a time when opioid abuse had already killed hundreds of thousands of Americans.
Later in the article they tally those deaths up to 450,000 since 1999. Those, of course, are just the fatalities. There are no numbers offered for the hours that went into counseling the addicts before they OD’ed, or all the lost productivity an addict can bear on their support group. Neither of these costs were the costs concerning the McKinsey accountants. The number crunchers were concerned with the amount necessary to buy Purdue Pharma’s distributers, the local pharmacies like CVs or Walgreens, out of the discomfort of grieving mothers.
The presentation estimated how many customers of companies including CVS and Anthem might overdose. It projected that in 2019, for example, 2,484 CVS customers would either have an overdose or develop an opioid use disorder. A rebate of $14,810 per “event” meant that Purdue would pay CVS $36.8 million that year.
I’m not sure how one of the most prestigious consulting company in the world came up with $14,810. I’d truly be curious to know what went into the formula to calculate this externality. What dollar transfers were tracked between the group of heartbroken survivors and their pharmacies following an overdose that added up to $14,810? How did the rebate get summed up and presented to Pharma’s management as a viable expenditure in the form of a rebate?
Maybe the point is that an accounting of this nature is already in play. If a market price was calculated for a social cost buyout in this scenario, most probably it is a frequent calculation. So what is the McKinsey method? Inquiring minds want to know.
Parochial schools are doing well, from what I hear, in the battle to attract and maintain a student body. They opened on time in September with increased enrollment, and have stayed open through this Thanksgiving holiday. There will be a break in in-person learning now (like all other schools and universities in the area) until January. My sources report no sizeable outbreaks or health concerns for either the learners or learned.
The 91 Catholic schools in Minnesota compose the 4th largest district in the state. This unexpected swelling in enrollment is a benefit to their bottom line. As they do not receive the per pupil funding which finances the public schools, they are on their own to market within their faith community as well as to those who value smaller class sizes. In some cases, sports families are attracted to an increased probability that their athlete will make the varsity team.
The use of direct mailings to reach families throughout the area seems like a good fit. However, when a large public school district, where attendance is dictated by place of residence, pummels direct mail right over school boundary lines, it feels objectional. Why is that? Both the schools are in the business of delivering education, both require funds to operate. Attracting students is the same as attracting customers–no?
Customers use private funds to purchase a good or service. The parochial schools are offering a service, one that complies with the standards set by the state, but has been customized to the requirements of a specific community. The funding that follows a child to the public school district they attend is not private, it is taken from a pool of funds which is collected under mandate to educate all Minnesota kids.
Plus– it isn’t just the funding allocated per child that is lost when a family sends their offspring out of their district. Since busing is only offered within the school boundaries, it is a given that one parent is available to drive them to and from school—or will once the whole virus thing wraps up. By self-selection these parents often donate their time to school activities, fund raisers, and all those extras efforts that make an educational community stronger.
So when a school district pumps a bunch of dollars into a direct mail piece with messaging along the lines of, ‘Hey, we’re better, come on over,’ they are drawing students as well as high-social-capacity families to their district. Which means they are draining adjacent districts in an equal amount. On net, the dollars spent on this type of private business marketing is not fulfilling the state mandate to educate all students. But rather is congregating the haves and leaving behind the have-less’s.
The parochial schools are working in a private sphere even though they are fulfilling a public obligation. So it is fitting for them to use private strategies. Public schools are working in the public sphere so using private methods sets up externalities.
All things considered, it has been an incredibly strong market for residential real estate sales in 2020. The spring started strong but was shut down along with everything else in March when the virus leapt the oceans and appeared in great numbers on the US coasts. Home sales were considered an essential service, but the apprehension of allowing strangers into sellers’ homes for showings slowed down the process.
This data from Northstar MLS shows the dip in April and then the take off of activity starting in June.
Issues that seemed to be on buyers minds when they came through open houses were 1. room for home offices 2. new flexibility in distance to job location 3. downsizing out of larger homes to avoid maintenance concerns. This broad range of interests led to almost all types of properties being snatched up, often in competitive bidding. Which has led to a sharp decline in properties available for sale.
In almost all markets, except the downtown Minneapolis condo market which is up 21.3%.
I think there is little dispute that Covid has dampened the amenities which a downtown offers. The lack of night life and restaurants, the lack of need to be blocks from work or near light rail for a quick trip to the airport. By displacing the relative value that residents place on these features versus a whole host of other variables that go into a home purchase decision (including square footage, proximity to family and so on), more owners are exiting the downtown community than joining it.
Nailing down the market prices on each of these amenities one-by-one would take data that is not readily available. Data sets for the performance of public sector goods would have to be statistically spun out to reveal levels of significance. An analysis of prices of these and other amenities which overlap through a variety locations would provide an opportunity for index setting. Due to the extraordinary living conditions in 2020, there is an opportunity to obtain counter factual data for many core neighborhood utilities. It is a unique opportunity.
My son is an engineering student, but for his liberal arts requirement he is taking a course on Imperialism. The course work tells the tale of western European economies growing so that they ventured past their countries boundaries to extract resources from Africa and Indo China and the Caribbean. The model describes a dominant group taking hold of a subservient group to help themselves to resources for commercial gains. Extraction isn’t just for the history books. Consider this fictitious story.
Let’s say there is a fairly large association for a trade group. It has a sizable staff and a fair number of members volunteers. There is also a multi-decade volunteer–let’s call him/her Jo Johnson– who through time and understanding has proven agile in eliminating dissenting voices and bullying staff. There are also dues, and committees, and boards, and political action.
The associational group has clout in a community due to its size and ability to organize. It also has some resources to pledge toward those seeking local office. Jo Johnson’s influence at the association serves to direct funds to candidates who, in turn, respond with business referrals. This action of using a group resource and trading for a private commercial gain describes a process of internalizing a public asset into a private, fungible transaction.
Now some may say–this shouldn’t be so! There are ethics to think about.
But– this judgement, this evaluation of the trades in play, is best evaluated by members of the group–not outsiders. Some members maybe thrilled that Jo Johnson is able to devote countless hours wage-free to the association, and thus, any extracting done is small compensation. The members of the group may feel the clout of the group is maximized in this very fashion, giving each member the best possible slice of the overall pie.
It is really all about transparency. If members knowingly make the decision to defer to Jo, then all is right in the world. If decisions have been made for them because Jo Johnson has become so skilled at shaking loose the opposition by throwing up all sorts of meeting delays and rescheduling (it is a volunteer activity after all), and has the power to develop allegiances by promising titles like a board position (a dusty old king of sorts selling titles), then the peasants should revolt.
The process of extracting value from a group and in doing so moving a resource from a public sphere to a private transaction occurs all the time, in many different scenarios. It is a trade. Whether a trade is in equilibrium requires, not moral judgement, but transparency and an ability to evaluate the options at hand.
Given this is my 55th post I’d like recap the home-economics model. As explained on the About page, this site addresses the mechanics of value creation in the pursuit of pubic goods. In order to show these features, I must persuade you to shrug off a few established notions. The first is that the nature of goods is not public, nor club, common, or private (the purpose of the What is Public-What is Private posts). All goods can be employed in either the public or the private sphere. The second is that there is no such thing as market failure.
To start at the beginning, all of economic life is restricted by the resources this crusty old orb offers us along with what we can make of them with our time and talents. Limited resources applies both to goods employed in a private environment as well as those contributed toward community needs. Within these confines there are two types of activity creating a public sphere and a private sphere. One looks inward, behaving with a public (non-exclusionary) nature and the other activity looks beyond the group behaving in predatory fashion. This private sphere is well studied.
Let’s work backwards on some posts. Yesterday’s topic–Money and Safety— centered around the city’s approval process to fund more police force hours. Consider the groups. The defunders would argue that city money for police has resulted in providing safety for the racial majority (Gr 1) of the citizens (Gr 3) yet is failing to do the same for the minority groups (Gr 2). In light of this objection these city council members refuse to fund the police.
As an aside, this claim does not hold true. For the past five months the political climate in the city has severely limited the police’s capacity to maintain peace. The result has been a tragic loss of life primarily in Gr 2. This a new set of data contained in Gr 3 shows that it is group Gr2 which reaps greater (despite severe flaws) benefits than Gr 1. In addition to loss of life, Gr 2 has also disproportionately experienced a loss to businesses, where it is estimated 200 businesses burned or were damaged during the riots. The businesses suffered an externality from (lack of) services from the public sphere.
Consider the post A table set for adversaries. The outdoors women and men (Gr 1) are often at odds with urban arts people (Gr 2) over issues like gun control which increases the cost to own firearms without a clear benefit in reduction in crime, and funding for cultural events which requires subsidies to be viable, and outstate regulation of the environment which cuts jobs. Although Gr 1 and Gr 2 are often competing for resources they hold together in conjunction with all Minnesotans (Gr 3), by showing where Gr 1 and Gr 2 had a common interest, a funding stream was extracted from two very different associational groups.
Fire Station 2 speaks to the structure of firefighters (Gr 1) who devote their time and expertise at a reduced rate to protect the lives of property of their community (Gr 2). They get paid a below average hourly rate, which is a private transaction. The firefighters’ extra wage potential is community (Gr 2) work. Their services are made available to everyone (Gr 2) which makes this a public service.
Having established the need to look for groups, and identify whether the groups are engaging public or private economic activity, I’ll be posting more on externalities and internalizing. Both of these terms describe the appearance of positive or negative effects which show up in one sphere from a transaction in the other (Ex. private corporation pollutes the water causing a negative expense to a public good owned by the surrounding community). Then we can get to the fall of market failure.
Alex Tabarrok recognized the passing of WV Judge Richard Neely on his blog site today. He credits the judge’s candor with getting his first paper published in 2003 in a good journal. His paper, written with Eric Helland, argued:
We argue that partisan elected judges have an incentive to redistribute wealth from out‐of‐state defendants (nonvoters) to in‐state plaintiffs (voters). We first test the hypothesis by using cross‐state data. We find a significant partisan effect after controlling for differences in injuries, state incomes, poverty levels, selection effects, and other factors. One difference that appears difficult to control for is that each state has its own tort law. In cases involving citizens of different states, federal judges decide disputes by using state law. Using these diversity‐of‐citizenship cases, we conclude that differences in awards are caused by differences in electoral systems, not by differences in state law.
But it is the judge’s very own words that confirm his economic motivation in his rulings.
As long as I am allowed to redistribute wealth from out-of-state companies to injured in-state plaintiffs, I shall continue to do so. Not only is my sleep enhanced when I give someone’s else money away, but so is my job security, because the in-state plaintiffs, their families, and their friends will reelect me. (Neely 1988, p. 4).
So what does this have to do with a post I recently wrote about Embrace, a women’s shelter in Wisconsin? The shelter’s director set up a GoFundMe page after she alienated local police by prominently advertising BLM signs around the facility. The goal was to replace $25K in funding that was pulled by the county. As of this morning the kitty is over $100K with a stated goal of $112K. I’m not sure how she picked that number, if there has been some sort of marketing strategy, to keep ratcheting up the goal as long as donors respond.
What I want people to see is the structure of the groups and the motivations for the economic activity between them. (It’s all about the group) In both cases there is a greater federal group. In both cases there is a smaller group; for judge Neely it was comprised of the citizens of WV, for the shelter it is the community which is within their service area. Both the judge and the director are extracting money from the larger group. One is unabashedly leveraging the law for the benefit of his constituents.
I question whether the other is providing full disclosure about the economic transaction that is still underway. Is there an assumption on the part of the greater public that their dollars are supporting an organization which serves a public effected by the concerns of BLM (whereas only a fifteenth of one percent of the population in this county is African American)? Or does the greater group understand they are funding a director who simply shares a similar ideology but has no power to actively contribute to the welfare of BLM?
In order to detect deceit or inefficiencies one must delineate the groups. One must also acknowledge the public nature of the motivations which drives the activity within the group–that anyone within the group receives access to the benefit. The judge, for example, rules in this way for all his constituents who found themselves in a similar conflict. That the services of the shelter are open to anyone within its service area.
Neither the judge nor the director evaluate whether the taking of resources from the greater group harm or diminishes services in some way to other members of the greater group. Their pursuit for funds is fulfilled under the nature of a private transaction, no different than how a corporation pursues funds for their services. This mode of competitive behavior happened recently when states bid against each other for PPE’s in the early days of the covid-19 crisis. Although they work as agents for a public, their obligation for such is only to the inner group.
Judge Neely was one of those confident individuals who scoffed at the traditional method of holding group norms behind a cloak of anonymity. For this we can be thankful, as his words confirm this social economic group structure and the motivation that drives its behavior.
I’ve been working my way through a list which claims that economic goods fall into four categories– private, club, common and purely public– in order to debunk a misconception on how we sort economic activity. Web oriented services such as Wikipedia, NetFlix and website design hold a variety of placements in the groupings. I think it is safe to say that all three of these goods are private, since, according to a UN report more than half the world’s population is without internet service. Any good provided via the web is private to only the wealthy half of the world.
A resorting mindset is needed in order to tackle vision centered around corporate responsibilities to stakeholders, such as those described in a recent article on the American Purpose by Robert Madsenand Curtis J. Milhaupt: The Expansion of Corporate Responsibility.
Increasingly, advocates of reform argue that businesses should be concerned about their “stakeholders”—not just shareholders but also workers, suppliers, customers, and society at large. The new movement, which is often termed “ESG” (Environmental, Social and Governance issues), is not limited to progressives and liberals, but has made substantial inroads in the commercial and financial community as well. After decades of espousing shareholder capitalism, for instance, in 2019 the Business Roundtable declared a “fundamental commitment to all of our stakeholders” in order to “better reflect the way corporations can and should operate today.”
Stakeholders capitalism, “ESG” or benefit corporations are all a grappling to give this movement a name. What is it that corporations, which are intentionally private organizations, accomplish towards larger societal goals? Madsen and Milhaupt point out that corporate America has a history of such ventures, though most of us do not need convincing that capitalism works favorably upon social concerns. Even the most fervently socially-minded agree.
Yet the authors go onto express trepidation over who sets the agenda and whether expectations can be met.
Although hopes are high for what corporations and institutional investors can achieve through greater emphasis on stakeholder needs as opposed to narrower shareholder benefit, few of the ESG reformists have bothered to define what the movement’s precise goals should be. This matters because in the absence of a concrete agenda people tend to assume more than is possible, and the inexorable failure to meet those expectations generates dissatisfaction and the possibility of political backlash.
Here’s the thing– there is an entire marketplace of social concerns out there to choose from. No matter what the corporate entity decides to take on, the important step is to collect the data and account for it.
*Decide to devote its social ambitions to rectify labor inequity? Account for the extra training and support and follow the employees long-term gains.
*Decide to devote their legal staff to ironing out the thorny wrinkles in cross-country trade and all the implications of contract defaults? Account for time logged while on the company dollar, and the losses taken when the contracts fall through. Track how establishing standards allowed smaller firms to enter the market with confidence.
*Decide to use the idle time of their tradespeople and send them to a financially strapped public schools to tighten up all those leaky faucets? Account for the hours spent and estimate the savings in city water running down the drain.
The opportunities are everywhere and the beauty of the system is not to be hampered by a particular agenda, but to attack the issues which are most readily facilitated by the business and the people who make it up. To find the passion which galvanizes the employees to give of their time and expertise.
But-this is important- we can’t know how it all shakes out until it shows up in a tabulation somewhere. The trick is that the mechanics are different for social activities versus the mechanics of for profit transactions. That doesn’t mean they can’t be held to account. Already things like ‘good will’ show up on balance sheets. Think of the possibility of two colors of ink on the net income statement; one for profit and one public profit. The former total is by far the lion’s share, as by definition corporations exist to produce financial gain. Yet knowing the later, being able to track, tally, and compare it, will be empowering.
Tracking will also play into Milton Friedman’s emphasis on transparency. Through open disclosure, reports identify the social goals tackled and the benefits of eventual outcomes. It also provides signals where possible excesses, corruptions and silly virtue signaling are occurring, if not out and out fraud.
The task at hand is to identify what counts as work towards a public objective. And see how assets are used, stored and accounted for. To identify this concept of capacity and give it a number. Where do the tradeoffs get revealed so individuals will make choices with their time and energy? How could they be engaged by benefiting from a personal social objective while participating with fellow employees? The angles are multifold.
So I say– do not hold expectations in check. Run with them, write them down and see how they all add up.
If you could count intentions, package them up and gift them, the residents who had their homes rebuilt by Brad Pitt’s Make It Right Foundation, following the devastation unleashed by Hurricane Katrina, would be wealthy. Instead, the 109 property owners of the Lower Ninth Ward of New Orleans are taking legal action against the Hollywood superstar for “unfair trade practices, deception, fraud and negligence.”
Just a little earlier this month, another home in the development was demolished. As Federal courts pull apart the issues, it will be interesting to see how judges view the dynamics and assign responsibility. On the one hand you have the wealthy part-time philanthropist, full-time mega-movie-star, versus a group of mortgage paying homeowners, but then throw in architects with a penchant for environmental activism, builders, suppliers and the crime scene quickly gets muddied. The setting has changed from what Oprah.com describes here in 2010:
Leggett-Barnes and her family are some of the first homeowners in what will become a 150-house community constructed by the nonprofit Make It Right foundation, established by Brad Pitt in 2007 to build environmentally sound residences for low- and middle-income families. “We’re cracking the code on affordable green homes,” says Pitt, who envisions the Lower Ninth neighborhood as “a ‘proof-of-concept’ for low-income green building nationally, maybe even worldwide.”
The plan started with everyone on the same page. The recently homeless needed to return to plots of land, which for some, had been in their families for a couple of generations. Brad Pitt pledged 5 million dollars to take the edge off costs and provide the seed money for what ends up being a 27 million dollar project (that’s $247K per house). But then a new public objective starts to emerge, one driven by an environmental passion. Oprah.com notes:
A Make It Right house is eco-friendly from top to bottom, using at least 70 percent less energy than a conventional house of the same size. “We don’t just want to make homes ‘less bad’ for the environment,” Pitt says. “We want them instead to have an environmental benefit.” Thanks to their ventilation systems and solar technology, Make It Right houses emulate trees, purifying the air rather than polluting it and harnessing the sun’s rays to produce more energy than they consume. The homes are available exclusively to people who lived in the Lower Ninth before Katrina, and Make It Right guides families through the financing process.
It wouldn’t be the first time two objectives were tackled simultaneously: Help families rebuild their homes and make the structures energy efficient. Both admirable. But don’t miss that last sentence, ‘help them through the financing process.’ And just like that we’re off the philanthropy playing field and into the private market game. In this venue the owners are expecting to purchase from a developer, not an actor-philanthropist-activist. They sign for a mortgage. The most common number for the debt was around $150K, bringing the final cost per house to somewhere around $397K.
Just for comparison here is a listing for a new construction home in New Orleans posted on Realtor.com today.
Even at $397K (not including lot cost) one might say the extra money was well spent on energy conservation measures and intended health benefits. One might say that, if the properties hadn’t started deteriorating within a few short years.
By 2015, as most construction concluded, the project had cost almost $27 million. But complaints about the construction and materials used in the homes had already emerged.
These transactions had a philanthropic and environmental and private market component to them. The additional inflow of funds to cover the environmental objectives came in, but the new owners of these properties do not appear to have engaged as critical consumers for the core product. They didn’t check into the materials or the mechanicals or the plans. Just talk to a builder rep if you question whether consumers who build with them hover (daily) to ensure they are receiving what was written up in their purchase agreement. Perhaps due to the power of stardom, or the actual dollars being spent on their behalf, the home-buyers seem to have stepped aside and allowed others to do their bidding. Until as the New Orleans Advocate reports:
In September 2018, homeowners Jennifer Decuir and Lloyd Francis sued Make It Right for what they alleged was deficient construction that caused mold, poor air quality, structural failures, electrical malfunctions, plumbing mishaps, rotting wood and faulty heating, ventilation and cooling.
The dynamics of philanthropy allows for an individual (or group) with extra funds to choose a public need and steer their resources accordingly. The recipients are asked only to consider reciprocating at some future date, should they find themselves in a similar situation. If the courts place the blame on Brad Pitt will that inhibit the flow of goods and services from the wealthy to those in need for fear of liability? Were the end consumers not responsible in a buyer-beware type of way to check out what they were buying? From what the articles (USA Today, NPR), they had owned and maintained homes in the past.
There’s plenty of blame to go around. The architect John C Williams collected $4 million in fees. There were permits and inspectors and building codes. And maybe some blame should end up at the lenders’ door for not questioning the innovative, but untested systems, going into the project. In the end they are on the hook for the paper if a homeowner walks and abandons their property. But mostly, in the for-profit market, the relationship between the developer-builder and the home buyers establish the acceptable combination of durability, green components and price.
The problem wasn’t a lack of intentions. The problem was that the philanthropist-activists bypassed the marketplace and all the small interactions that make it up. The fatal flaw was the thought that with enough money, and passion, all the feedback and tussles between consumers, and inspectors, and building code committees, and brokers, and city planners, and developers, and real estate agents, and electricians,…that all those players interacting in a market setting, just doesn’t matter.
The market continues to shuffled through the consumer choices when judging the environmental impact of products. Standards are set by producers of furnaces and A/C units; power companies offer home energy audits and neighbor consumption comparison; neighbors talk to each other; contractors share incentives; all in the effort to advance a public goal of energy savings. But at each step that goal must be incorporated into the overall integrity of the purchase at hand, or homes will fall apart just like those in the Lower Ninth Ward.
Praise for Brad Pitt remains high, and the contention remains that his intentions were and are completely genuine. It looks, however, as if he will pay dearly for moving toward an ambition without vetting it through the market system. This story shows us that it is not enough to imagine a better world, and poof! It will happen. Progress takes the engagement of all players, giving feedback through action and pricing. Progress depends on markets.
For those who follow the blog you know that I’ve been harping on the distinction between public and private, club and common goods, here, here and here. In my view goods are not sorted in this manner. A hammer is a hammer. If it is used to fix my deck it is in service to me privately, if it is used build a Habitat for Humanity house it is providing a public service to house the unsheltered.
The reason it is necessary to resort this understanding is because it is how we can see corruption. Corruption is not just up to politicians. A system can be corrupt and individuals, small groups and so on. When a set of rules are put into play, but then through cloaking and shading people (or groups of people) pursue other objectives, there is corruption.
Take the case of Embrace, a domestic violence shelter, that’s been in the news. The local police in Barron’s County Wisconsin objected to the posting of BLM posters around their building. And felt this posting calling out police violence, discredited their service. As a result public funding for the shelter was revoked. Here are the Huffington Post, Wisconsin Public Radio and the Washington Post articles.
To end violence, inspire hope and provide unwavering support to all people affected by domestic and sexual violence by engaging our community in safety, equality and partnership.
Now remember domestic violence persists when the normal social catches fail. When there are no close family members to pull their daughter, son or elderly parent out of an abusive situation. When there are no neighbors who notice excessive bruising and quietly offer the victim a way out. Domestic violence requires a formal force intervention because no other means of social exchange has worked or been available. And from what I understand, these types of calls are frequent and precarious for the police.
Given the necessity of the police to intervene in order to get the abused to their doorstep, you would think the shelter would consider this public agency as a core part of their workplan. As to why the shelter declined to remove their signs, Katie Bement the shelter’s executive director told the Huff Post:
“We were approaching it from an accessibility standpoint,” she told HuffPost over Zoom on Thursday. “We needed to show that we’re safe for those communities of color.”
Yet Barron county’s black population is .14% (a fifteenth of 1 percent) of all residents. I’m not sure how many of those 62 people would be drive by the shelter first before making a call for help or finding them on-line. I don’t have the statistics from police response rates or the shelter’s service records, but I suspect the demographics of those receiving aid lines up with the 97%.
As much as the shelter would like to merge the work they do in Barron County with the objectives of BLM the demographics seems to deny them this reality. The group they provide services to are overwhelmingly, if not completely unaffected by the concerns of BLM. In fact the two missions are at odds with one another as the later has diminished the abilities of police to provide security nationwide. Which is undoubtedly why the county pulled funding.
Now back to corruption.
Within a day of the Huffington post article being run, a GoFundMe page was set up for the shelter. Before dinnertime they had surpassed their $25K goal. As of this morning (screen shot included) the page is reporting a kitty of over $69K. Would the shelter have been able to raise this funding without the BLM story behind it? By accepting these donations has the shelter’s mission changed?
If you publish one set of objectives yet acquire funding for another, it seems that you are at odds with your group. It’s not that groups can’t change their rules or objectives, its just that you have to be clear about them so people know what they how their resources are being invested.
In a recent post, which challenged whether national defense is a public good, I suggested that sunlight was a public resource. Then I got to thinking about height restrictions in new construction, and in particular about a luxury high-rise development that was squashed by neighboring residents. A few years ago plans were underway for two residential towers on the west side of Southdale Center which is in an up-scale suburb of the Twin Cities. When over 200 folks filed into the city council chambers, there were more opposed than in favor.
But dozens of residents spoke against the towers, listing issues with everything from its height to the shadows it would cast.
So you see sunlight can be privatized. The owners of the 50’s built one-level homes to the west argued that the new apartments would steal their sunlight. The two towers would privately claim the warm beams, leaving them in the shadows. In economic terms, the new high rise would externalize shade.
There is a cost to shade. If you sell condos you know that southern exposures are more desirable than northern (though thankfully some feel a south view is a tad too warm). Being that there is more demand for this exposure these condo garner a higher price than those pointed north.
Here’s my original post challenging the breakdown of goods into public, private, club and common. Today I’m challenging the idea that fireworks are a public good. One would think that no-one could be excluded from seeing the fireworks. At least, once you already assume that you really mean no-one who is already close enough in the first place, can’t be excluded. An assumption which in itself, makes it a private good when you live one county over.
Realizing it has this private good, say the city lures people to move to their downtown by advertising an amazing fireworks display on the Fourth of July, shot from a bridge over the Mississippi. By fall the new residents have moved into a beautiful condo overlooking the stone arch bridge which spans the mighty river. By the following summer, however, a new condo building has been built which blocks their view.
Mr. and Mrs. NewRes show up at City Hall hotter than a hornets nest and demand compensation for being denied their access to a public good. After all it was the city that approved the permit that allowed the building to steal their view of the fireworks.
Here’s where I say be careful to identify your public, be careful to know your groups. The fireworks are public to those who show-up in a public space within sight of them. And you say I am splitting hairs. But am I?
When we tell families their children have access to a uniform public education for grades K-12, are we offering fireworks that can’t be seen by everyone? We all know that there are different levels of school performance all across the districts. At least a portion of that performance can be attributed to work done in the neighborhoods which support the learners and the educators in ways that are not supported elsewhere. So when the state says all learners will be provided ‘the same’ public good, is the state committing to make-up for the difference in the neighborhood support? Because that would tally quite a hefty tab.
Health care providers incorporate a variety of incentive methods to encourage healthy behavior. Many HMO’s will pay $25/mo toward a gym membership fee if their member goes to workout twelve times in a month. In effect they are internalizing the externalities of poor future health by inducing members to live a healthier lifestyle. The numbers must indicate that $25 is both enough to change behavior and in doing so avoid future medical procedures.
This transaction all occurs within the same group, those covered by an HMO’s policy. The trade of cash towards a gym fee benefits the same people who will then incur fewer medical costs in the future. But what about a hybrid trade that included beneficiaries outside the group?
Obesity in the US has been on the rise for a number of years. It is becoming a leading public health crisis as rates of obesity among Americans are running above 40% in all age groups. The CDC outlines a number of health effects that stem from carrying around excessive weight.
One remedy is weight-loss (bariatric) surgery. There are several procedures that help you lose weight which lowers your risk of medical problems associated with obesity. The cost of weight loss surgeries can range from $14,000 to $23,000 and are being covered more frequently by health insurance.
Since there are also downsides to surgery in general, what if the HMO tried an incentive program to get the member to a healthy weight? Say the cost was determined to be $20,000 for the surgery, and the member was considered to be 80 pounds overweight. Say the sum of the surgery could be divided up over a five year time span where the member received a portion for every 20 pounds lost, the HMO retained a portion and, a single mom in a third world country received food subsidies for a year.
A recent contest found that the most compelling argument that resulted in the highest philanthropic donations was a scenario structured in a similar fashion. I describe this structure in the post Philosophy and Philanthropy. Perhaps a late middle aged mom has served her family diligently, and in the process lost site of her own needs. Perhaps she has gained a bunch of weight that she can’t seem to shake, at least not for herself. But if you gave her the option to feed a single mom with five kids, maybe she would see her way to bringing her own weight in line.
Our local NBC news outlet recently ran a story about an elderly couple receiving help from neighbors after being criticized for not keeping up the exterior paint on their home. It totaled $67,000 worth of help. There is no name given to this transfer of money. When a private party helps themselves to $67,000 from their employer it is called embezzlement. When a politician helps themselves to $67,000 from their campaign fund it is called corruption.
The old school explanation for this activity is to denote it as a form of charity. But is it really a gift? Neighborliness is a term that shows up on surveys. But what does that mean? I see this exchange between the neighbors of Gloucester is the most basic transaction in a economy of groups. Let’s pull it apart.
It all started with an anonymous note left for the couple which read, “Please Paint Me! 😦 Eye sore – Your Neighbors. Thanks.” Although clearly written by one individual, the message is presented as a community concern. Signed, your neighbors. You’ve probably heard this type of chatter before. A house on a main road is dilapidated, or decorated with eccentric siding. Comments like, ‘I really wish someone would do something about that place.’ Or, ‘Some people are bringing down the neighborhood!’ So although one neighbor wrote the note, thoughts of this nature were undoubtedly mulled over by many a passerby.
A personal residence is deemed the bastion of private property, and property rights are a keystone feature of our economic system. But the note indicates that there is a hazy area not reflected in the legal deed, filed in the county records, which spells out the owners names. The area residents feel they have a right to demand that the exterior meet their expectations. This is not a novel idea. In fact cities even have ordinances which address the exteriors of properties regarding thresholds for debris removal and grass mowing.
The couples’ daughter took to social media to voice her response to the note. She points out that her parents had lived in community for the past 50 years. And that during this long history they had maintained their home, and hence contributed many years of service towards an acceptable streetscape. “My family for many years took care and maintained this house as best they could…”
The reason for the disrepair could happen to anyone, it was an act of nature. The article reports that “Marilyn, 72, developed multiple sclerosis about 30 years ago and is mostly confined to her bed, and Jimmy, 71, recently recovered from a quadruple bypass…” Health concerns take time and resources away from the couples ability to comply with the norms of the neighborhood.
Once the word got out about the need, once demand for goods and services was established, a voluntary response from the community resulted in a $67,000 balance in a GoFundMe account. Currency is very liquid, yet these funds are not fungible. As the report confirms the money is “to be used for new siding on their home, new windows, roof and stairs.”
There is no reporting of free riding or extortion, even though funds are seemingly extracted from a greater group to a private party. Nor is this activity portrayed in a religious or moral sense. The voluntary transfer of resources to improve the exterior of the home is held together by a communal objective, one that the recipients contributed to over. This transparent and voluntary activity is the most basic transaction in economy of groups.
“People look out for each other in Gloucester,” he said. “If somebody needs some help, we just get together and do it. It’s all just very heartwarming.” What I hear him saying is that Gloucester is a town with a free an open economy. And yes, that is heartwarming.