The Guru Is In Archives

In early October, the Urban Land Institute’s (ULI) Terwilliger Center for Housing and the National Association of Affordable Housing Lenders (NAAHL) co-hosted a day-long symposium/roundtable on what we decided by the end of the day just might be an emerging asset class whose preservation is integral to the success of America’s cities and the urban economy.

When first I saw a gleaming new tower sprouting within, and above, the five-story brick crust that was all that remained of a decrepit century-old block whose guts had been scoured out and trundled away, I thought the surface preservation both incongruous and a waste of money. In the decades since then, I’ve changed my mind even as the world’s historic cities have changed around us.

If the world’s 60 million refugees were a nation, they would be the world’s 23rd largest, with more people than South Africa or Italy. All of them have lost their homes, and all of them desperately want a home – in fact, not just a home, but a secure and stable place from which they can build new lives. While many may feel emotionally that ‘home’ is where they came from, most know that to build a new life they must migrate somewhere – within their country or to a new country.

As will be amply demonstrated elsewhere in this month’s Tax Credit Advisor, the conceptual case for using improvements in affordable housing to improve healthcare outcomes is overwhelming. Common sense, personal experience, a nearly unanimous view of affordable housing providers, a host of expert opinions, statistical studies – everything favors it.

A few weeks ago at the World Bank’s biannual Global Housing Finance Summit, a conference of roughly 350 housing executives from around the world (mainly from national governments and the Bank itself), I spoke on Financing Housing Down the Income Pyramid, and the ensuing Q&A session produced this challenging question from the audience, “How do we create effective affordable rental tenures?” That choice of words instantly set me thinking, and in formulating my answer, I stumbled on the right way to frame the question.

When soliloquized by megalomaniacal president Frank Underwood in House of Cards, our title quote sought to prove his opponents’ hypocrisy. But it actually reveals quite the opposite: a profound divide between two philosophies that affects almost every part of the affordable housing business.

The Schleswig-Holstein question is socomplicated, only three men in Europe have ever understood it. One was Prince Albert, who is dead. The second was a German professor who became mad. I am the third … and I have forgotten all about it.
– Lord Palmerston (Prime Minister, 1855-65)

To the list of American things that are growing more expensive in real terms, we must add the standard LIHTC apartment, and the principal reason is our capital sourcing model, the funding sieve.

“You will be haunted,” resumed the Ghost,
“by Three Spirits.”
“I – I think I’d rather not,” said Scrooge.

In thermodynamics, entropy is, among other things, a measure of a system’s granular complexity – and in thermodynamics it is a fundamental law that entropy and complexity always increase.

Acertain $10-billion-a-year industry faces systemic catastrophic risk, for which we are entirely uninsured.
Today’s tax credit properties would not exist without insurance. Today, a LIHTC property without insurance is unfinanceable and un-ownable. It must have title insurance, fire insurance, casualty and personal injury insurance, and flood insurance if relevant. Many properties expect the tenants to buy renter’s insurance, many loans have mortgage insurance.

What then is the business model of 21st century rural America? Though you may not realize it, finding the answer is absolutely critical for the affordable housing industry. It stumped me for years, but now I think I’ve figured it out.