The Ground Floor

Crossing the Rubicon

This post was written for The Ground Floor by John McIlwain, senior resident fellow of Housing at the Urban Land Institute.

Yesterday, Sunday, September 07, 2008, an Administration philosophically committed to the "free market" nationalized the U.S. housing finance system. Yes, "all" that was done was to put Fannie Mae and Freddie Mac into "conservatorship" -- whatever that means -- and under the direction of the new Federal Housing Finance Agency (which is much like the old OFHEO on steroids).

But with Fannie and Freddie buying up between 70 percent and 80 percent of all the mortgages being made in the U.S. these days, the federal government now controls the U.S. housing finance market directly.

We're not in Kansas anymore, Dorothy. In fact, we are not anywhere we have ever been before, and are plowing new, uncharted waters.  Seventy years ago the federal government, in the middle of the Depression and a housing crisis, nationalized the mortgage markets by, among other things, creating Fannie Mae as a government entity. Over the following decdades there has been a gradual privatizing of the fed’s role in the mortgage markets.  Now, in the middle of the worst housing crisis since the Depression, the markets have been nationalized again.

Is Stephen Colbert Obama’s Pick for VP? Who Will He Choose for Director of Urban Policy?

This post was written for The Ground Floor by Robert Krueger, communications associate at the Urban Land Institute.

In the midst of all of the hype about who Democratic presidential candidate, Barack Obama, will choose for a vice presidential candidate, Forbes printed an article on Wednesday that posed the question of whether he should choose Stephen Colbert, host of Comedy Central's The Colbert Report, as his running mate. This came after the release of a study from a political scientist at the University of California, San Diego, which claims Democratic politicians benefit from a 40 percent increase in campaign contributions by the next month, just by making an appearance on Colbert's show.

Though the suggestion that Obama choose Colbert is a humorous and at the same time a "what if" scenario, due to his ability attract campaign contributions and since he technically was a Presidential candidate before the South Carolina Democratic Party voted to keep his name off the primary ballot, it is probably more important to know who Obama might appoint to the first White House Director of Urban Policy if he wins the presidency.

In the late part of June, Obama spoke to the U.S. Conference of Mayors about the U.S. taking a new approach to not seeing cities as America's problem, but as the solution to our problems.  He spoke about not seeing a city, but instead seeing the entire metro area. This is especially important since a majority of Americans live in cities or nearby suburbs. During his keynote address, Obama not only expressed his belief that change comes from the bottom-up, Obama showed that he embraces the idea that America's metropolitan areas are the heart of our country and thus need the most attention.

"It is not just our cities that are hotbeds of innovation anymore, it's those growing metro areas," said Obama.  "The top 100 metro areas generate two-thirds of our jobs, nearly 80 percent of patents, and handle 75 percent of all seaport tonnage. In fact, 42 of our metro areas now rank among the world's 100 largest economies."

Obama's speech seemed to reflect the research of the Metropolitan Policy Program at the Washington, D.C.-based Brookings Institution. It is not surprising, that in that same speech, Obama mentioned the work of the program's Director, Bruce Katz, directly after saying that he looks to create a new position for Director of Urban Policy. Is Katz the most likely choice for such a position?  The work and goals of Katz's campaign, Blueprint for American Prosperity, seem to correlate with that of Obama's urban agenda.

"To prosper, nations must leverage four key assets -- innovation, human capital, infrastructure, and quality places -- which concentrate at an unprecedented level in metropolitan areas," said Katz in a speech late last year.  "Our nation's ability to grow and prosper and meet the great social and environmental challenges of our time is at risk unless these metropolitan engines of national prosperity are healthy and vital."

Whoever Obama appoints to the position if he wins the bid for the White House, the director must not only be an urban whiz, but also someone who would be willing to heavily invest dollars in our urban areas. After two terms under President Bush's lack of an urban agenda and investment in our metropolitan areas, such a position will report directly to the President and would be responsible for harmonizing federal agencies. This person will need to make sure that housing works hand-in-hand with transportation planning. This person needs to be committed to a world-class transit system, along with higher-density and energy-efficient housing and commercial development.

So, Obama can choose who he wants for VP. Whether it is Colbert, Kansas Governor Kathleen Sebelius, Senator Joe Biden, Virginia Governor Tim Kaine, or whomever -- the most important choice in his possible administration could be in the appointees that take place after all of the balloons and parties have settled and the real work begins.

Rebuilding on Entrepreneurship: New Orleans and Post Katrina Efforts

This post was written for The Ground Floor by Robert Krueger, communications associate at the Urban Land Institute.

This week, the Wall Street Journal printed a story about how the U.S. is moving in the direction of increasing government oversight and years of deregulation of business and the economy.  After a decade a major catastrophes, including hurricane damage to New Orleans, the financial and housing crisis, along with numerous disease outbreaks in food products, it is no wonder that there is a resurgence in the federal and state governments’ roles in protecting Americans.

Is this the right way to go or is it just the ups and downs of the market economy?  George Mason University’s Mercatus Center, a non-profit think tank, recently held a press conference to release a collection of research and analysis of what is and what is not working with rebuilding efforts in the Gulf Coast region. 

"Katrina is a disaster that ended in an American tragedy," said Mercatus Center distinguished scholar and former Indiana Congressman Rep. Tim Roemer (D-Indiana).  "It is important that we don't ever lose focus on the people of the Gulf Coast.  Katrina brought out the best of what works and what does not work."

The panel discussion centered on the failure of government to be able to adequately prepare and quickly respond in the face of such a natural disaster and how response from the private sector was successful.  The consensus was the entrepreneurship of local businesses created a floral of ingenuity that yielded positive business results.  Scholars used case examples, such as local Wal-Marts, who were able to come up with ways to help aid local citizens while making a dollar.  They attributed this to the private sector's "profit incentive" and absence of government bureaucracy.

Beautiful and Sustainable at a Surprising Price

Buildings can be judged successful thanks to good architecture, sustainable design, or a positive social impact. San Francisco's Plaza Apartments is a rare example of one that succeeds at all three.

A nine-story mixed-use building near downtown San Francisco, the Plaza Apartments contains 106 rental housing units, 1,000 square feet (93 sq m) of retail space, and a 99 seat performing arts venue. Not a conventional urban apartment building -- all 106 units are reserved for the previously chronically homeless. Developed by the nonprofit Public Initiatives Development Corporation on a $22 million budget, the project also contains services for building tenants, which include on-site case managers, a psychiatrist, and a nurse practitioner.

The project is part of a nationwide trend of "housing first" when dealing with homeless. New approaches recognize that securing housing is the first step to independent living. Cities across the country are finding that providing housing first and then treating underlying causes -- such as mental illness or drug addiction -- reduces the overall costs to taxpayers and social service agencies. Tenants of the Plaza Apartments pay half their income in rent, $410 on average.

In addition to the social mission, the structure also features cutting-edge LEED Silver environmental design. The roof sports both a sundeck and 26-kilowatt photovoltaic system. The creative facade is fine-tuned to maximize winter sun on one side and provide summer shade on another. The San Francisco Chronicle raved that the "designers crafted a structure of lasting warmth and presence," concluding the design features a "creative depth you don't find in most residential projects, including condominium complexes stuffed with seven-figure units."

Although the project wasn't developed for a profit, it has taken over a hundred of formerly homeless off the street and improved the character of the neighborhood. With city residents and officials pushing hard for community benefits, particularly in return for allowing lucrative investments in urban neighborhoods, the Plaza Apartments could contain ideas useful elsewhere. Instead of writing a check to a faceless housing fund, a donation towards a facility like the one described here could improve the neighborhood and set formerly homeless people on a path to recovery.

A complete case study of this project can be found on ULI's Development Case Studies web site, which features detailed descriptions of urban development projects around the world updated each quarter.

Only subscribers can access the complete case studies, but short descriptions are available to all. The complete case study for Plaza Apartments includes floor plans, contact information of the development team, description of building features, and a summary of important lessons learned.

Not Enough Homes in the Market

This post was written for The Ground Floor by Robert Krueger, communications associate at the Urban Land Institute.

A few weeks ago, Brookings Institution scholar Chris Leinberger, said that the real "supply side problem" with the market is not a flood of homes, but rather not enough walkable urban places.  According to the scholar, there is a current price premium for walkable urban homes.

On June 11 and 12, the Brookings Institution held a summit in Washington, D.C. to launch the next phase of the Metropolitan Policy Program's "Blue Print for American Prosperity:  Unleashing the Potential of a Metropolitan Nation."  The three-year initiative, which began last year, promotes a federal economic agenda for the U.S. focusing on the health and vitality of metropolitan areas.  The initiative went live on November 6, exactly one year before the 2008 Presidential election.

Bruce Katz, vice president and director of the Metropolitan Policy Program at Brookings, seeks a way for cities and metro areas to advocate and think about their challenges in a unified way.  For one of the panels, "Creating Quality Places: Making Housing Part of the Sustainable Solution," Katz posed a few questions for the land use and housing.  Katz asked, "How do we think about sustainability and affordability together?  How do we think about this in an affirmative way so that pieces of legislation move forward?  Finally, how do we think of these in a unified way so that each of these legislative vehicles moves through?"

Katz called this a challenge for leaders in the industry as well as for the Brookings Institution, since the government is "compartmentalized."  He emphasized that the federal government could take a leading role by describing the problem by linking transportation, housing, and energy together.

"What the federal government needs to do is create a new kind of affordability calculus so that it is more transparent to policy makers and others how dramatic of an issue this is," stated Katz.

One panel member, Doris Koo, president and CEO, Enterprise Community Partners, who said that is essential for the federal government to address green and affordability as one and the same.  Koo talked about how such world class cities such as Tokyo, Beijing, and London have seen more public and government amenities integrated, such as buses and public spaces, as the cities become denser.

In response to Leinberger's common reference to the "Back to the Future" movie trilogy, Koo commented, "We have seen the future and it is smart land use, public transportation, and public amenities."

Leinberger said that Congress needs to pay attention to market demands and learn what the cost savings will have on federal programs.  He added, the neighborhoods that are disconnected from urban amenities will continue to suffer.  The urban housing market is now in high demand and there is a limited supply. 

In most metro areas, the amount of housing that can be considered "walkable urban" is less than 10 percent.  At the same time, he cited that if a typical household got rid of one car, that household can increase their mortgage capacity by $150,000.  It will take a home from a depreciable asset to an appreciable asset.

Leinberger emphasizes that developers must respond by building more urban homes that have public amenities.  This will take significant federal investment in pubic infrastructure that will be met once the federal government acknowledges the links between housing and transportation costs.

"We are in the middle of a market change.  The pendulum is swinging and it is up to us to take advantage of it."

Collateral Damage: Squeezing Out Affordable Housing

While everyone's attention is focused on market gyrations, credit squeezes and the housing melt down, not to mention the latest sex scandal and—remember—the endless Democratic Presidential campaign, the affordable housing industry is being quietly closed down.  Look at what has happened:

• Low income housing tax credits—the price for these credits has fallen in the past few months from over $1 per dollar of credit to 80 to 82 cents to the dollar—a 20% decline that is making new deals unworkable.  The main reason for this meltdown is what has happened to Fannie Mae and Freddie Mac; their accounting scandals resulting in the new restrictions on their mortgage purchases as well as the decline in housing prices and the mortgage-backed securities markets all have combined to reduce or eliminate their profits.  Thus the biggest market maker for the tax credits, Fannie Mae, has reduced its purchases of credits from over $2 billion in 2006 to $1.1 billion in 2007 and is now reportedly a net seller of credits.  Freddie Mac has also reduced its purchases as well.  The major banks that were also buyers are now struggling with loses and don't need or want credits.  While the new pricing makes credits attractive investments to the corporations that used be in the market for credits, it will take months or years to get them back in as active buyers.

Compact Communities - Is Density Incompatible With Safety?

Reducing the carbon footprint of metropolitan areas will require making them more compact in order to reduce driving or vehicle miles traveled (VMTs). Forgive me for saying this (density being a four letter word) but this will require increasing the density of existing communities and building new ones with appropriate density. 

So what are the best ways to design compact, densely populated, walkable communities which are attractive, safe and lively? One thing clearly needed is enough housing so people live in the community; this is what creates the "24/7" communities which have been shown to be most successful over time. What are the best ways to do this while reducing crime and enhancing public safety?

Farewell, Johnny Grant

This post was written by ULI Los Angeles Executive Director, Phil Hart.

Hollywood Mayor Johnny Grant passed away on Wednesday, January 9, 2008, in his penthouse suite at the Hollywood Roosevelt Hotel. I knew Johnny for nearly 30 years. Johnny was a friend to many, including ULI. When I proposed to Hollywood Chamber of Commerce CEO Leron Gubler in late 2000 that the ULI Advisory Services Program could assist that community with its revitalization planning and development efforts, Johnny Grant was the first to support this initiative. With the support of my urban planning foundation, The American City Coalition (which Joe Corcoran, Chairman of ULI Sustaining Member Corcoran Jennison Companies, and I govern), the Hollywood Chamber of Commerce, and the ULI Foundation, we brought in a ULI expert panel chaired by Carl Weisbrod in March 2001. This panel's report "A Strategy for Hollywood's Comeback" is helping guide the redevelopment of perhaps the most famous neighborhood in the world.

I first met Johnny in the late 1970s when I was with The Hollywood Group. Our offices were on the second floor of the Pantages Office Building on Hollywood Boulevard. Johnny was championing Hollywood's comeback while we were mapping out how to accomplish such a comeback. The Hollywood Group's efforts paved the way for the CRA Hollywood Economic Development Plan that was approved by the LA City Council in 1986.

Hollywood, and ULI, are fortunate to have had such a friend as Johnny Grant.

The Fire Next Time

The San Diego and Los Angeles areas are hit by a raging series of high-impact wildfires -- the worst in the state's history. Many of the blazes coincide with areas already scorched in 2003 by fires that themselves were declared California's worst ever.

But is there any move to move homes away from the areas where a century of firefighting has left many forests choked and overgrown, thick underbrush creating tinder-box conditions? Apparently not. Most homeowners vow that they'll stay in the fire-prone areas, or return to rebuild on the charred foundations of their former homes.

-- Nationally syndicated columnist Neal Peirce

There is one lesson all major disasters teach us -- the first and strongest reaction of local residents is to rebuild what was lost in the same way and the same place. Look at New Orleans: residents of the city's low lying areas that flood frequently have raised such a firestorm of protest at the mere suggestion that New Orleans's land use plan might be rethought after Katrina that rational discourse has been impossible.

Now those who have been burnt out in the San Diego fires vow to rebuild despite the obvious danger that the fires will return once again. Their losses have been tragic, but their commitment to return may be more tragic still.

Thinking Outside the Land Use Box

This post was written by The Ground Floor contributor and ULI senior resident fellow, Bill Hudnut.

How about some thinking outside the box...about how to solve some of our serious land use problems? Here are a few suggestions:

• To create more funds for affordable housing, and enable millions of Americans to claim a tax benefit for home mortgage interest for the first time, which would make owning a home more affordable, follow the advice of President Bush's Advisory Panel on Tax Reform, reporting in the fall of 2005, and replace the mortgage interest deductibility on first homes with a "home credit" in the amount of 15 percent of the interest paid on mortgage debt for that home (no credit or interest deductions would be allowed for second homes or home equity loans);
• To fund infrastructure improvements and new construction at the local and state levels, employ more user fees on the assumption that those who use should pay; and at the national level, establish an infrastructure improvement bank backed by a stable revenue source, i.e., an excise tax on automobiles, a national lottery, or government bonds;
• To do a better job with planning for land use and transportation in a metropolitan area, either sunset Metropolitan Planning Organizations and let the states develop new regional authorities, such as Georgia’s Regional Transportation Authority (GRTA) for the 14 counties around Atlanta, or give the states more responsibility for land use planning and more teeth to enforce their plans, even though "all zoning is local;
• To re-use dead retail space, convert obsolete malls into urban villages;
• To curtail sprawl and address escalating energy costs, create higher density development, especially around transit
• To promote sustainable development, find a market for rehabbing and retrofitting buildings with higher energy efficiency, and create "green" infrastructure, particularly on the fringe; and
• To move beyond outmoded Euclidian (single use) zoning toward more flexible regulations, utilize performance based zoning.

Just some ideas. Some may fly, others may not, but we need to begin thinking creatively about the impact of the changing metropolitan form on the way we develop the land and respond to challenges surfacing today.