Old and new
Really like this bit in Ecology of Fear, Los Angeles and the Imagination of Disaster when Mike Davis describes how planners spent years in Los Angeles working to try and prevent vast numbers of cheap, wooden houses being built on land around that routinely gets deadly wildfires. You know, to stop lots of people burning to death.
At the end of the war, greenbelt zoning for the Valley was actually passed into law by the city council, but it lacked the broad political support to survive the relentless counterattack of developers and landowners.
As politically naive planners were shocked to discover, other units of government became active accomplices in the destructions of Los Angeles's periphery. The county tax assessor, for example, increased the pressure on farmers to sell out by reappraising their land as prime residential real estate – "a self-fulfilling prophecy that spread like wildfire." The Federal Housing Administration, already notorious among African-Americans for its endorsement of racially restrictive covenants and white-only suburbs, refused to lift a finger to preserve natural landscapes or to discourage leapfrog developments.
Mike Davis, The Dialectic of Ordinary Disaster, in Ecology of Fear, Los Angeles and the Imagination of Disaster
There’s something quaint and funny about the planner’s belief in authority and the system. It’s so twentieth century, so sincere. Fatal and really sad too. But still a bit funny.
Also been reading Life Without Debt by Bedford Press. The chapter by Finn Williams about an architect’s recent attempt to get affordable housing built in London is fascinating.
Property development is a constant negotiation between three critical factors: time, space and money - to get closer to the required profit figure developers are always working towards the highest feasible density at the lowest possible cost in the shortest turnaround. However, no fiddling of the factors could reduce the purchase price very much below market rates – because the developers profit margins preclude it – making it several fold too expensive for workers on the living wage (who lack equity to buy in any case).
In order to make an impact on end price, a parametric algorithm was developed to manipulate these factors individually. One important financial precedent for the algorithm was how universities raise equity for constructing new buildings. These institutions issue long-term bonds, often 50 years or longer, to fund new dorm rooms or science blocks, while the interest on the bond is secured against future tuition. The university ends up paying quite a lot for the investment capital, but does so over such a long period that the repayments are manageable. Schemes like this are highly attractive to entities looking for stable and predictable returns, and investors often include insurers, banks and sovereign or pension funds. If we replace tuition with rent and dorms with housing, the basic model holds, and the developer as the source of finance becomes unnecessary. In theory almost any company can issue a long-term bond – in practice, the rate of interest on such a bond is relative to the trust the markets have in that company. And a well respected university has leverage that an architect does not. To address this trust issue, the building itself becomes the security underwriting the bond, which can be sold at market rate at some point if the mechanism fails. The market wager then becomes whether the architect is capable of delivering the building on time and budget.
Security also lies in the fact that if this architect-bank were providing apartments at 46 per cent of the market rate (which is what would be necessary to make it affordable for the living-wage worker) there would have to be a 54 per cent drop in London property prices before it would become unfeasible. The worst housing slump in British history (1914-22) was caused by a combination of the First World War and the introduction of industrial manufacturing techniques in construction (causing oversupply in the market) which saw prices fall by around 35 per cent. Given the current climate of unprecedented shortage, probably only a cataclysmic environmental disaster could produce such an effect.
[several paragraphs about the calculations used to fund the project without needing to pay a developer]
Once the viability of the scheme had been established, the next process was to maximise the possible density of the building. To do this, we exploited the same planning rule, Section 106 (S106) that allowed the Shard to extend its maximum height envelope from 65 metres to 310 metres. S106 was originally intended as a form of tax on new development. If a developer were to build 100 new homes on a green field site in a small town, the added pressures on local infrastructure and public services would be considerable. So the developer would negotiate paying a one-off sum to be put towards specific projects (new school buildings, improvements to police, fire, health, new roads etc). Over time, this concession became flipped into a type of local governance bribe by developers to permit increased density.
[several paragraphs about how S106 allowed the Shard's developers to increase its height in exchange for paying for the new London Bridge station, and how these developers used that precedent to increase the height and density of their new building]
This, in a nutshell, is how the form and volume of our building was arrived at, and how it redeploys commonplace financial mechanisms to achieve its specific goal. It has been described as form following finance, although it might be more accurate to say that it is function following finance, where the form is not intrinsically relevant.
However, one could say that the most important aspect of the building occurs after the bond has matured – when rent might be lowered until it matches only the operating costs of the building, or maintained at a low rate and the surplus that was previously paying off investors redirected towards welfare and amenities to residents. As a debt-free asset it might be refinanced to fund the construction of other buildings (thereby creating a network of low-cost housing) or sold for a symbolic sum to the residents themselves.
Finn Williams article, Silver Bullets, included in Life Without Debt from Bedford Press
Doesn’t even pretend to believe that authority will fix things and instead goes straight into working with the grain of the problem – in this case, property developers having no incentive to reduce housing prices and government being unwilling to fund housing directly.
And actually doing the research and hard work, designing a proper solution paid off. They’ve built it.
It’s taken a while but we’re getting better at this stuff.