HUD Secretery Shaun Donovan
March 15, 2009, 12:43 PM
A+
|
a-
Print Friendly and PDF
The Washington Post exults over the superbitude of the new Housing and Urban Development secretary Shaun Donovan, who did such a brilliant job being in charge of affordable housing for New York City in 2004-2008. (You will all recall how affordable NYC housing became on his watch):
It is hard to find a detractor. Bankers and developers say [Shaun] Donovan has a deep understanding of market forces. Affordable-housing advocates say he is committed to the public good.
Personally, I can't make head nor tail of the newspaper's account of his doings. But, from what I've learned about the bankers, developers, and "advocates" in the housing racket, when they all agree on something or somebody's wonderfulness, you'd better get a good grip on your wallet.

Right now, being the former New York City housing czar sounds like a good credential because there haven't been too many foreclosures in New York. (As of October 2008, only 0.17% of units in the state of New York were in the foreclosure process, compared to 2.57% in California.) But a year from now, when NYC is a foreclosure nightmare, maybe this part of his resume won't sound so hot anymore.

I think I understand this part of the article, though:

Donovan revived an old idea, inclusionary zoning, which grants developers the maximum height for their market-rate residences if they agree to build low-cost housing, too.

"The concept was highly controversial when Shaun came in, but over a year Shaun led the team to understand the economy, and build the incentives, and explain to the City Council that it had to approve the rezoning," Doctoroff said. "He built the policy financially and politically."

In Donovan's view, the program, which has created 1,833 units of affordable housing to date, built neighborhoods with long-term prospects for income diversity.

Wow, 1,833 units built in a city of several million units! He's Superman with red hair.

Obviously, government-sponsored "affordable housing" construction doesn't make any difference to most New Yorkers. But, 1,833 New Yorkers apparently made out like bandits.

Help me out here to see if I understand the process correctly: Developer X announces plans to build an apartment building of the legally maximum height for the neighborhood. Neighbors complain, saying it will block their sunlight, increase congestion, make parking harder to find, etc. and demand that the building be only a fraction of X height.

Shaun Donovan grants the developers' wish for X height, as long as the developer makes some of the units "affordable" — i.e., charges below-market rates. In other words, because housing development is highly regulated, much of the profit from the development stems from getting permission from the government to build a tall building on a particular piece of land. Because the government can bestow or withhold that permission as it sees fit, it can extract some of the profit from the developers. (Sorry, neighbors, about your new sunshine shortage, but you should have invested more in the right politicians. Maybe next time you'll be wiser.)

By the way, don't feel too sorry for the developers — if there were no restrictions on height, then the housing business would just be a commodity business, which, trust me, is even less fun than it sounds. As it is now, development is a casino: you can make a fortune if the political gods smile on you, and lose a lot if they don't.

The obvious question, but one that seldom seems to occur to reporters explaining the wonders of the affordable housing racket, is: Who gets these "affordable" units? The right to buy or rent at below market values is hugely valuable so there will be no shortage of applicants. Some allocation method is necessary to choose from all the applicants. If the government doesn't determine who gets in, the developers will just take under-the-table kickbacks to bring the net price up close to the market level. Am I being overly cynical in assuming that politics plays some role in determining who winds up in the "affordable" units?

Let me make a wild guess that some of those 1,833 were in some way affiliated with "affordable housing advocates." A common phenomenon that has emerged in recent decades in America, but remains so off-the-radar that I've never heard a name for it, is the business of setting up leftwing pressure groups that make their living by reaching mutually profitable agreements with regulated businesses so that the business can do what it wants.

This can be more sophisticated than just the old shakedown racket. For example, say Developer X wants to put up a 20 story building, and the neighbors want to limit it to 10 stories so they won't lose as much sunshine. Developer X then agrees with Community Affordable Housing Advocacy Organization Y that it will build a 20 story building, but 10% of the units will be "affordable." (And Group Y gets first dibs on some of the affordable units to allot to its supporters.) A government official like Mr. Donovan then grants permission to put up the 20 story building, citing the agreement as proof that the Left and Right are in accord. Of course, the neighbors who want to keep their sunshine aren't in accord at all, but that little detail gets lost in glowing story about private enterprise and public good advocates coming together.

We saw it a lot of this in the mortgage business: a financial institution wants to lower credit standards in order to make a bigger, riskier bet on mortgages. Some GS-14 at the regulator isn't sure if this is such a hot idea. Will the taxpayers wind up on the hook? Is this just a boiler room operation to badger fools into signing a lot of papers they can't possibly understand and then unload the toxic mortgages fast on Fannie Mae?

Good questions! But then, the financial institution announces that it has reached an agreement with various leftist Community Reinvestment organizations to lend even more money to likely deadbeats — excuse me, I meant, "lower income and minority neighborhoods." And so the regulators roll over in the face of this humanity-affirming concord between the White Power Structure and the Righteous Demands of the Community.

Move along now, nothing to see here.

In reality, the leftist organizations are in a symbiotic relationship with the big lenders. One way or another, they will get a cut of the action. The intervention of the professional leftists serve to distract attention away from what the lender really wants to do — take big risks that the public may have to bail out — and refocus the media on the ever popular story of Fighting Discrimination. The two sides then "compromise" to provide a heart-warming happy ending.

This kind of pre-fab agreement makes for nice newspaper articles, because people like to assume there are two sides to every story. In truth, there are usually more than two sides. There's usually an amorphous, poorly organized third side such as the taxpayers or the general public: the poor saps who will end up footing the bill for the agreement between the professionals on the "two sides."

Anyway, I'm getting off track from Shaun Donovan. I don't really know what he's been up to. The newspaper descriptions are eye-glazing, but a lot of people do very well for themselves mastering the bureaucratic arcana of some seemingly boring topic.