Our Financial System Favors Large-Scale Development…but at What Cost?
Mar 20, 2024
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Exploring how finance shapes cities, the preference for large-scale development over community-based building, and the challenges faced by small developers. Delving into the impact of debt, risk mitigation, and market dynamics on urban development choices. Also, a brief mention of a basketball team's success and fascination with Dead Sea Scrolls.
Institutional developers rely on large-scale funding from entities like pension funds, while community-based incremental developers work with smaller investments.
Cities can promote incremental development by engaging with local developers, providing co-signing options, and offering incentives for small-scale projects.
Deep dives
The Cultural Shift During the Pandemic in Urbanism
The pandemic has led to a notable cultural shift where Americans are increasingly noticing the character and quality defects in their places. Activists and practitioners offer various policy solutions like safer street designs and ending single-family zoning. The article emphasizes the need for a comprehensive approach, highlighting the importance of understanding finance in shaping cities.
Institutional vs. Community-Based Development
Institutional developers rely on large-scale funding from entities like pension funds, while community-based incremental developers work with smaller investments. Institutional capital focuses on significant projects, while incremental developers work on smaller-scale improvements within communities. The distinction lies in the financial approach, with institutional developers playing with others' money and incremental developers investing their own and their community's assets.
Challenges Faced by Incremental Developers
Incremental developers face challenges in accessing capital for projects due to the risks involved and the lack of streamlined lending processes. Obtaining loans for smaller-scale ventures often requires extra effort and relationships with local lenders. However, the grassroots movement towards community-based development shows promise, indicating a shift towards supporting small-scale developers.
City Role in Promoting Incremental Development
Cities can play a vital role in promoting incremental development by leveraging existing financial tools and offering alternative funding mechanisms. Engaging with local developers, providing co-signing options, and offering incentives for small-scale projects can help revitalize communities. By creating partnerships and aligning incentives, cities can enhance incremental development opportunities for local developers.
On this week’s episode of Upzoned, host Abby Newsham and co-host Chuck Marohn are joined by Coby Lefkowitz, who penned the article that’s up for discussion: “Why small developers are getting squeezed out of the housing market.” It focuses on how finance shapes our cities, why debt is used to develop cities in the first place, how lenders deal with risk, and why risk mitigation is critical to understanding why the world looks the way it does. And, most notably, it dives into America's housing financial system and why it privileges large-scale institutional development at the expense of more incremental and community-based building.