Securitization, Financialization, Loans, and Asset Classes

Securities were initially things like stocks and bonds - functionally promises to pay. Modern securitization includes other such debts--mortgages and credit card debts and invoices and whatever else. 

Formally, a security is just a 'tradable asset'. Functionally, it's also representative instance of an asset class, such that one instance of a security is like another, such that the two are for all effective purposes, similar. So securitization of unlike things is difficult, a limitation overcome through grading. The entire pleroma of a thing are divided into classes on the basis of some metric (age, credit score) and sold on that basis, such that things with a graded group are more similar to one another than to another graded group. Imperfect, but it reduces the variance of any given sample.

But once the grading criteria are established, the metric starts to bias production. The value of something is what is can be securitized as, and how something can be securitized depends on its grade, and its grade depends on whatever metric is being used. 

Standardization is hostile to edge cases, extensions, innovations, etc, because they are risky--they make something difficult to grade, so that something that might otherwise automatically be a B grade might receive a C grade. Likewise, there is no point in including A-class attributes in an otherwise B-class product--it will never be included in the B class. So there is every incentive for the product to aim for the 'lower edge' of each class--just good enough to be included. Due to this dynamic, over time, the median quality of each class tends to fall, and new sub-classes get introduced to identify where things fall within each sub class. So securitization drives both standardization and enshittification. 

Its worth saying that the more of the economy that is securitized, the more of the economy that can be financialized, and the more things financiers can profit from the buying, selling, holding, and insuring. So much of the finance industry is extremely interested in figuring out how to financialize things by converting them into securities. Hence the interest in both NFTs and BitCoin. 

Using more granular systems like credit scores, rather than classes, also lends itself readily to thresholds and hence to threshold effects.  A credit score of 649 is 'sub-prime', a credit score of 651 is 'prime'; a credit score of 790 is 'prime', a credit score of 810 is 'super-prime'. Indeed, classification based on scores may actually be worse than those based on classes, if less prone to enshittification. 

Interest rates, planners, developers

Real estate developers talk endlessly about interest rates, but they don't matter in a planning context. Developers make their living at the margin--they make money when they can land before the owners become aware that an interest rate reduction has raised the value of their land. (When rates rise, development locks up until inflation reprices sticky land-values to match their fundamental value). But in planning context, the average over time generates an equilibrium where interest rates don't matter. Temporary dis-equilbria just average out over time. And if it doesn't, who cares? Development that didn't happen isn't going to get you fired. But if you are a developer, it's an existential issue--can you get planners to permit your development in that window between when rates move and when the ground gets repriced?

Development is a market with imperfect information, with a lot of independent developers responding to the same market signal--rising rents. However, developers have limited information about how much competing supply (new units) are coming on the market. While its possible to know about permits pulled, or development applications, or zoning changes, (and believe me, developers pay attention to that) it's impossible to know how many competing projects are in earlier stages of development.

It takes a while for a long, multi-actor process (involving land-owner, developer, lender, city planner, development review, city council, etc.) to play out, so development tends to happen in booms (minimal supply meeting huge demand) followed by busts (excess supply meeting slackening demand). Early in a development cycle, few recognize or respond to the market signals, and there is a lot of money to be made, and late in the cycle, much to be lost. So once the cycle starts, every developer wants to get their development into production/sale as fast as possible.

Dangerous Densities

Jane Jacobs noted that the essence of the city is that is is a place full of strangers, where social sanctioning simply doesn't work, and suggested that there existed 'dangerous densities', below which there were insufficient 'eyes on the street'. (The suggested residential densities were also quite high, 150 units/acre if I recall correctly)

The limits of reciprocal restriction

The whole basis of the legal argument FOR zoning is that while a property owner has been restricted from developing their own property, that very real loss is none the less compensated by others losing the same property rights--that zoning is a sort of 'reciprocal covenant' that the homeowner bough into by buying that property.  (Houston is useful, because rather than having zoning, they have a plenitude of explicit private covenants governing land use). 

Monster houses are an interesting case, as they certainly impose costs on their neighbors (loss of light, view, etc), but those costs aren't recognized as property rights (even if they do affect your property value). Which begs the questions: why aren't duplexes of similar size permitted? And the immediate response is one of parking. Not of the amount, per se, but of it's regulation. Existing owners want to mandate sufficient parking that there is no possibility that renters will compete with them for on-street parking. And so they demand absurd levels of parking (One stall per bedroom).  

Because one of the tacit covenants of suburbia concerns the use of the local 'commons', the public street. You are permitted to store vehicles on it, but not so many vehicles that it impairs others use. Informally, it gets regulated as "Don't park in front of my house". But the whole things runs on social sanction (as I've discussed elsewhere) and renters (demographically different from owners) simply can't be sanctioned effectively. And as a a landlord, if you write me about my tenants use of 'your parking', in front of 'your house', my recourse to an impolite letter is to simply ignore it--I can't be socially sanctioned either.  So when owners fight against rentals, they aren't irrational--they are fighting the collapse of their way of life, and the beach head of an invasion. Because once that dam breaks, opposition to additional rentals degrades. People learn rentals aren't so bad, renters don't care in the first place, and the truly implacable will move away. 

The liberalism joke, and zoning

I recall my My Pakistani professor told me the following joke:

In the Koran, everything is permitted, except those things that are forbidden.

In Iran, everything is forbidden, except those things which are allowed 

In Pakistan, everything is permitted, especially those things that are forbidden.

Which seems to be a variant of Churchill's (WWII) joke:

In England, everything is permitted, except those things that are forbidden. 

In Germany, everything is forbidden, except those things which are allowed 

In Russia, everything is forbidden, even those things that are permitted. 

It's an old chestnut, and different jokers use different countries (reflecting changing circumstances). But it does get to the root of what is meant by liberalism (Case 1) and where our zoning has gone wrong--so much land has been downzoned that we are no longer operating in a Case 1 context, but in a Case 2 context. 

And, to be a bit brash about it, that's simply un-American. We inherited the English Common Law tradition of property rights (lawsuits and all), and we have so meaningfully limited our land rights that it can be said we have eliminated them. So we should, as a country, do something about it. It's been politically palatable for years, because voter class was nearly identical to the home ownership class. But the recent destruction of housing affordability, due to COVID-induced migration and the advent of remote work means that more households are staying in rental tenure longer. And over time, that's going to destroy the political acceptability of the suburban covenant, and we see that today in the YIMBY movement.  NIMBY has been around for a long time (a pejorative) but as someone who has been watching housing affordability for a couple of decades, the political groundswell of the YIMBY movement has been staggering. 

YIMBY is chipping away at the "everything is forbidden" with an ever great list of things which are allowed--triplexes, single stair, reduced on-site parking, etc. And that's huge, because all of those things are multifamily rentals, which is going to make is possible, plausible, likely, that more households will stay in rental tenure longer, and won't sign up to the suburban covenant.  

Buying a house was once a sound financial decision. Post-pandemic, in most big cities, it no longer is.

The elimination of starter homes cuts the lower rung on the housing ladder, which means a lot of people are no longer going to climb it at all. So we're going to see a sharp generational shift toward households being life-long renters. And as the renter population becomes more affluent, older, and more politically active, we're going to see a big shift in urban politics to reflect that.

Rapid Transit Network Expansion

If you start with a small transit network, and build it out over time, it gets larger and more efficient, providing more access over time through the network effect. But at some point, the dynamics switch and the operator realizes that they can get more money out of running more service on the existing service than on further expanding the existing network. (Which is financially prudent). But it breaks an implicit political bargain between city and suburb, viz: "If you pay to build ours now, we will pay to build yours later". As long as those network expansions are promised, and voters think they might be able to use them (or make use of them or benefit from their use), they'll fund them. 

But if you are an exurban commuter, you'll never see any direct benefit, and you know it, but you are still paying for it. Which means sales taxes work basically in urban areas, where they can match the beneficiaries with the payers. People who drive into the county and buy things matter less politically, because they don't vote on referendums--but still do matter, as they still do lobby for things, as NJ and NY demonstrate with the congestion charge. 

Anyway, if the transit network stops expanding, and the transit constituency ceases to include those folks, the transit providers switches to concentrating on existing riders. And then all the capital and operating costs go into providing additional mobility (more tracks, faster loading at stations, more trains/hour). And the main trouble, I think, is that transit agencies that have made that transition once have a hard time switching back to the other regime. Once you've quit building subways, it takes herculean efforts to get things like CrossRail and the Second Avenue Subway built. On the flip side, LA did manage to get the Regional Connector done. 

Speeding, speed cameras, and geometric design

If the camera is issuing tens of thousands of tickets, there is a clear mismatch between the speed limit and the geometric design of the road. Since the speed limit is a policy decision and the geometric design a hangover from an earlier policy decision, pretty clear which should change.

Public Investment is never just for public benefit

A lot of public investment (especially in new infrastructure) is targeted toward eliciting private investment. Sometimes the degree and share of subsidy is more obvious, sometimes the ROI is more dubious. Public sector would be better off addressing what it controls directly (the regulation-imposed costs on new development) rather than attempting to allocate capital.  

Lot of transportation planning is about providing mobility--enabling people to get between places faster. A much smaller share of it is about providing access--making it possible to get 'there' at all. Partially, that reflects the maturity of the US highway network--where goes pretty much anywhere you want to go. But accessibility takes a front seat when we talk about our much-less-mature networks of walking, cycling, or transit. 

The stroading of Main Street

The historic (pre-automotive) main street demanded the highway run through town (so the state would pay to pave Main Street) and later highway design standards for rural highways were fecklessly applied to it, and it's not for decades that highway engineers recognize 'context sensitive design' or 'traffic calming' to make it a street and not a stroad.

A historic main street is wide, because it was full of parked vehicles (even when those vehicles were wagons and buggies) as well as through traffic. So there was plenty of room, even with automobiles, for two lanes of on-street parking and two travel lanes. But the 'capacity uber alles' mentality demanded removing on-street parking in favor of travel lanes, and so you get main streets that are four-lane raceways, in a way deeply deeply incompatible with the existing land use.

Eventually, the existing land use shifts, as every other building is knocked down for a parking lot with a curb cut, or demolished and replaced with something where half the lot square footage is parking lot.