Week 6 - (Insertion) Why affordable mortgage is fundamentally wrong

In 2013 I was co-opted into a 7 year multidisciplinary research project collaborating with the City County of Nairobi that sought to transform Mukuru slums. As the finance resource, I was tasked with designing an affordable mortgage plan. That was pretty simple – putting in perspective - this is what I could do in my first year of undergraduate school. Even in the case when the constraints were set “steep” such as:- that the monthly repayment needed to match monthly low – income rents of between Kshs. 2,500 – Kshs. 5,000 ($25 – $50), or the repayments needed to allow for defaults or graduated scales of payment or anything else financially unique under the sun - I just needed to code in basic solver constraints in excel. It was a no brainer! Of course the output was that the formal housing unit either had to be greatly subsidized or of the tiniest livable size, and interest rates set at near zero for the targeted family to pay within their lifetime.

So what was the catch?

The first paradox I experienced in the field was the question of a ‘city without citizens’. Majority do not lay claim to the city – it was a route they were passing by in their economic life cycle loop from home with a final destiny to go back home. Incidentally, our data corroborated by national statistics[1] indicated that more than a third owned land with title and some form of more spacious (albeit not the most modern of building material) housing unit in another part of Kenya, often their home village.

The second paradox was that of ‘rational choice’ – the technical fraternity (my domain) theorized that if I offered the slum resident an improved housing unit with better amenities matching his / her current rent; and better still with the opportunity to eventually own the unit alleviating the worry of eviction - it would be a rational - no brainer to “move on up!”. But this experiment has repeatedly failed. The slum resident often opts to use this unit more as an investment asset i.e. rent it out for a higher price to the middle income household, pocket the difference after settling his slum rent and take in the risk of becoming more gentrified as his neighborhood is upgraded pushing him further away from his neighborhood.

The third paradox was fundamental and fuelled my PhD inquiry. This petri-dish of Mukuru manifests across the world. As the world gradually urbanizes, Cities and Urban areas becomes increasingly islands of prosperity in seas of slums. How could it be that the world over - we are all getting it so wrong? Evidently scientific (technical) elegance is a dead horse – there are mountain loads of policies and processes suggested that are seemingly inept at stemming the tide of slumification.

Oftentimes, Science alone cannot complete the answer to a human problem. Science can tell us the water is boiling (because it is being heated at a certain degree and molecules are colliding) but it is blind to why we are boiling water in the first place – the agency underlying the need to boil the water in the first place. This is the realm of the intersection between the human construct (agency for the housing need) and underlying politico-economic orthodoxy (ideologies and orthodoxies influencing the practices and processes that are implemented towards meeting the identified socio-economic need). Are they in sync or divergent? Where is the divergence? Do these political – economic foundations inadvertently perpetuate slumification? Is dignified affordable housing less of a technical problem and more of a political problem?

The Neo – Liberal Agenda in Sustainable Development Goals (SDG’s) Goal 11

The first stop in unravelling this is to look at the global sentiment on housing. What is the shared desire? The humanities voice in housing is capture in United Nations sustainable development goals (SDG’s) which succeeded the UN millennium development goals (MDG’s). The 17 SDG goals articulated in 17 pledges and 169 targets seek to provide a shared global blueprint for sustainable global peace and prosperity[2] and catalyze collaborations at all levels of social life (local – regional – national – international) towards realizing the desired goal.

The need for shelter is captured in SDG 11 summarized below.

SDG Goal 11: Sustainable Cities and Communities[3]

Motivation: “More than half of us live in cities. By 2050, two-thirds of all humanity—6.5 billion people—will be urban. Sustainable development cannot be achieved without significantly transforming the way we build and manage our urban spaces.”

Pledge: “Make cities and human settlements inclusive, safe, resilient and sustainable.”

Target 11.1: By 2030, ensure access for all to adequate, safe and affordable housing and basic services and upgrade slums (2015 – 2030)

However, behind every thinking is an ideology. Looking at the historical events leading to the articulation and formal endorsements of the SDG in September 2015 helps reveal the paradigm behind the SDG’s.

In the wake of the 2008 US sub-prime crisis, the World Economic Forum[4] session of 2010 posited that development goals could only be achieved by managing global risks given the domino effect that uncertainties have in an increasingly connected world. They suggested the redesign of global governance towards global risk management (World Economic Forum, 2010). Under a risk management paradigm society is interpreted in a risk – opportunity continuum. The key question in urbanization and cities then is how to mitigate and manage the risks associated with it by leveraging on the opportunities urbanization presents (Soederberg, 2017). An individual is seen as capable of making rational choices to optimize their utility in the reality of uncertainty and scarce resources. The World Bank then advocates that governments adopt enabling policies to enable the individual tap into market opportunities to manage these emerging risks (World Bank, 2015). For the case of local and national governments, the global risk management paradigm requires that they manage their risk of an economic lull or downturn by instituting austerity policies of slimming down on public spending to balance budgets and thereby stand a better chance of reaping the opportunity it presents of attracting better credit terms that will bolster the economy (Peck & Theodore, 2015). The overarching thinking behind strategies and practices aimed at minimizing government involvement and liberalizing markets to support individualized self-help of meeting basic social needs is neo-liberalism (Peck & Theodore, 2015).

An emerging and increasingly perceivable risk in urbanization is of course dignified housing. Reframing housing in the neo – liberalism lens reduces the social phenomena to economic calculus(Soederberg, 2017). Applying the neo – liberal paradigm of global risk management in addressing this developmental challenge would then require that governments institute austerity measures and cut spending on public housing; set market friendly policies and regulations that allow affordable housing to be a market commodity as well as put in place mechanisms to support the individual to resolve this risk to access an affordable unit from the market – based solutions. It is often argued that the private sector is the best placed player in the liberalized market given its inherent efficiencies and resourcefulness (World Bank, 2014) (World Bank, 2015)(World Economic Forum, 2010).

These strategies are crystallized in McKinsey’s blueprint of addressing the global affordable housing challenge (Woetzel et al., 2014) emphasizing on three strategies: Marketization, individualization, and privatization. An underlying assumption of neo-liberalism is that all players – the government, the private sector and the low income person are on equal footing and can therefore realize a win – win outcome, an assumption critiqued as not holding true for those cut off from the center (Spivak, 2000) inevitably putting the poor at a disadvantage.

A classic example is the McKinsey advocated Public Private Partnership – PPP strategy of allocating risk to its most natural owner in the housing value chain and thereby minimizing damage. In this model the government avails the public land (the major hurdle in provision of affordable homes) while the private sector efficiently produces the housing units. (Woetzel et al., 2014) To complete the value chain to the individualized consumer in need of affordable housing, the strategy advocates for extension of credit to the low income groups emphasizing on home ownership through innovative mortgage solutions that would then integrate lower income groups to the economy (Woetzel et al., 2014). In the global north this has taken the form of Mortgage backed securitization(World Bank, 2009). In the global south this has been advocated through housing micro finance (UN-Habitat, 2013). Both strategies of promoting affordable mortgages have by and large failed spectacularly in both node of the globe(Jones, 2012). The push of making “bankable slums” has also been criticized of addressing the need for reliable living wage with debt. With the unequal power of the lender and the borrower, the policies have inevitably favored the lender by reforming legal and regulatory frameworks to make them more comfortable with taking on the added risk of lending to the poor such as foreclosures (Jones, 2012) with success of realizing social housing justice few and far between (Mukhija, 2004)(Mitlin, 2011). This failed home ownership through mortgage debt strategy has left the poor in a more precarious position with the extra burden of debt repayment (Soederberg, 2004)

A historical look into the lead up to SDG 11 helps reveals the underlying neo-liberal thinking and prescriptions to realizing the set target 11.1 “By 2030 ensure access for all to adequate, safe and affordable housing and basic services and upgrade slums”

The predecessor – Millennium Development Goals (MDG’s) significantly centered neo liberal thinking with the focus on quantitative targets, private lead market solutions in realizing social goals and individualization in addressing the social needs (Death & Gabay, 2015)(Harvey, 2005). By continuing the quantitative targets legacy and failing to critique the pre-set neoliberal notions or counter them by advocating for social housing (Haila, 2015) or cooperative models that move away from individualization (Soederberg, 2017), SDG’s have been seen as a continued promotion of neoliberalism by normalizing the role of private enterprise in delivering the basic social protection of affordable safe and adequate housing (Soederberg, 2017)

Conclusion:

Like every human problem, the housing problem is interconnected and its cause and effect to other human needs are complex and dynamic. Neo liberal strategies for realizing housing for all have over half a century of experimental application in the global south since (Turner & Fichter, 1972) individualized self-help proposal that was formally articulated by the World Bank (Mayo & Angel, 1993) in compelling global south governments into structural adjustments programs that would limit their role in provision of basic services. With growing slums, failure was explained away by poor governance, corruption and absence of political will (Li, 2011). In the ensuing environment of promoting market – friendly regulations to thrive private enterprise MDG’s and subsequently SDG’s were articulated. In this non – neutral environment, the influences of WEF and the World Bank are evident in promoting privatization individualization and commoditization of affordable housing. Special Rapporteur Leilani Farha has articulated the overall undesired impact of the neoliberal agenda in housing as “increasingly disconnects housing from its social function of providing a place to live in security and dignity and hence undermines the realization of housing as a human right”[5]

It is also telling the redesign of global development agenda by (World Economic Forum, 2010) in private enterprise friendly neo liberal thinking at a time when the private corporations seek to expand their presence and role in the global south (Sharma & Soederberg, 2020)

The ineptness of the private enterprise in delivering safe “…adequate, safe and affordable housing..” is evident (Butler, 2019)(Jefferies, 2020)(Mitlin, 2011)

There is growing urgency to set forth alternative thinking with growing social discontent and feared or lived instabilities from the fast growing NINJA (No Income No Jobs, No Assets) youthful unemployed or underemployed demographic (Foster, 2020; Sawhill, 2014)

References

Butler, C. (2019). Public housing on ‘the rocks’: Brutalism, heritage and the defence of inhabitance. Acta Academica. https://doi.org/10.18820/24150479/aa51i1.1

Death, C., & Gabay, C. (2015). Doing Biopolitics Differently? Radical Potential in the Post-2015 MDG and SDG Debates. Globalizations. https://doi.org/10.1080/14747731.2015.1033172

Financing urban shelter: Global report on human settlements 2005. (2013). In Financing Urban Shelter: Global Report on Human Settlements 2005. https://doi.org/10.4324/9781849771337

Foster, J. B. (2020). The Renewal of the Socialist Ideal. Monthly Review. https://doi.org/10.14452/mr-072-04-2020-08_1

Haila, A. (2015). Urban Land Rent: Singapore as a Property State. In Urban Land Rent: Singapore as a Property State. https://doi.org/10.1002/9781118827611

Harvey, D. (2005). NeoLiberalism: A brief history. Oxford: Oxford University Press.

Housing Finance Policy in Emerging Markets. (2009). In Housing Finance Policy in Emerging Markets. https://doi.org/10.1596/978-0-8213-7750-5

Jefferies, W. (2020). Stolen: How to Save the World from Financialisation. Review of Political Economy. https://doi.org/10.1080/09538259.2019.1698197

Jones, B. G. (2012). “Bankable Slums”: The global politics of slum upgrading. Third World Quarterly. https://doi.org/10.1080/01436597.2012.679027

Li, T. M. (2011). Rendering society technical: Government through community and the ethnographic turn at the world bank in Indonesia. In Adventures in Aidland: The Anthropology of Professionals in International Development.

Mayo, S. K., & Angel, S. (1993). Housing: enabling markets to work. Housing: Enabling Markets to Work.

Mitlin, D. (2011). Shelter finance in the age of neo-liberalism. Urban Studies. https://doi.org/10.1177/0042098010375325

Mukhija, V. (2004). How is housing financed? The case of a group of tenants who became property developers in Mumbai, India. International Development Planning Review. https://doi.org/10.3828/idpr.26.3.3

Peck, J., & Theodore, N. (2015). Fast policy: Experimental statecraft at the thresholds of neoliberalism. In Fast Policy: Experimental Statecraft at the Thresholds of Neoliberalism. https://doi.org/10.1177/0094306116671949mm

Sawhill, I. V. (2014). Coming Up Short: Working-Class Adulthood in an Age of Uncertainty , by J. M. Silva . Work and Occupations. https://doi.org/10.1177/0730888414545447

Sharma, S., & Soederberg, S. (2020). Redesigning the business of development: the case of the World Economic Forum and global risk management. Review of International Political Economy. https://doi.org/10.1080/09692290.2019.1640125

Soederberg, S. (2004). The Politics of the New International Financial Architecture. In Reimposing Neoliberal Domination in the Global South.

Soederberg, S. (2017). Universal Access to Affordable Housing? Interrogating an Elusive Development Goal. Globalizations. https://doi.org/10.1080/14747731.2016.1253937

Spivak, G. C. (2000). The New Subaltern: A Silent Interview in Chaturvedi, V (ed.). In Mapping Subaltern Studies and the Postcolonial.

Turner, J. F. C., & Fichter, R. (1972). Freedom to Build: Dweller Control of the Housing Process. Urban Studies.

Woetzel, J., Ram, S., Mischke, J., Garemo, N., & Sankhe, S. (2014). A blueprint for addressing the global affordable housing challenge. McKinsey Global Institute.

World Bank. (2014). World Development Report - Risk and Opportunity: Managing Risk for Development. In World Development Report.

World Bank. (2015). World Development Report 2015: Mind, Society, and Behaviour World Development Report. In The Library World.

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[1] About 70% of Nairobi residents are the low income slum or tenement residents who exhibit high mobility with an average stay of under 4 years. Further, over 40% claimed to own land with title in another county, usually their ancestral county. Interestingly, there is very little squatting in the Nairobi slums (KNBS, 2019) [2] https://sdgs.un.org/goals [3] https://www.undp.org/content/undp/en/home/sustainable-development-goals/goal-11-sustainable-cities-and-communities.html [4] The world economic forum (WEF) is a prominent private international organization representing global top corporations and high net worth individuals. [5] Special Rapporteur on adequate housing as a component of the right to an adequate standard of living, and on the right to non-discrimination in this context https://www.ohchr.org/en/issues/housing/pages/housingindex.aspx Accessed 20 November 2020