Miriam Axel-Lute: How do you like being back in Boston?
George McCarthy: I love being back in Boston. It’s a different place than when I lived here 30, 40 years ago.
When I grew up here, they were selling brownstones on Mass. Ave. for $1 dollar, and the South End was considered a dangerous place to live. Now, the South End has million-dollar condos and some of the best restaurants in Boston, and you can’t get there, it’s just too popular.
The boom that happened over the last 40 years here is extraordinary and the quality of life has gone up immensely. They figured out ways to lay out the city to make it bicycle-friendly, to make it easier to get around.
My commute right now is a bike ride—a10-minute bike ride, a mile and a half, on a beautiful bike path. Takes me longer to drive that mile and a half than it takes me to ride the bike, almost twice as long.
It’s a huge improvement on the way things were when I was growing up, so I’m benefiting from decades of efforts. I have to say it’s transformed in a lot of positive ways, except for traffic.
Miriam Axel-Lute: Traffic, and affordability.
George McCarthy: The affordability issue is a big deal. This is really ground zero for the idea of the suburbanization of poverty. Poverty has pushed into the next line of inner-ring suburbs, and they’re not equipped to deal with those challenges.
The first ring, like Somerville, Chelsea, [or] Charlestown, are now completely gentrified, and so now you’re out into Lynn and other further-out suburbs.
Miriam Axel-Lute: What do you make of Somerville’s efforts to organize in advance of the train coming in [to] prevent more displacement?
George McCarthy: I think it’s meritorious, but too late to really defend against the influx of capital and people. Somerville has become a destination. It’s the Brooklyn of Massachusetts.
Miriam Axel-Lute: So what’s needed?
George McCarthy: In some ways, what’s needed is better planning 20 years ago, and thoughtful ways to defend places from massive speculation. There’s nothing wrong with places redeveloping. There’s nothing wrong with a little bit of gentrification, because rising housing prices aren’t a terrible thing. The problem is we aren’t able to reserve any housing in these places for people who need it, who work there [or] close by, who are then driven further away.
What’s needed to prevent that is reserving a significant share of the housing stock in some kind of permanent affordability, which we haven’t yet cracked the code on, but there’s lots of little pearls out there that will show us the way.
Harold Simon: There must be a way to deconstruct what happened then [20 years ago] and use that as lessons. I don’t know what Somerville looked like 20 years ago, but I’ve had conversations with people who said, “We can’t be planning land trusts, we can’t give property away. We have other problems to deal with.”
Miriam Axel-Lute: It’s so hard to convince anybody that they might become Somerville in 20 years if they are currently giving away brownstones for $1.
George McCarthy: In Detroit, if you talk about limiting equity on housing, people look at you sideways. They’re like, “Why would you want to put any limitation on housing that has almost no value at all?” and [we are] ultimately saying, ‘Well, this is the ideal time to be able to hold it.’
Twenty years from now, people will be bemoaning the fact that they weren’t able to reserve some amount of housing and land in Detroit for affordability, because that place is ready to pop.
Miriam Axel-Lute: It’s already true downtown. There’s [a] 200-person waiting list on some downtown apartment buildings.
George McCarthy: Right. The rental vacancy rates are 2 percent in Detroit. The rest of the housing stock is obviously in a difficult place right now, but it’s not going to be permanently difficult. People say, “Detroit has 100,000 vacant properties.” You know what other place had 100,000 vacant properties in 1978? New York City. And New York City managed to run through all that.
Harold Simon: Lincoln Institute needs to write a report called, “Missed Opportunities,” that looks at those things and tries to figure out how you could have done it 20 years ago, for people who are doing it now.
Miriam Axel-Lute: Dudley Street Neighborhood Initiative did exactly that, introduced a land trust in an environment of abandonment and disinvestment.
George McCarthy: Who in their right mind would have thought of shared equity at a time when there was no market? And [yet] the success of that is actually quite profound, right?
Harold Simon: They’ve managed to keep their homes affordable, and keep their CLT homes with zero foreclosure in a neighborhood with a very high foreclosure rate.
George McCarthy: Right. Why would you want to do a land trust in Detroit right now?
Miriam Axel-Lute: Because in 30 years you’ll wish you had.
George McCarthy: I agree. People think that there’s a body of strategies that apply to distressed markets and a different body of strategies that apply to hot markets, but, in fact, there’s a lot of similarities.
For example, in the land banking world, everybody thinks that land banks are a really important [strategy] to assemble and to acquire, [and] define ways to creatively accelerate the reuse of vacant and abandoned properties in legacy cities; but in fact, we need land banks in Boston. We could use a land bank in San Francisco, in places that are built out and in places where the markets are high.
How else can you act on behalf of the larger economy to assemble properties, oversee reuse, and even accelerate the reuse of abandoned properties? As Alan Mallach pointed out 15 years ago, the systems for managing and reusing abandoned properties are just as bad in Boston as they are in Detroit.
Harold Simon: You have to really clarify the mission of that land bank.
George McCarthy: In some ways, that’s where the mission of the land bank bleeds into the mission of a redevelopment authority. Unfortunately, redevelopment authorities have gotten a bad name.
One of the lessons I derived from 14 years in philanthropy is that the world is full of missing institutions—gigantic holes that need institutions to fill them. It’s not obvious how to create the institutions to fill those vacuums, and one of the things I kept trying to do is help create [them].
For example,] lots of people think that one of the main anchor institution strategies is to get [them] to procure goods and services from local vendors, minority-owned businesses, women-owned businesses, and come up with these gigantic numbers for what anchor institutions buy. They think the procurement officer at the institution [will] get religion and start finding ways to buy stuff locally. What they don’t understand is that the procurement officer needs certainty of execution and competitive pricing, and the last thing they want to do is go into business with an upstart who might or might not be reliable.
When I started talking to people about doing anchor strategies all over the country, one of the things I said is, you need an intermediary that can both help to facilitate the relationship between local purveyors and the anchors, and can guarantee performance. That’s not a trivial task, because if you want to build the long-term trust of the anchor institutions and local businesses, then the least you can do is say, if something happens and you don’t get your bread, we’ll get it for you; and that could easily be done by the right intermediary—a CDFI or somebody else who could play the role [of] bridge-builder. Eventually that intermediary will be unnecessary, but you’ll need it in the short-term to build trust.
Miriam Axel-Lute: Where do you want to take Lincoln Institute in your time here?
George McCarthy: The challenges coming over the next 30 years are in some ways similar to the challenges we faced over the last 30 years, but in other ways they’re different. Thirty years ago, I don’t think people were obsessed with climate change.
There’s a central role that land policy can play [in] planning [and] use. Lincoln Institute has been well positioned to do [that], but I think we can find a way, through different kinds of partnerships and approaches, to do that to another level.
A general challenge for anybody working in community economic development in the next century is going to be how we manage the process of redeveloping land that’s already been developed, or land that’s currently occupied that you need to improve.
In the developing world, this is about the favelas and slums that are choking cities. In a lot of cities, 25 to 30 percent of the population lives in unplanned settlements. How are you going to navigate from today to a point in which you can say these people are adequately housed and served by the kind of infrastructure that the developed world comes to expect—sewer, water, electricity, civil stuff?
In the case of older industrial cities, how do you take land that has been developed and used for other purposes—industrial, commercial—and repurpose it? You have to be imaginative. It’s going to take a whole different approach in how you deploy capital and how you manage the process.
Yet another thing that we haven’t cracked the code on is how do you align stakeholders who don’t know they’re aligned, get them to work together, and agree on a process, moving forward?
Miriam Axel-Lute: And how do you finance it?
George McCarthy: Right. The Lincoln Institute [has] some of the best ideas about how you use the differing value of land as a result of public investment in other things to finance improvements. We call it value capture. We think it’s going to be a land value tax that can unlock the potential of redevelopment, because ultimately there’s just not enough money, certainly not enough public money, and leveraging private money is going to be a significant challenge.
Miriam Axel-Lute: Is anyone deploying the land value capture idea?
George McCarthy: Absolutely. Our program in Latin America and the Caribbean is working on the ground now with multiple cities that have been using land value capture to do things like fund public transportation infrastructure. Sao Paolo [has] been making some great strides. I think this is going to pop, because almost every Latin American city is looking for a financing solution to the redevelopment challenges they have.
For example, we’re poised to work with Campo Grande Brazil, which is one of those “second-tier cities.” It’s [a] bit less than a million people, and wants to figure out a way to finance the redevelopment of its urban core using value capture. The interesting thing about working with those second-tier cities [is] they don’t have a ton of planning capacity and they rely on help from outside. We can bring it. They also have access to other institutions that will be important partners, like the Inter-American Development Bank.
Miriam Axel-Lute: Why is it taking off in Latin America compared to here?
George McCarthy: I think it might have something to do with our roots in British common law and the Latin American and Spanish law of land use and planning and taxation. Whatever it is, the core of that legal structure seems to be more malleable in Latin America than it is in countries under British common law.
The other thing is, in Latin America, you’ve got much more powerful central governments and much weaker local governments. In the U.S., especially in [commonwealths] like Pennsylvania or Massachusetts or Virginia, home rule is almost an unassailable force. That’s a big deal, because you can’t get to larger-scale solutions to do regional infrastructure like transportation systems.
In many ways, people consider inclusionary zoning a value capture mechanism, because basically you take some of the upside to the development and make sure it’s set aside for [public] purposes. But the share of the value increment that you take is a big deal, and there are places that are more aggressive in taking a larger share of the value that’s created from public investments than others.
People are trying to crack the code on ways to take public transportation investments and the value that’s created in the land close to public transportation to finance affordable transit-oriented development. This is big, and in places like Curitiba, Brazil, they made gigantic inroads. In over 30 years of development in that city, after they put in the rapid transit, the density along those transit corridors is much higher than it was beforehand, and there was reason to believe that you didn’t even capture a lot of that value.
Miriam Axel-Lute: How much of a role does inclusionary housing as a form of value capture have in Lincoln Institute’s work right now?
George McCarthy: It’s a big component of our work in the United States, and we have a lot of interest in trying to find ways to promote inclusionary and permanently affordable housing. We’re back to the idea of how do you develop a city that really serves the needs of its entire population? I think there’s an optimal share of local housing stock that should be maintained as permanently affordable. I keep saying 25 percent, but it’s probably solvable. Almost half a million units of housing in New York are permanently affordable, between the limited equity co-ops, the old Mitchell-Lamas, [and] the public housing units. That is an indicator to me of a very highly-developed affordable housing civic sector.
I think public housing in New York [has] not been well understood as to why it’s been successful and didn’t require major demolition like in so many other places. They’ve got their challenges now, but it’s a great story.
Miriam Axel-Lute: You said earlier there’s not necessarily separate sets of tools for different markets. When you’re talking about inclusionary housing the response is often, “It’s not for weak markets because it’ll just shut down development.”
George McCarthy: In all markets, if we’re going to bring public subsidy into the land improvements or the actual financing of the developments, then we should ask for permanent affordability in return, at least for some of the units.
We thought that the 15-year affordability limits that were part of the Low Income Housing Tax Credit were a long time. Turned out 15 years is not that long, especially in the housing world, so lots of places revisited that. Why not make it permanent?
Miriam Axel-Lute: What is said in response is if we don’t give them the subsidies, they’re going to go to the suburbs anyway. So, if you add additional restrictions, developers won’t come.
George McCarthy: You have to take what developers say with a grain of salt. They’re going to charge whatever rent the market’s going to bear.
When subsidy’s available, somebody usually emerges that wants to develop, and they don’t all want to develop out in the suburbs because that isn’t always easy. NIMBY, local control, and other issues [make] the profitability of building in the suburbs limited, so I’m always a bit skeptical of the complaints of developers.
Miriam Axel-Lute: An article on CityLab recently was saying that liberal areas are so much more unaffordable, because of land use regulation, including limits to sprawl.
George McCarthy: Sprawl isn’t really more affordable. You’re shifting your costs to maintain a sprawled infrastructure as well, and people forget that. If we did full-cost accounting, we would understand differently. Unfortunately, full cost accounting is something we aren’t very good at.
I don’t know whether I’d buy this argument about liberal areas being unaffordable, and I don’t know that policies have that much to do with it. As places get more densely built and congested, you end up with more regulation. And the places that have been built [for] a lot longer period of time just inherit the issue—[accruing] all these regulations that happen over time. A place like Boston, which has been around for hundreds of years, is going to be more difficult to develop than Atlanta or Phoenix, [which] has less to do with the local politics than it has to do with the history of how local regulations evolve [and] the way the place is developed in the first place. The San Franciscos, Bostons and Philadelphias grew up in a time when people got around on foot, typically. Manhattan imposed a grid in 1812, and was built around subway streetcars, horse-drawn transportation first.
Miriam Axel-Lute: So it’s a bit of a red herring.
George McCarthy: I think the correlation between political leaning and the cost of living [is] a red herring. The idea, of course, is that the only thing that makes places unaffordable is interference by the government. It’s like the claim by lending institutions that their regulations are what make it hard to serve their customers.
Miriam Axel-Lute: Lincoln Institute has done a good job of doing outreach to journalists over the years [inviting journalists to forums, etc.].
George McCarthy: We love journalists.
We don’t have any partisan bent, but we do believe [in] this central importance of land in the quality of the way people live on the planet. Right now, everybody doesn’t get that.
One of the main avenues is to communicate through journalists. Another main avenue is to communicate to a broader public. We’re also thinking about how we leverage new technologies to get people to understand the importance of land owning and policy, and things that have to do with their everyday life.
Miriam Axel-Lute: I’m guessing that land policy and taxation is not the first thing that makes everybody perk up their ears and want to read?
George McCarthy: No. This is why we rely on journalists who are better with conveying concepts and making it accessible.
I’ve known for a long time that researchers are not the best people to promote their own research, because they’re usually so down in the weeds of their methodology that they talk more about the methodology than about the implications of their findings. But the reason they do the research is to inform decisions made outside of that realm, so you need to find somebody that’s the vector of information to the other realm.
Shelterforce: Thank you.