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Precipitating Out of a Supersaturation

6 min read

Once it starts, a thunderstorm is unstoppable: the sunny seeming equilibrium of a moment before becomes a torrent whose cooling reinforces itself, reversing in a few minutes what took hours to build up. Before the storm, the air becomes a supersaturated solution holding more water vapor than it normally could. The ensuing weather catastrophic event suddenly precipitates that excess out – and the result, for those experiencing it, is sturm und drang.

Just as supersaturated atmospheres recur in nature, so they do as well in a business industry or economy. Their telltale signs include too many actors, too much process, too much complexity, too much self-satisfaction. Most of all, a supersaturated industry has too little awareness of risk, especially tangential risk: shocks seemingly unrelated to our little pocket of the world. In 2008, we were astonished that secondary market derivatives could imperil the global financial system; in 1986 we were gobsmacked by a long-deemed-politically-impossible tax reform act that punctured a S&L driven pricing bubble; and in 1974 we had no clue the price of oil was about to spike.

A supersaturated solution can sometimes be precipitated by even a small shock – and Covid-19 has proved to be the biggest shock in my lifetime. Suddenly, we’re taking shelter from a thunderstorm brought on by a virus, and the news stories drumming on our mental tin roofs are making it hard for us to think strategically.

As we shelter by working from home, we’ve already seen that how we do business is undergoing structural shifts; now we’re also seeing that what business we do, and who does that business, are both also precipitating out. Here’s some of what’s raining outside, and what’s likely to emerge after it does:

  1. Boomer leadership of national affordable housing entities. Although in no hurry myself to go gentle into that good night, I nevertheless observe that my generation holds way too many of the top posts in our entities, and the larger the entity, the more likely it has an aging-together leadership cohort. Boomers’ parents retired thankfully at 65; we thought we had no sunset date. Now many of my peers are rethinking their post-Covid work futures, and that red pill cannot be untaken.

Leadership after the fallout. As our generation hands over the reins, the top selection criterion ought to be diversity by age. If the incoming CEO isn’t two decades younger than the outgoing one, the organization risks short-horizoning its own future. Affordable housing is ripe for such a change.

  1. Our current pay-to-patch-up healthcare funding mechanisms. Today’s system pays hospitals like auto-repair shops and their doctors like mechanics: haul the chassis onto a lift, replace or fix what’s broke, charge parts and labor, wheel the vehicle back into traffic. Nobody I know touts today’s system as it is, and more critically, everybody knows that the nation can no longer afford the health dysfunction arising from our system’s perverse incentives.

Healthcare funding after the fallout. Just as fire insurance companies got into fire prevention and utilities into energy conservation, ‘healthcare providers’ will remodel themselves into ‘illness reducing entities.’ In effect, they will move upstream from the medical event to head off health trouble and reduce medical events. For affordable housing, Health Secure Housing is the most obvious step – and it is far from the only one.

  1. Our antiquated and anti-future zoning and approvals system. America’s systems of zoning, land use and urban planning are implicitly premised on local supremacy over national policy; two-dimensional single-purpose land uses over mixing; and spatially separating home from work with high-density daily commutes. Every part of this system has now been revealed to increase the health insecurity of people (especially workers, especially essential ones), families (especially lower-income or marginalized ones) and neighborhoods (especially higher-density).

Urban land use after the fallout. Urban land use patterns have already changed, and these new facts on the ground will force law and practice to get with the program. Accelerated physical retrofitting will accommodate now-preferred modalities, such as working from home with cheap-to-user broadband. Previously close-encounter experiences (e.g. university classes) will be reconfigured into health-safer mixed approaches (e.g. rotating physical and virtual classroom participation, perhaps scattered sub-campuses). Suddenly obsolete stranded-cost typologies (e.g. enclosed shopping malls) will be reoccupied (i.e. into combined live-work-play health-secure communities), all these at new price points and with new financing structures. Communities that create post-virus healthy neighborhood firsts will outcompete those that cling to legacy land use thinking, and it will change politically and judicially.

In this, affordable housing may well be a first-mover, because public health risks are top of mind for everybody, and lack of affordable housing is now broadly seen as a public health risk.

  1. The schism between housing and economic development. Although housing and economic development are often co-located within government agencies, especially at the state level, in terms of agency practice, the two, over the decades, have drifted apart. Often, it has been the economic development arm that withered.

Economic development after the fallout. With economic development inextricably linked to health security, and health security inextricably linked to Health Secure Housing, governors will mandate that their housing, economic development and public health agencies work together – or else.

  1. Many current conglomerate business megafauna. Like people, organizations tend to have an actuarial curve of evolution and eventual decline. They become susceptible to developing mental and business reinvention sclerosis as they grow more prominent, older and larger. Their slow obsolescence may in fact be worsened by extended continuity of successful leadership, because the absolutely hardest thing for an executive to do is have the epiphany, the world has changed; what worked before is now going to fail; and we have to junk it right now.1 For leadership that misses this realization, post-precipitation reality can be a painful wakeup call.

Affordable housing practice leadership after the fallout. In purely for-profit realms, lumbering megafauna can be brought down with a crash by private equity. In social-impact realms, the denouement is seldom so dramatic; instead it’s a gradual waning of relevance. A good indicator is an organization’s loss of mindshare among those outside it; another is the rise of new networks or groupings of like-minded people and companies that bypass the incumbents’ trade associations.

Sudden and frightening as being caught in a downpour can be, a thunderstorm clears the air – and for affordable housing, what follows looks like bright.

David A. Smith is founder and CEO of the Affordable Housing Institute, a Boston-based global nonprofit consultancy that works around the world (60 countries so far) accelerating affordable housing impact via program design, entity development and financial product innovations. Write him at dsmith@affordablehousinginstitute.org.