Dynamic and Durable: Strategic Balance in Community Development Interventions

Commentary by Daniel Shoag

By Thomas Leighton, M.Des Real Estate and Built Environment ‘13

Introduction

Municipalities and public-minded organizations face a challenge in designing effective interventions to improve conditions in disadvantaged communities. Disadvantaged communities are subject to a set of dynamic conditions that, in the absence of intervention, generally lead to further community deterioration and destabilization. They also lack a base of durable assets that is sufficient to attract either new financial investment, or residents that have locational choices. Interventions in disadvantaged communities can be thought of as being of two kinds: they can address the dynamic conditions that trouble the community or they can augment the base of durable community assets.

Dynamic interventions include programs to combat crime, transform failing schools, improve health, or enhance job readiness. Durable interventions are significant investments in such areas as transit improvements, adding or improving connections to parks and natural amenities, and concentrated place-making efforts that might include a mix of public and private investments. This article uses the term “dynamic investment” to refer to interventions that target dynamic conditions and “durable investment” to refer to interventions that build a community’s durable asset base. A fundamental strategic question faced by cities and other community development actors is how to distribute limited investment between these two categories.

It is important to recognize that the decision is not presented in this way to public-minded entities, so the question is not commonly considered directly. Many considerations legitimately go into investment allocation, such as the constraints on sources of community development funding and opportunities for partnership and leverage. Moreover, purview over different kinds of intervention is fragmented among various city departments and community organizations.

While acknowledging these realities, there is a benefit to thinking about community interventions in these two broad categories. Modeling the relationship between these intervention types and their impact on community value helps to explain the (sometimes rapid) decline of community value and conditions in certain neighborhoods, and why that suboptimal state is sometimes so persistent. It also provides a basis for suggesting that we may be systematically underinvesting in asset-building interventions in favor of interventions that address dynamic conditions.

The model and insights presented in this article derive from the author’s 14 years of experience as a city planner working in disadvantaged North Minneapolis and from teaching community development case studies for a University of Minnesota workshop course on revitalization planning and implementation. The article is also heavily influenced by the research of the Project on Human Development in Chicago Neighborhoods.

The Self-Sustaining Community

Healthy communities are self-sustaining in two ways.

  1. The market works. Financial investment in property maintenance and new development brings a financial return, so private investment occurs without public subsidy.
  2. The community works. Healthy communities are, to use the language of Bruce Katz, “neighborhoods of choice” — which means they are attractive to households with sufficient means to choose between alternative locations.

Disadvantaged communities fail these tests. The absence of the first condition is a type of market failure, which leads to deteriorating conditions in the built environment. The absence of the second condition is a type of population failure, where the concentration of poor individuals and families yields a concentration of the issues that are more prevalent among poor households.

The research of Robert Sampson and his collaborators in the Project on Human Development in Chicago Neighborhoods has greatly enriched our understanding of the impact that neighborhoods have on the well-being and prospects of their residents. While residents of disadvantaged communities may face personal and household challenges such as low income, lack of education, or single parenthood, neighborhood conditions exert an additional, independent detrimental impact on their lives. In short, residing in a disadvantaged neighborhood further handicaps the prospects of individuals and households who already face great challenges.

Community value is not easily quantified, yet it reflects a reality in that we recognize improvement and deterioration in communities. Beyond its clear economic connotation, community value should be thought of as encompassing broader notions of community livability and desirability. The value of a community derives from both circumstances in the community (its dynamic conditions) and what it has to offer in a tangible sense (its durable assets).

If community value is represented on a continuum, as on the vertical axis of the graph below, there is a point on that continuum where the value is sufficient to perpetuate itself — where, to use the language above, both the market works and the community works. The graph also shows that the community value in disadvantaged communities is at a lower level than what is self-sustaining.

The community value of a disadvantaged community may be near, or distant from, the self-sustaining value level. The distance between the community value and the self-sustaining value might be thought of as akin to the aggregate investment that is required to revitalize the community, or to restore it to a healthy and stable state. It would also be related to other measures, such as the amount of subsidy required to attract new development.

Dynamic Interrelated Conditions

The specific factors that contribute to, or dampen, the value and desirability of disadvantaged communities can be placed in two broad categories — dynamic interrelated conditions and durable community assets.

When we think of disadvantaged communities we often think of their dynamic conditions — criminal and unruly activity, unemployment, poor schools, health issues, disinvestment, and diminished collective efficacy. Revitalizing communities is no easy matter because detrimental conditions, once established, are an interrelated system. Causative links run in all directions. The system of conditions exhibits positive feedback, which means that the improvement or worsening of one condition works through a causative loop, resulting in the further improvement or worsening of the condition. In short, detrimental conditions serve to perpetuate themselves, and worsen in the absence of intervention.

Dynamic investments respond to these conditions. They tend to be programmatic and ongoing, although it is not uncommon for surge strategies to be pursued for a time.

Durable Community Assets

Disadvantaged communities tend to have a weak asset base. Those areas with stronger natural amenities were often favored by the affluent in original settlement patterns, and further differentiation in durable investments occurred through both market and political mechanisms.

Durable community assets include both natural features, and public and private capital improvements that were made at particular points in time. They include public infrastructure related to transit and transportation, natural amenities, parks, and open space. Retail districts can be a locus of value, as can historic areas, distinctive corridors, and other types of dynamic and attractive places. Functional services such as post offices, schools, and libraries also confer community value. The entire real estate stock of a community is an additional durable asset and a fundamental base of value.

Communities can also have negative assets (or liabilities). Communities that are divided by, or subject to noise from, freeways or active rail corridors may be negatively impacted. Similar impacts may derive from certain industrial activities or public facilities such as garbage transfer stations.

Community assets can be created, and real estate development often plays a role. Such development is most impactful on overall community value and desirability when it is part of a collection of improvements which creates a place that is recognized as attractive and dynamic, and which becomes part of the community identity. Place-making of this kind attracts new residents and further investment.

Durable investments grow the asset base. They are one-time capital expenditures, as opposed to ongoing programmatic expenditures, although there may be associated ongoing maintenance or programmatic expenditures.

The aggregate value of a community’s asset base may play a role in explaining a fundamental question in community development. That is, if detrimental conditions tend to worsen in the absence of intervention, why do disadvantaged communities often seem to reach a state of relative (albeit suboptimal) equilibrium over a long period of time? One can observe this relative equilibrium in instances where vigorous dynamic investment is occurring and where it is relatively absent.

In fact, durable assets seem to establish a floor of value in a community. The disadvantaged North Side of Minneapolis has struggled mightily for decades, yet it also retains important assets. It is two to four miles from a vibrant downtown, is well served by transit service, has a signature regional park along one edge, and retains a handsome original housing stock. This constellation of durable assets seems to have established a fundamental base of value that, along with ongoing dynamic investments, has prevented further decline.

A further source of enduring value is the community’s aggregate real estate base itself. However dampened by community conditions and disinvestment, its ability to generate an income stream provides an incentive for property owners to preserve a minimal functionality and contributes to the value floor.

The Disadvantaged Community Model

If we accept the notion of a value floor, Figure 3 shows the level of dynamic investment required to maintain community value for a given community. Where community value is high, as at point D, the community attracts private investment and households with choices. It is self-sustaining and requires no dynamic investment to maintain equilibrium. Similarly, little dynamic investment is required to maintain the status quo where community value has declined to a point near its value floor, as at Point VA, since the community’s durable asset base serves to retard further decline. In between these points, more significant dynamic investment is required to maintain community value. For example, an ongoing investment of IB is required to stabilize community value at VB.

Figure 3: Dynamic Investment Required to Maintain Value

Where dynamic investment is greater than that which is required to maintain community value (as at any point above the curve), detrimental conditions are being ameliorated and community value will rise, resulting in a rightward value shift in our model. Where dynamic investment is less than required to maintain the status quo, community value will decline (shift leftward), as illustrated in Figure 4.

Figure 4: Change to Community Value based on Level of Dynamic Investment

Note how precarious Point C is in the diagram. Community value is at VC, and the annual public investment is at IC. If a change in the community context results in a decline in community value, Point C shifts leftward and the level of dynamic investment is no longer sufficient to maintain community value. Without increased investment or new interventions, community value will begin to decline, and that decline will continue until it reaches value VA. Point A, by contrast, is inherently stable, although we must remember that it corresponds to poor neighborhood conditions and

imposes difficult conditions on individuals and families. If positive or negative shocks occur to community value, the existing dynamic investment will return community value to VA over time. One implication of this is that the green segments of the community value continuum in Figure 4 are those where we should observe long-term equilibria.

Modeling Community Interventions

We can now illustrate our two types of community interventions — increasing the level of dynamic investment or investing in the community’s durable asset base.

Figure 5: Effect of increasing Dynamic Investment

The effect of increasing (or decreasing) dynamic investment has already been discussed, and Figure 5 illustrates two specific instances of this strategy. If the community is at value level VA, and dynamic investment is increased from IA to IB and maintained at that level, community value will appreciate until it reaches a new equilibrium at VB. Harlem Children’s Zone represents a rare breed of initiative that focuses entirely on surmounting adverse community conditions through heightened programmatic responses to community conditions. Within a well-defined geographic area in Harlem, the initiative includes no enhancements to the built environment. The project demonstrates that such an approach is potentially viable, at least in some communities, and it also shows the extraordinary cost associated with the approach — the cost of heightening programmatic interventions to the level at which they significantly shift outcomes for children in the community.

If the starting point for community value and dynamic investment is VC and IC respectively, and dynamic investment is increased from IC to IB, community value will improve to the point where it is completely self-sustaining.

Durable investments must be represented differently in the model. Adding to the community asset base shifts and modifies the dynamic investment curve.

Figure 6: Durable Investment lightens the loan

When investment is made that enhances or expands the community asset base — as with the introduction of new transit service or the completion of a successful place- making effort — the value of the community improves, whatever its current position on the value continuum. The value floor likewise improves and hence shifts rightward. This compresses the entire curve, and lowers its maximum point. Figure 6 shows a shift in community value from V1 to V2 which results from a hypothetical durable investment. Less ongoing dynamic investment is now required to maintain community value. This should represent relief to cities and other overburdened community development organizations, as illustrated in the cartoon below.

Interventions: Real World Choices

The model shows a mechanism whereby one-time durable investments can reduce the requirement for ongoing dynamic investments. It also suggests the possibility that there may be an optimal mix of intervention types for a given community to achieve long-term community stabilization. In reality, discerning the best approach to revitalizing disadvantaged communities is no easy matter. There are layers of complexity relevant to intervention strategies. What specific opportunities for asset building are available, and what is their impact potential? For what strategies can external resources be leveraged? What is the fungibility of available community development resources across intervention types?

In the absence of good information, cities are likely to default to the methodologies that are already in their tool kits and comfort zones, those which are least costly in the short term, or those which carry the least risk. These considerations may predispose cities to favor dynamic investment programs. Dynamic interventions have the following characteristics, which may lend themselves to be the interventions of choice in the absence of a compelling rationale to do something different.

- They are familiar. Cities and other community development organizations will already be addressing a range of issues in disadvantaged communities in an ongoing, programmatic fashion. Increasing or branching out from that base is a way of building from experience.

- They are efficient. Programs addressing dynamic conditions have great administrative efficiency in comparison with asset building initiatives. At the outset, programs are designed, resources and staffing identified and allocated, and approval sought, and then they can continue. Where partners are engaged, those arrangements, once established, are also ongoing.

- They are safe. At some point in their establishment, existing dynamic investment programs passed the dual tests of leadership support and public acceptance. After that, they may operate for years without facing that scrutiny again. There are risks inherent in trying something new.

Major sources of community development funding are also constrained in ways that make them easier to utilize for dynamic investments than durable investments. They are targeted to specific purposes such as the construction or preservation of affordable housing units or the extension of financing to small

businesses. Functionally-targeted funds can be focused geographically to some extent and thus contribute to the creation of location-specific durable assets. But this can be awkward and make the program vulnerable to charges of favoritism. The prevalence of location-neutral affordable housing and business development programs may be an effort to avoid this risk.

Community Development Block Group is an exception to this, in that its flexibility allows locational targeting if desired. And the Choice Communities Program (formerly Hope VI) funds location-specific asset building by design. Moreover, it supports projects of sufficient scale to bolster community value.

Investing in durable asset building entails an additional risk related to community perception and support. There may be a high degree of public support for interventions that address glaring and obvious conditions in disadvantaged communities, such as rundown buildings, vacant lots, and crime. One may not, however, assume a similar level of public support for focused durable investments. Place-making projects may subsidize a set of development projects in a particular location, and add public amenities such as streetscaping, park land, or plazas, to an area that still needs basic services. These types of investment may face greater scrutiny in the eyes of the public, who may not see them as directly connected to improving neighborhood conditions.

Each of the preceding — the perception of risk, the design of funding sources, and comfort with the familiar — has the potential to advantage dynamic investment programs over durable investment initiatives and skew community development interventions away from the optimal mix of investments.

Improved Decisions

If the preceding considerations lead to underinvestment in durable investment relative to the socially optimal allocation it is a cause for concern because that means individuals and families are facing a more adverse community environment than they would under a different mix of public interventions.

The critical elements necessary for improved decisions are better information regarding policy options and effects, and tools for mitigating the legitimacy risks perceived in durable investment strategies. The following recommendations may contribute to augmenting information and reducing risks.

- Fiscal Modeling and Qualitative Impacts. When durable interventions are being considered, the story of anticipated impacts should be told as completely as possible. There should neither be exaggeration, nor should important aspects of the story be left untold. While it certainly is difficult to make precise projections of impacts to future property value and tax bases, there are ways to use analytical methodologies, comparison locations, and the experience of seasoned community development and real estate professionals to develop a plausible range of outcomes. Other impacts that should be referenced include the reduction of demand for certain public services and the increased likelihood of attracting additional private investment in the vicinity of the improvements. Quantifying and enumerating impacts can open eyes to the value of durable investments.

- Professional Practice. Professional organizations can enhance the legitimacy of durable investment strategies in disadvantaged communities. A mix of programmatic and asset building strategies can be explicitly identified as best practices for revitalizing disadvantaged communities. Communication materials can be developed to illustrate mechanisms and highlight success stories, and these can be made available to local community development practitioners.

- Communication and Coalition Building. Ideas change through relationships. Practitioners and leadership should expect to spend time communicating about intervention options. People involved with durable interventions in other disadvantaged communities can be invited to tell their stories or key stakeholders can witness the impacts of intervention strategies firsthand through organizing a best practices bus tour. As thought leaders become more conversant about the impact of durable interventions, they can build support and credibility for these strategies.

Areas for Further Research

The model developed herein is a theory of how public intervention of different kinds impacts community value. This theory has explanatory value in that it is consistent with certain observed phenomena and the author’s own experience with a limited number of community development case studies. It may have functional value as well in that it may further our ability to understand and estimate the impact of interventions on community value. This in turn would support improved public and public-minded decision making.

Because of its potential utility, it needs testing. In particular, the concept of a value floor deriving from the community’s durable asset base should be tested. Is this concept consistent with the history of communities that have experienced tipping points leading to prolonged decline? What is occurring in communities, such as parts of Detroit, which break through the floor at a certain point?

A second theoretical question is whether there is always a self-sustaining value point given an existing community asset base. It may be that the scarcity of durable assets, and presence of disamenities, in some communities may mean that no amount of dynamic investment is sufficient to reach a self-sustaining community value — although increased dynamic investment would still yield improvement to community value. This would be represented graphically by the bell-shaped dynamic investment curve not touching down on the right side. Another key implication of the model is that public interventions will have different impacts depending on where the community is on its community value continuum. Does this concept help to explain observed phenomena? Or do similar interventions seem to have similar impacts on community value whether they are near or distant from their sustainable value?

Further research should include empirical work that quantifies the economic impact of particular types of community development interventions. As in much of social science research, a controlled experiment is rarely going to be possible. But great value can be derived from identifying locations where there was or is an infusion of community investment that supports a limited number of strategies. I have no doubt that some empirical work of this kind is already occurring and, to the extent that it is, I support and applaud it.

Finally, we would benefit from studies that help us understand more deeply how community development decisions are made and how the attitudes and preconceived ideas of the public and civic leaders factor into those decisions. This work might support, or cast doubt on, the thesis that decisions are likely to be skewed toward dynamic investments. It may also help us in the design of communication materials to support improved decisions.


Commentary by Daniel Shoag

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Daniel Shoag is Assistant Professor of Public Policy at Harvard Kennedy School of Government where he teaches courses in econometrics and regional macroeconomics. He is affiliated with the Taubman Center for State and Local Government.

Thomas Leighton’s paper “Dynamic and Durable: Strategic Balance in Community Development Interventions” touches on an important debate in regional economics. The degree to which the fate of communities and cities is ultimately determined by outside, independent factors like geography and technological change, and the degree to which future of a community depend on its history and the decisions of its members, is a vital question. If outside forces dominate, then certain development policies may not make sense, and government might choose a more limited approach towards “place-making”. If the fate of communities is not predetermined, though, then governments can play an important role in helping communities avoid tipping points and coordinate on a desirable equilibrium.

To be more concise, if cities struggle for reasons that cannot be fixed, then policy makers should help the residents and not the location. Policy makers might even encourage residents to move elsewhere. If the sources of cities woes can be remedied, however, then government action may play an important role in ‘saving’ these places.

Mr. Leighton’s paper deepens this discussion and considers a more nuanced model. His world is one in which there are multiple possible equilibrium outcomes and a serious role for intervention. He further supposes that communities may have exogenous fundamentals that create a value floor. This value floor ensures that some people will remain in struggling communities even if tipping points are crossed and the place settles into a bad equilibrium.

In my mind, this extension is an important one. If some value and people are likely to be trapped in a location, then this strengthens the need for intervention when it is possible. Leighton’s paper makes it clear that, in the presence of these floors, that failure to intervene is that much more costly. I think this is a nice extension of a well known framework and a meaningful contribution to the academic discussion.

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