MEREDITH Strategy & Design

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Could Certificates of Need solve the mortgage mess?

There were a number of interesting considerations evoked suddenly by the story of a bank in California demolishing a neighborhood of new houses. This bank, the Guaranty Bank of Austin, rather than pay for completion of the houses and the development, which they contended would cost more than the houses could be sold for, demolished new unsold houses in the city of Victorville.

Guaranty Bank of Austin is wrecking the structures to provide a "safe environment" for neighbors of the abandoned housing tract in Victorville, a high-desert city about 85 miles northeast of Los Angeles, a bank spokesman said.

Sustainability principles came first to mind, but then quickly afterwards came the thoughts of bad banks and bad lending principles, considerations on compulsive consumption, taking down trees and putting up parking lots, proof of the need for regional planning policies, neighborhood "broken teeth" coming to suburbs as well as cities, and more.

The concept, however, that a major housing development is ending up as an incomplete, patchworked and probably never successful neighborhood made me wonder why the development was proposed, funded and started when, clearly, there was no real need or demand, no sustaining market, to have justified it. The developer and his bank were not acting in a community interest, but solely using consumption of the landscape as a financial tool, supported by policies and practices now discredited, but yet insufficiently regulated. The community, itself, in an apparent thirst for fees and an expanded tax base, overlooked its own limited attractiveness and supported a development that, in its demolition, harms not only the nascent neighborhood but the entire community.

Most of the focus of response to the mortgage crisis is centered on potentials in financial regulation. It seems, however, that there may be a lack of correlated policies and practices that, in the void, support and set the context for destructive financial incompetence. Community resistance to regional coordination may be at the core of this problem.

There is a control device used by most states to regulate the overdevelopment of health care facilities. Called a "certificate of need," it acts as permit to allow institutions to build, but only after real basis for new facilities and equipment has been proven. Need is established by reviewing and projecting the demand for health care, assessing the capacity of existing institutions in the area and, if need is established, determining the type and amount of additional health care facilities that are required. With a longer view of demand and utilization, many regulatory agencies also achieve a stabilization of value with this tool by overcoming too rapid a response to fluctuating market forces.

The mortgage crisis is catalyst enough for new tools in planning and development. Our growing interest in "green" building and development can provide additional and substantial support as a platform for broader coordination and planning of both the physical as well as the financial space. And the "certificate of need" may provide both illustration and precedent for an effective device to be used by a concerned and enlightened county, regional or state government to stabilize and sustain the quality and character of its neighborhoods, and the economic well being of its citizens and its communities.

When stories of suburban demolition join the recent flood of stories about major cities using demolition to shrink to fit, it is a good indicator that more coordinated and integrated approaches are in demand.

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A day after this post, an article in the Wall Street Journal focused on another issue associated with the unrestrained overbuilding that took place with the sponsorship of the financial industry – pollution and health. There may be more than 1,000 sites across the US where economic issues have halted construction and left dusty, unsafe sites behind.

No one tracks precisely how many construction projects nationally have been stopped by developers midstream. But an indication of the scale comes from New York-based Real Capital Analytics Inc., which estimates that there were 3,929 distressed commercial properties across the U.S. as of March 31 -- a 55% jump since Dec. 31, 2008. Roughly a quarter of the properties involve developments, unfinished, Real Capital said.