What is Economic Architecture?
Economic Architecture is dedicated to the premise that we can and should (re)design our markets to serve the public good. And when we do, we have the potential to tap into the drive, ambition, and ingenuity of market participants to solve the problems that are impacting people’s lives.
Why do we use the term “homes” and not “houses”
While the term “houses” might reflect a focus on buildings, the term “homes” reflects our focus on people and their relationship to the buildings they live within.
Why do we use the term “communities” and not “neighborhoods”?
While the term “neighborhoods” can sometimes be used to refer to a geographic area, the term “communities” emphasizes our focus on the relationships among people living in a geographic area.
What do we mean when we say the “value of homes“?
To prepare for this Challenge, we reviewed the work of over 6,000 organizations and interviewed over 100 innovators from across the country.
Throughout these interviews, innovators focused our attention on three different ways that homes are valuable, as financial assets, as the place where people live and as the building blocks of community.
Homes are valuable because they are financial assets. Homeownership is a main driver of wealth in the US. When the market devalues homes in Black-majority neighborhoods by 23%, the market is taking $156 billion dollars of wealth away from homeowners in those neighborhoods.
Relevant topics that innovators address include problems with low appraisals, high assessments, high mortgage rates, high insurance costs and disinvestment.
Homes are valuable because they are where people live, where families gather, where children grow up. Homes are the places to which people return and which provide a sense of safety and belonging.
Relevant topics that innovators address include issues that impact the affordability, safety, security and stability, such as gentrification, rising tax burdens and eviction proceedings.
Homes are valuable because of the communities they are a part of, the people who live nearby, the relationships between people, the social fabric, the social cohesions, and the culture and traditions which emerge.
Relevant topics that innovators address include issues that impact the continuity of the community such as development without displacement, gentrification, rising tax burdens and growing number of financial landlords.
What is a structural innovation?
Structural innovations change the strategic landscape for other participants in the market. This leads market participants to adapt their strategies and ultimately change their behaviors. In aggregate these changes in behavior change the impact of the market. Example of the difference between direct service and structural innovations:
Small-dollar Mortgages (Mortgages of less than $100,000)
- Direct service: Provide a prospective homeowner with a small-dollar mortgage.
- Direct service at scale: Provide 100 prospective homeowners with small-dollar mortgages.
- Possible structural innovation: Create a secondary market so financial institutions compete to offer small-dollar mortgages to prospective homeowners.
- Direct service: Work with a homeowner to appeal an appraisal.
- Direct service at scale: Work with 1000 homeowners to appeal their appraisals.
- Possible structural innovation: Create a certification system to ensure appraisal management companies proactively identify appraisals that devalue homes in Black-majority neighborhoods.
- Direct service: Work with a resident to avoid eviction while experiencing a financial emergency.
- Direct service at scale: Offer a program to work with 1000 residents to avoid eviction while experiencing a financial emergency.
- Possible structural innovation: Create a stakeholder funded insurance product to enable residents to deal with financial emergencies and avoid eviction.
What is a market-based innovation?
Market-based innovations are innovations that can be introduced and carried out by market participants. Possible examples of market-based innovations include:
- A new type of mortgage product to finance the purchase of owner-occupied rentals
- Alternative credit rating service that more accurately reflects a prospective borrower’s credit worthiness
- A model for collectively developing mixed income neighborhoods
What is a policy-based innovation?
Policy-based innovations are innovations that require policy change to be carried out. Possible examples of policy-based innovations include:
- Legal standards for land contracts
- Real estate tax reduction for properties held by community land trusts
- Removal of single family home zoning restrictions