This is sometimes called a “barbell strategy” because of the embrace of the two ends of the risk profile (Figure 8.1). A barbell investor deploys most of their wealth in boring, low-risk ways. Their objective is to have little chance of losing money, with a near certain chance of making a small amount. The rest of their investing is of the riskiest variety, stuff that has the potential to completely flame out but could also shoot the moon. The latter allocation is where the portfolio’s upside potential comes from.
Figure 8.1 Investment Allocation for a Medium Strategy and for a Barbell Strategy
If a barbell investor puts 90% of their portfolio in the safest assets, they have limited their exposure to loss. If everything in the risky end of the portfolio fails disastrously, the most they can lose is 10%. However, if some of those risky investments do well, the upside potential is tremendous. Turn 1 dollar into 10 on the risky end and the portfolio nearly doubles. Turn 1 into 100 and it is transformative.
The traditional development pattern captured the dual risk profile of the barbell strategy. Mature neighborhoods were safe stores of wealth, a repository the community could rely on. They were strong and resilient, unlikely to fail catastrophically. The newer neighborhoods incrementally growing on the edge were the high-risk, high-reward investments; little was lost if they failed but the community gained disproportionately when they were successful.
In the infinite game of city-building, where we need to harmonize competing objectives within complex human habitat, following the barbell investment strategy is a way to allocate common resources with minimal risk yet still have a lot of upside potential. It fits with a strategy of incremental change where triage from overexpansion is being forced upon us.
Low-Risk Investments with Steady Returns
The low-risk side of our public investment portfolio is as obvious as it is boring: Local governments must prioritize basic, routine maintenance in neighborhoods with high financial productivity (high value per acre).
For example, the downtown of Lafayette should never want for basic sidewalk maintenance. Those poor neighborhoods next to the downtown should never have streets full of potholes, overgrown ditches, or backed up pipes.
In Lafayette, these high-productivity neighborhoods are cash-flow positive. In cities more atrophied than Lafayette, the highest value-per-acre neighborhoods may not be profitable, but they have the best chance of becoming so, better than any other neighborhood in town. This is where our greatest wealth is; all we need to do is stabilize it.
Most cities prioritize maintenance based on the incorrect assumption that they are going to maintain everything they have built, that it is all worth maintaining, and that any future shortfalls they anticipate can be solved by future decision-makers. Intentional or not, that mind-set embraces a long decline. A different approach is needed.
Instead of prioritizing maintenance based on condition or age, cities must prioritize based on financial productivity. They need to stabilize their centers of wealth by taking care of them. Any list of priorities must start with the most urgent needs of high-productivity neighborhoods and proceed through all the current needs of those places before moving on to other parts of town.
Mow the grass. Sweep the streets. Patch the sidewalks. Pick up the trash. Fill the potholes. These are the urgent needs that need to be prioritized.
I’m not suggesting – as many professional city staff would be inclined to believe – that maintenance means big, transformative projects. That is what maintenance has come to mean: large projects built all at once to a finished state with efficiency as the value elevated above all others. What results is a short period where everything looks nice followed by a long period of decline that ends in an extended, sometimes permanent, state of dilapidation.
No, I’m describing maintenance that is more like the way the Walt Disney Corporation maintains their theme parks: ongoing basic maintenance with an obsessive attention to detail. See a streetlight out: replace it. See a weed: pull it. See a crosswalk faded: repaint it. See a sidewalk broken: fix it. The neighborhoods that are generating such wealth for the community need to be showered with love.
Doing so is not only the most sensible thing a financially strapped community can do, but it sends a strategically important signal, as well. Neighborhoods that suffer from a lack of maintenance also often suffer from a lack of confidence.
I’ve gotten to know Paul Stewart, the executive director of the Oswego Renaissance Association in upstate New York, and the amazing work his organization has done to stabilize, and start to revitalize, housing in Oswego’s troubled neighborhoods. They do miracles with a tiny budget by focusing on projects that restore confidence. I interviewed him on the Strong Towns Podcast and he described the effect in this way:
Some crisis happened long ago. Some jobs were lost and people left, and people began to lose faith in their community. So, people start to think they’re not going to be staying around anymore. Then your neighbor down the street decides, “I’m not going to paint my house this year because I’m not going to be here much longer.” The community is going downhill.
The next neighbor across the street sees what’s going on and starts to question their wisdom in investing in their property and in their house or, indeed, even in our community. They start to withdraw, and each one of us starts to send a signal to the next person that we are essentially pulling out of our own neighborhoods, out of our own cities, financially but also socially.
That becomes a self-perpetuating cycle, a disinvestment cycle. As people withdraw investment, conditions worsen, as conditions worsen, confidence in the housing market – confidence in your neighborhood – drops, which causes further disinvestment, which causes further erosion of confidence.
It just keeps cycling. We were basically a community engaged in a bank run on confidence. We have the capacity to revitalize our neighborhoods and communities, but we just don’t have the confidence.1
In my hometown, our poorest neighborhoods are also some of our most financially productive. There is a general sense among some of the more affluent in town that the people in these poor neighborhoods don’t want nice things. That they don’t share our values and therefore they don’t put any effort into maintaining their homes or their yards. They are somehow different, even lesser, then the rest of us.
I recognize that the housing throughout these poor neighborhoods needs improvement and many of the yards lack basic maintenance, but I reject the notion that it is because the people there are fundamentally different. They seem highly rational to me. After all, why would someone invest time and money repainting their house, or fixing their roof, or mowing their yard, if it is not going to translate into an improvement in property value?
If the neighborhood is in terminal decline, and the local government has prioritized go-for-broke projects, ribbon cuttings, and shiny developments over basic neighborhood maintenance, why would someone fight that? The people in these neighborhoods aren’t dumb; they are highly rational.
When a community obsesses over maintenance in a high-productivity neighborhood, they not only make a wise financial investment with public dollars, they give the neighbors the confidence to take their own energy and resources off the sidelines and put them to work building wealth. Residents can make an investment in their own home – maybe something as simple as planting a tree – and have at least some confidence that their property won’t automatically depreciate over the next year. That’s huge!
A strategy of obsessive maintenance is the foundation for growing the underlying land values, a key component of reestablishing the positive feedback loop that naturally drives neighborhood revitalization.
Once the basic maintenance needs of high-productivity neighborhoods have been addressed, then move on to neighborhoods with similar physical characteristics. A value-per-acre analysis identifies the most productive types of development, but what are the neighborhoods that, with a little bit of attention, could grow into that level of pr
oductivity? It is going to be those that are similar, likely directly adjacent, to the most productive neighborhoods. Keep proceeding in this fashion until the maintenance money is gone.
Local governments that prioritize maintenance based on the age and condition of the infrastructure promise all their residents they will eventually get to them, even when that promise is untrue. It might be an easier assertion to sell to the public, but it ultimately means that less of the city will be maintained, that more of what has been built will catastrophically fail, that more people will be hurt. That is a choice, even if it’s not purposefully acknowledged.
Switching to an approach that prioritizes maintenance of high-productivity neighborhoods first means that more of what has been built will ultimately be maintained. The stabilization of wealth in high-productivity neighborhoods, and the increase in wealth that comes from getting neighborhood resources off the sidelines, will give the community the capacity to expand maintenance efforts.
Even so, most North American cities are going to contract over the next three decades. That means infrastructure will fail and neighborhoods will be abandoned. I suspect that a salvage process will be developed to collect and repurpose that which retains value. Even so, there likely will be neighborhoods – affluent places that have a gated-community concept – that want to opt out of paying taxes to a local government that can’t provide basic maintenance.
That’s a reasonable choice. Let them go. It was a mistake for the community to bring those developments onto the public balance sheet. If you cannot provide the service – and it’s likely you can’t – then the only prudent thing to do is acknowledge that and allow them to make other arrangements. This feels like failure because it is; it’s just the type of failure that can be learned from and not repeated instead of the type that is a financial millstone around the community’s neck.
A commitment to intense, ongoing maintenance of high-productivity neighborhoods is the low-risk side of the barbell strategy. That is where nearly all the city’s time and resources should be directed, where it won’t be squandered but instead will solidify a stable base of wealth. There are other projects on the high-risk end of the barbell that should also receive a small bit of capital each year. Once a neighborhood is stable, these are the investments that will bring about new, productive growth.
Little Bets
For a private investor using the barbell approach, the high-risk investments that create the portfolio’s upside potential are a series of little bets. An investor might pick a dozen companies, each of which has the potential to take off, but each of which also has a realistic chance of going completely bankrupt. It’s impossible to know up front which are the winners, and which will fail. The strategy is to diversify the small bets in the hopes of landing a few that provide that huge gain.
Layered on top of an aggressive maintenance strategy, cities need to make many small investments throughout a neighborhood, all aimed at improving the quality of life. The goal is to nudge private capital off the sidelines by responding to the struggles of people already living there. Make their lives better and things will get better.
This involves a simple, four-step approach:
Humbly observe where people in the neighborhood struggle going about their daily routine.
Identify the next smallest thing that can be done today to address that struggle.
Do that thing. Do it right away.
Repeat the process.
Identifying where people struggle requires a humble form of public engagement. Those making these investment decisions need to literally walk in the footsteps of the people they are serving, to be present as they experience the city. Consider it product testing: to observe how people are using that which has been built.
Computer algorithms monitor how users interact with apps and websites and use that information to iteratively improve a program’s interface. Programmers try different things, test them out, then keep and expand what works. We need to do the same thing in cities, to iteratively improve the interface of our human habitat.
Decision-makers must observe and, better yet, authentically experience where people struggle. This means getting out and experiencing the city with intention. Walk alongside people. Observe where they go. Humbly ask them to narrate their reaction to their environment. I’ve done this; the results are astounding.
I walked with a mother who was pushing a stroller in the ditch. She told me she needed to go to the grocery store, didn’t have a car that day, and didn’t feel safe walking along the street, so she was taking the ditch, knee-high weeds and all. I observed the well-worn path she was treading and realized this was a struggle being shared with others.
I met an elderly woman going down the street using a walker, climbing over mounds of snow left by the snowplow. She told me she had no choice but to get to the pharmacy that day. She pointed out that the street was cleared of snow but the sidewalk wasn’t, so she was walking where she had to.
I ran into three kids walking through the alley on their way to school. It had rained hard the night before and so the alley was full of mud and filth. When I asked the kids why they chose the alley, they told me that their parents instructed them that people drive too fast on the streets so they should stick to the alley. The alley was deemed safer.
Each of these struggles is a lived experience, one I would not have been aware of had I not been out to observe them. More importantly, I could have convened a public meeting and asked those who showed up to list their top priorities for improving the neighborhood and it’s very unlikely any of these struggles would have come up. They are the kind of thing people accept, the gradually diminishing expectations of a long decline. The high return on investment we are seeking on this end of the barbell comes primarily from reversing expectations.
This return also comes from limiting our approach to little bets. A common reaction for a local government that has identified a problem is to seek a comprehensive solution: Put large amounts of money into fixing it once and for all. A city dedicated to intensive maintenance is not going to have a large amount of money for comprehensively addressing each localized struggle. And even if it did, a large project may solve the immediate problem only to reveal that solution creates more serious and urgent problems. That’s the way complex human habitat operates.
It is critical that the responses considered are the next smallest thing that can be done. There are a lot of improvements that can be made with paint, straw bales, and a shovel. Working at this scale – using a hacker mind-set – allows quick action. There is no need for years of study or deliberation. Little bets can be quickly undone if they don’t achieve the desired results, or if they have unanticipated negative consequences.
This allows a neighborhood to iterate. We can try things and see what happens. We not only receive direct feedback on our work, but we can learn from mistakes when the cost of failure is low. This is the mechanism that smart, adaptive systems use to assemble themselves.
Most importantly, working quickly through small iterations changes the relationship between residents and those who would make change. Instead of customers who pay taxes expecting a service, people become collaborators, their actions and responses dictating the next set of public improvements.
With local government responsive to the struggles of the people in a neighborhood – instead of grant programs, big developers, or bureaucratic processes – residents gain confidence in the direction of the neighborhood. Give people confidence, and a little bit of room to be creative, and amazing things happen.
I met Mike Lydon, one of the authors of Tactical Urbanism: Short-Term Action for Long-Term Change, back in 2010, when his ideas for iterating rapid change were forming. I must admit, I was still doing some traditional engineering and planning work then and the stories of pallet benches, pop-up parks, and temporary crosswalks Mike shared seemed fun, but frivolous. I quickly came to recognize how wrong I was.
For a fraction of the cost of an engine
ering study, Mike and his team transform entire streets. Their do-it-yourself approach has unleashed a flood of creativity and initiative. I’ve witnessed their work and seen a block of empty storefronts transformed into a bustling economic hub, dangerous streets made passable, and empty spaces turned into wealth-radiating gathering spaces, all on a tiny hacker’s budget.
These are real financial gains from very little investment, turning community assets from underperforming to wealth generating, all while improving the quality of life for people. This is how Mike and his colleague Anthony Garcia describe the process in their book, Tactical Urbanism.
Tactical Urbanism is frequently applied to what urban sociologist William “Holly” Whyte called the “huge reservoir of space yet untapped by imagination.” Today’s reservoirs – vacant lots, empty storefronts, overly wide streets, highway underpasses, surface parking lots, and other underused public spaces – remain prominent in our towns and cities and have become the targets of entrepreneurs, artists, forward-thinking government officials, and civic-minded “hacktivists.”
Such groups increasingly view the city as a laboratory for testing ideas in real time, and their actions have led to a variety of creative and entrepreneurial initiatives realized in the rise of food trucks, pop-up stores, better block initiatives, chair bombing, parklets, shipping container markets, do-it-yourself (DIY) bike lanes, guerrilla gardens, and other hallmarks of the Tactical Urbanism movement.2
None of these projects were the result of a master plan, the formal process cities go through to envision change. Instead, these quick and responsive hacks create changes that can actually be experienced – not just imagined – by the people they impact, a way more powerful approach to making change.
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