From Highest and Best UseFrom Highest and Best UseTo To The Edge of ChaosThe Edge of Chaos

Presenter: Presenter:

Steven ThairSteven Thair

Appraisers' Model

Appraisers are objective & independent Appraisal is a Science (and an Art) Our Method is:

Study things in an objective and independent way Determine Highest and Best Use Estimate a fixed point value...At a fixed point in time Attributes of a property are inherent in the property,

like market price and market value The Universe and land use are made up of well-fitted

cogs. That is...

Appraisers' Model continued...

If only we can get enough information we will get the right answers AND

We will agree on our estimates. A parcel of land has properties inherent in it, like

size, shape, building age, desirability -- like a nice view, and market value.

Some properties are extrinsic to the land like air contamination, noise, or a recession.

Highest and Best Use

Ancient HBU (1980): Most profitable use

Classical HBU: An opinion of the appraiser as to which use is:

Physically possible Financially feasible Legally permissible Maximally productive

Neo Classical HBU AND considers political, environmental, governmental and

social constituents

Problems with highest & best use1. The cogs fit poorly

It's neither “highest” or “best”. None of the factors are ever optimalized

Land use emerges from the interbeing of many constituents in ways that are competitive – even destructive – and cooperative, depending on what factors have your attention...

But ALWAYS both competitive and cooperative

Problems with highest & best use2. There's no intrinsic or

extrinsic properties Where to look for a new model that more closely

reflects reality? Look at the land more deeply. Land, like everything else, has not properties

inherent in it. Like everything else, it is empty. Properties we attribute to land EMERGE and

MANIFEST from a complex interaction or inter-being of many factors and forces, and none of them are “in” the land.

e.g. zoning, frontage

Problems with highest & best use3. Subjectivity

Related to the fact that HBU does not function like cogs.

Because people have different intererests, different points of view there is conflict

The appraiser picks a point of view as well. To the extent the appraiser is not aware of what

point of view she is picking, it is picked for her. e.g. Billiards, relativity, three appraisers e.g/ Sandy McNair presentation—not lowering

rents

Most Probable Use obliges the appraiser to also consider:

Uncertainty and Relationships between the constituents, including: Short term budgetary constraints, Short term labour & expertise constraints Habits and idiosyncrasies of the players Examples: the developer, the heritage society,

and the banker There is Uncertainty in unclear zoning bylaws,

uncertain urban plans, uncertain engineering design criteria

Problems with Most Probable Use

While MPU recognizes the importance of the uncertain, it then sets that stuff aside

The concept still relies on the notion of the universe is a clock

MPU is still premised on objectivity

Other Problems with HBU & MPU

Loss of credibility by tying to Science Failure to acknowledge Values

Self interests – credibility, to get paid, to enhance my reputation, develop business,

to provide a helpful service ... to whom? Developers, bankders, consumers, my comunity, the market place, consumerism, “capitalism”

Summary of Problems

We're not objective but we say we are We're not unbiased or value free but we say we are

At best we have the same values as our clients The Universe is not a clock Highest and Best Use is not a clock Most Probable Use does not accommodate

uncertainty, emergent behaviours or discontinuous change (in short, “irrationality”)

Loss of credibility Failure to make values explicit

Post Modern Economic Model

This model takes into account: environmental contribution Inspirational contribution Government intervention (an “imperfection”)

Smith and Keynes didn't take any of these into account

Contributors: Michel Baranger, Professor of Physics, MIT Andri Stahel, Professor of Political Science, Denmark Judith Innes, Professor of City Planning, Berkeley

Complex Adaptive Systems

An outgrowth of chaos theory, fractals. Chaos theory is a branch of physics and

mathematics that allows us to deal with uncertainty, subjectivity, and the interbeing of things.

The biological world and the social organization of animals are exhibiting many similar characteristics when viewed from this perspective, giving rise to a model called Complex Adaptive Systems.

Complex Adaptive Systems cont...

As the name implies, such systems can adapt to their environment and change their environment to suit themselves.

Complex Adaptive System Characteristics

1. Many constituents, some interacting in unexpected ways

2. These many constituents are interdependent3. Interplay between Competition and Co-operation4. Interplay of chaos and non-chaos5. Discontinuous Change6. The system exists or displays on many scales7. Giving rise to emerging behaviour

Chaotic State: Proposition 13

In 1978, California voters supported a freeze on property taxes.

The schools received the property tax. The state budget was funded by income tax. Local governments were given the sales tax.

The freeze created more retail and less housing: local governments cannot afford to service new housing of any type, but they get sales tax revenue from retail.

Chaotic State: Proposition 13 continued...

Freeze created legal and legislative gridlock. With local budgets inadequate, voters allocated 150% of the budget in a series of budget votes for parks, fire dept, police, etc.

Freeze contributed to a regulatory gridlock where frequently new projects take four years to get literally dozens of needed approvals. Regulation has resulted in no development rather than better development –the exact opposite really, of what was wanted.

System exists on many scales

System has many layers: Cells Tissues – muscle, bone, blood, nerves Physiological system – skeletal, nervous, endocrine Individuals – Tom, Dick, Harriet Family Units Businesses, Schools, Hospitals Community Eco-systems Planet

Many Scales – Land Use

The portion of a shelf holding a pound of coffee The shelf in a grocery store aisle The store The whole mall The community AND The perspectives of consumer, grocer, mall owner,

assessor, coffee grower.

Land Use is a Complex Adaptive System

All the factors of Highest and Best Use can be accommodated in this new model

All the factors of Most Probable Use can be accommodated

The model recognizes the role of uncertainty The model recognizes the inter-connectedness of

factors The model recognizes the importance of the

relationships The mode recognizes both the cooperative and

competitive interfaces between constituents

Land Use is a Complex Adaptive System continued..

The model accommodates the unpredictable and the surprising

The model provides an opportunity to make effective interventions

The Edge of Chaos

That zone, between chaos and equilibrium states where interventions will have an effect in the intended direction.

Implications of land use as a complex adaptive system

Indicators of well being and performance Consensus Building Dialogue New Leadership -- collaboration New “Follower-ship” --our expectations of leaders Letting things go if they are in the chaotic or the

equilibrium states Trying to see situations as in the Edge of Chaos –

like a rummy hand.

Indicators of Well-being & Performance

2-3 broad Indicators that reflect the central values of concern to metropolitan players Economic performance with a green measure

Performance measures on particular aspects A street system, water resources, social services Sandy McNair “supply and demand” analysis of office

space Jeannette Hanna : Speed is essential. There is a huge

potential beyond point in time valuation Rapid feedback indicators

Traffic flow as on the QEW How much does it cost to water your lawn?

Consensus Building Dialogue

Multi-stakeholder consensus-building processes They are complex adaptive systems themselves

Self-organizing, decentralized, inventive Continuing dialogues of those who are in a

position to change the system When to intervene, how to intervene Measure results and respond appropriately

New Leadership

Leaders in a world of complex uncertainty have vision and focus.

They translate this into menaing and communicate meaning

Systems thinking – seeing things as wholes Personal growth Sharing models, Building shared visions, Instead of identifying answers and pushing

through agendas with a few advisors

New Leadership...

...leaders assist participants in developing a comon sense of values and purpose

Instill a sense of empowerment Encourage self-organizing

What's it all mean for appraisal?

“Emerging Use”

Emerging Use or Manifesting Use are terms that remind us that we are commenting on a never-ending process.

The terms also inform us that land use is not inherent in the property, nor is it extrinsic

Rather, whatever use has arisen (and will arise) is the consequence of the causes and conditions that exist at that moment

The appraiser has the insight to make a prediction about whether in broad terms, the use will be the same or different in the near future.

In the end...

We each come back to our own model of HBU or MPU

We come back with a greater sense of uncertainty about what will happen at a parcel of land BUT with a comfort about that uncertainty

We come back with a fresher view of the world around us

In the end...

We come back with a sense of re-cognition of our role in the land's use – that we affect land use in many ways – affecting decisions that developers and bankers make, buying or not buying the coffee of the grocery shelf, choosing to shop at a large grocery store or a specialty shop

A Puzzle ...

What's the connection (if any) between Complex adaptive systems, and better communities

through indicators of well-being, consensus building and new leadership ON THE ONE HAND

And-

Land use, our notions of HBU and MPU and land use being a complex adaptive system ON THE OTHER HAND?

A link: Value in Use

One thing appraisers have always done right and done well (and contrary to classical economic theory ) was look at value in use. Or, as we call it, highest and best use.

A link

Our traditional inquiries in to value in use is a connection to the values that the community believes in and lives by.

Quiz: Who said it?

Use value “ is the utility of a particular object.”

Use values “constitute the substance of all wealth, whatever may be the social form of that wealth.”

Every man is rich or poor according to the degree in which he can afford to enjoy the necessaries, conveniences, and amusements of human life.”

We value Canada (the double entendre)