Author: Steve Snyder
In recent months I am sure I have heard every reason why the rapid transit corridor should (or shouldn’t) go along the Hydro line. Of those reasons, the idea that the Parker/Hydro Corridor has greater opportunity for transit-oriented development (TOD) is the one that scares me the most.
Nassim Taleb, a former hedge fund manager, recently wrote a book called The Black Swan: The Impact of the Highly Improbable. In it he states that the world underestimates the number of black swan (book-speak for highly improbable) events and their impact. This idea can be applied to any market where human irrationality and fears can play a role – including the real estate market and population forecasting.
He uses examples such as the dot-com bust, the Sept. 11 attacks, and the U.S. housing market crisis. None of these three events could be accounted for by any forecasts. In each case, there were entire funds that lost all of their money. In the financial industry they call this “blowing up.”
Taleb sums up his argument like so: “Overconfidence leads to reliance on forecasts, which causes borrowing, then to the fragility of leverage [ . . . ] When you think you know more than you do, you are fragile.”
I am going to use another financial term – a “naked put.” This is a term for a trade that has no hedge, no backup, putting all your money on one outcome. These sorts of gambles are most susceptible to black swan events and can result in catastrophic failure.
The city is currently banking on future growth because the experts say Winnipeg will continue to grow. What if the experts are wrong? What if some unforseeable event transpires and the City of Winnipeg doesn’t follow the path predicted in its growth chart?
With the approval for the Southwest Corridor going the Parker/Hydro route, the city is essentially performing a real estate naked put, putting all of their (and by proxy, your) money behind the population forecasts. The city planners are overconfident and are leveraging the city’s future based on forecasts.
This project has $300+ million taxpayer dollars on the line and is not something that should be decided based on speculation. The city should instead run the line along Pembina, an already well-established corridor.
