Prior warning: This is just a thing that I was thinking about this morning. I’ve very little knowledge of the prior art around housing cooperatives, and gather broadly similar things to the specific details I’m sketching out exist, but I’ve not done the research. It’s entirely possible that the way I’ve structured this is a terrible idea for entirely obvious reasons that I’ve simply missed.
Anyway, I was thinking this morning about the fact that in many cities, including London, Mortgage payments are often cheaper than the equivalent rent. Part of this is because in many ways you’re getting more for your rent than just the home (a certain guarantee of your landlord being responsible for repairs, although some landlords are pretty terrible at it, and a much greater flexibility), and part of this is just the usual takes money to make money thing where the cost of getting the mortgage in the first place is the barrier to entry that prevents most people from benefiting from this.
I was thinking about how to design a system where you could enable people to enter into a form of home ownership without that overhead of the deposit, and was thinking about housing co-operatives, and I hit on a design for an interesting financial arrangement.
Essentially the basic premise is this: An organisation which acts as the landlord and does maintenance, charges rent, etc. as normal. However, the organisation is entirely owned by its renters. All rent you pay also buys you shares in the organisation, at a share price calculated at the beginning of each month as the average of all rents on properties held by the organisation (essentially you’re giving each renter one share per month, reweighted so that people who pay more get more shares) (note: This requires shares to be infinitely divisible. It might make more sense to instead e.g. multiply this by 1000, round down, and carry over any unallocated shares into the next month in a take a penny/leave a penny style scheme).
These shares have the normal set of purposes: They give you voting rights (possibly according to a quadratic voting scheme?), and they give you dividends. The organisation reserves a certain amount of its profits to be ploughed back into assets, allowing adding more properties to its holdings, but the rest is paid out to its shareholders on a monthly basis.
This is definitely not the same as owning property, but it has similar benefits – in particular, what you are overpaying relative to the cost of the property will mostly come back to you as dividends over the long-term (this isn’t true initially – it starts out as essentially no different from normal renting but, over time, you end up with your rent effectively going to zero and eventually negative).
One caveat: In order to prevent this from essentially turning into an investment vehicle, there are a few rules about the ownership of shares.
- All shares must be held by individuals, not corporations, trusts, etc.
- Shares held by someone who has never rented a home from the organisation are deemed inactive. They don’t go away, but they do not receive dividends or voting rights.
- Shares held by someone who has not rented in the last year similarly become inactive.
- Individuals who have not been resident in their rented home for more than half of the last 6 months temporarily lose their voting rights (those voting rights are restored once this condition is met again).
- Shares are fully transferable (I expect a common pattern will be for people to sell their shares when they wish to move into accommodation not owned by the organisation). All of the above time constraints however are attached to the individual, not the shares, so the counters restart from scratch.
I haven’t thought about this in depth, but I suspect that this would be a very useful sort of organisation to have exist. Of course, it requires a certain amount of seed money, and a lot of motivation, to get started, so it will probably never happen.
Are you talking about cohousing? :)
Sorry, I won’t be able to point you to UK-specific resources. In France, this kind of arrangement has been around for decades. Though marginal, it took some importance in the 60s around factories, and is now regaining momentum thanks to impossibly high prices. Many local networks are getting created. The collaborative economy is real :)
Yeah, I’m aware that this sort of cooperative exists. I certainly didn’t think that I was defining a revolutionary new class of idea that no-one had previously thought of :-)
What I’m describing is a little different, in that it’s more intended as a scalable financial arrangement than the sort of smaller community that most housing co-operative exists to create. There’s no reason it couldn’t be attached to such an arrangement, but there’s no reason it has to be either.
Turns out there is a reason, actually.
All local networks and experimenters will tell you that bringing such a project to life needs a lot of personal investment, as you can’t pay this all by yourself, you still need to lend money from banks. But, since you’re not asking for a personal mortgage, delays are much longer, as you enter what is the usual “capital investment” category. We are talking about 4 to 10 years from idea to delivery, and credits that run for up to 40 years. And not many people can envision getting into such a boat with other people without trusting them a lot (I personally wouldn’t bet my housing and all my savings on people that are not that committed). And the best way to make sure everyone is committed and trustworthy is by building the project together, not just as a financial arrangement where anyone can just sign in… and out.
If you’re in just for the co-funding part, then it’s not any different from usual co-owning. And “owners” want rentability, not just a place to live, and are thus not interested in the co-op part.
Well… yes. If you’re talking about traditional cohousing/housing cooperatives/etc then that’s true. But I wasn’t, I was talking about the system outlined in the post which doesn’t really have the same level of investment for anyone except for those providing the initial seed money (who are basically becoming landlords, which isn’t exactly a high risk activity), so that’s less of an issue.