“Affordable housing brings stability, economic diversity and improves the physical quality of the neighbourhood.” – John Woods
What is it?
There have been various attempts to bring housing into community ownership over the years, but here we want to talk about a new idea: a local organisation acquires housing without incurring debt, and then owns and manages it as a commons.
Because it’s new, it might seem a bit strange or complicated at first. But building societies, mortgages or online banking would have seemed strange at first too. If it works, people get used to it, and it becomes commonplace. We can’t see any other roadmap for solving the housing crisis.
Here we introduce the basic model. We’ll endeavour to get any queries answered in the comments section below.
Rent-credit obligations (RCOs) are UCOs for housing – ‘rent vouchers’, if you like – issued by the local housing commons group for use as rent in one of their properties. A house is purchased by a local housing commons group with cash, provided by investors, who in return are given 25 years’ worth of discounted RCOs for the property.
RCOs are not denominated in the national currency, but in square metres of the minimum standard of local property that can be rented. More desirable properties (in terms of location, condition, parking, garden, view etc.) are priced at more RCOs per square metre (rental value is ascertained by a local valuer / surveyor). This makes them attractive to investors, because they’re inflation-proof (a square metre can’t shrink over time in the way that the value of the national currency can). RCOs are tied to a local housing commons, and tenants can move between properties in the local commons.
The crucial thing to remember is that in the current system, after 25 years of mortgage repayments, a homeowner will end up paying a lot more than the initial value of the house. But a tenant in the same house, over 25 years, will end up paying more than double the initial value. So 25 years’ worth of RCOs for a property will be worth quite a lot more than the value of the property. This is the concept that makes the model viable.
Here’s an outline of how the housing commons will work when it’s up and running and there’s a thriving market for RCOs. Below, under ‘What can I do?’ we look at how we might get it started.
The housing commons group
A housing commons group is a type of multi-stakeholder co-op, with different classes of member – including tenants, investors, and ‘custodians’. Tenants are the biggest member class, with most of the votes. Anyone holding RCOs must be a member of a housing commons group, which is how groups can democratically prevent anyone from cornering the market in RCOs and extracting huge profits from the community.
The housing commons group and the house seller negotiate a price. The group talks with an investor, and a contract is signed. The investor puts money for RCOs into an escrow account. Later, the money is moved from the escrow account to the seller’s account, and the investor gets the RCOs for that property. At this point the seller has the money, the investor has the RCOs, and the housing commons group has the house.
A local housing commons will have a relatively tight geographical area (to make maintenance of the houses easier – a local builder / plumber / electrician will be on call to service a group of local houses at short notice if needed). The average size of a housing commons might be around 100 properties. This provides economies of scale for management and maintenance etc, but it’s still small enough for good social relations and commons governance.
For any house, there are never more than 25 years’ worth of RCOs in circulation, and they can only be issued for houses that the commons group owns, and are in good enough condition to be rented out.
The group obtains income for maintaining the properties from re-selling RCOs redeemed by tenants.
Although the commons group will get slightly less than market rent for their properties (because they issue RCOs at a discount), they’ll still be better off than commercial landlords, because they don’t have any debt. Over time, the surplus that they generate through having no debt can be redistributed back to tenants as rent rebates, to keep rents affordable.
Anyone can sell a house to the commons. The seller is happy because the commons group is a reliable, cash buyer and there is nothing unusual about the purchase.
House sellers who receive cash for their house are not investors and therefore not members of the housing commons group. However, if they don’t need cash to buy another property straight away, they could, instead of taking payment for their property in cash, take RCOs, and become investors themselves. There probably won’t be many of these until the housing commons is well-established, but as RCO holders and therefore investors they’ll then be members of the housing commons group.
An investor could be anyone with spare cash that they’d like to invest in their local community. This might include people with a deposit for buying a house, that they realise is not going to be possible, and so they might decide to invest in a project that may provide them with housing another way – that also benefits their community.
There’s a marketplace for small buyers and sellers (see ‘tenants’, below), and there’s a monthly or quarterly auction for volume sales – to investors.
RCOs will never be the object of insane speculation and the creation of billionaires (like various financial instruments, including crypto) as they’ll only ever represent rent on existing properties, which tenants can pay in cash if RCOs rise in price, and so they have limits in the real world. Investors can decide to hold on to RCOs as a longer-term, inflation-proof investment – maybe as part of their pension – or they could sell them on to other investors, or to tenants, who will buy them if they are slightly discounted.
Canny investors will realise that a housing commons groups has a very healthy balance sheet. Its assets are solid – houses; and on the liabilities side is the requirement to provide housing to tenants, a month at a time. Housing is not like energy or food – it doesn’t have to be reproduced every month. A house just sits there, and needs occasional maintenance (which the investors won’t have to do themselves). They’ll see that 25 years’ worth of RCOs are worth significantly more than the house, and that the housing commons will acquire housing (that will keep rising in value), without incurring debt, which represents an attractive, safe investment – especially in a world of shrinking investment opportunities.
Investors don’t have to see every property – they’d just have to assess the portfolio and the management team. They have to trust that the group can attract tenants by managing the properties well, and choosing properties that people want to live in.
Investors get a one-off return, but there’s no interest to be paid to mortgage companies, and commons houses will never be sold again. In time, the group can wean itself off investors, and rents can fall to the cost of providing housing.
The message to tenants is: this house is for rent at £x per month, but you can buy rent vouchers – at a small discount, so your rent will be cheaper. The discount is worked out by the management committee of the housing commons group, and is possible because there’s no scarcity of RCOs, and no debt to repay. This provides affordability and security for tenants, in well-maintained, well-insulated, high quality properties that they’re actually co-owners of. If there’s a waiting list, the group can vote to prioritise local people in housing need.
There’s a marketplace for the RCOs (an app – a bit like eBay). Investors put them up for sale, and tenants buy them.
The interests of tenants and investors are aligned, in that investors want the rental value of the houses to remain high (to maintain the value of their RCOs); and tenants want good-quality housing (which keeps the rental value high).
If you’re a numbers person, this spreadsheet shows how the finances work out for a tenant, a seller, an investor and the CHS (commons housing society = the housing commons group).
There’s also a ‘custodian’ member class, who don’t propose anything, but have a veto vote. There are some core commons principles – for example around evictions without due process, profiteering, selling property out of the commons etc. They’re a disinterested arbiter to make sure that the purpose of the commons isn’t compromised – if the custodians see proposals that go against commons principles, they can veto them.
Custodians could also, for example, stop tenant members setting the rents too low, which would undermine the model by deterring investors.
Housing Commons Society
This will be a national body whose job is to make sure that local housing commons groups stick to the core principles. It can appoint / train / vet local custodians. This body researches trends that will affect the housing commons (including govt. policy), creates guidelines on how to respond to them, and provides arbitration for conflict resolution.
Local groups pay a small membership fee to the society – or there might be system of social franchises. Local groups are autonomous, but subscribe to the models developed by the society.
If any local housing commons group fails (although without debt, they should be robust), the national society will step in to ensure that housing is provided and maintained for RCOs, while working to re-establish good local management with the commoners.
There have been several community-owned housing models, including housing co-ops, community land trusts and cohousing. Garden cities were originally intended to be community-owned, but this was dropped due to opposition from investors. The fact that the housing commons model doesn’t require debt makes it much more likely to grow to challenge the current system.
Friends of Dil Green and Tom Woodroof (of Mutual Credit Services) wanted to provide affordable housing for young people, but were ideologically opposed to becoming landlords (and didn’t want the problem of rent collection and maintaining a single property). Dil wondered if the use-credit obligation model could be applied to housing, and discussed the idea with Chris Cook, inventor of the UCO concept, who agreed that it could.
People and communities
- It makes housing human – it’s about affordable, good-quality homes with secure tenancies and good terms (with allowances made for times of hardship), rather than speculation. As the commons grows, because it doesn’t involve debt or price speculation, rents can fall to the cost of managing and maintaining the properties.
- Housing commons groups may have management crises, but they’re unlikely to go under, because they have no debt. Members can replace the management, and borrow against housing stock in case of emergency.
- Keeps wealth in communities, which keeps communities alive (unlike some seaside towns that are comprised of mainly second homes and holiday lets). As housing commons groups are local member organisations, they’ll aim to do whatever the local members want – e.g. trees, front porches, solar panels or loft conversions.
- Allows young people to stay in the community they grew up in.
- Parents can ensure a secure home for their kids by passing on their tenancy.
- People will own their own housing – they’ll just do it with other local people, in a way that shares the responsibility for maintenance, and prevent banks and other mortgage providers or absentee landlords from extracting profits from local housing. If you see the housing sector as a way of providing secure, affordable housing, this idea is for you. If you see it primarily as a way of making money, it’s not.
- The group can buy derelict properties, and train young people to renovate them. Experienced people can be employed to train them, and paid with rental credits.
- Because there’s no debt to service, housing commons groups can afford to retrofit insulation, renewables and energy-efficiency measures. This can help keep old people warm in winter, improve the hugely inefficient national housing stock (which all governments have failed to do, and are not really capable of doing, from the top down), move the UK towards net zero carbon (ditto), and provide a springboard to launch a local (renewable) energy commons, which will be much easier to set up in a town with a functioning housing commons.
- Assets (housing and cash) are transferred into the commons, to help build it. Housing is the ‘rock’ upon which the commons economy can be built – it affects everyone, is solid and reliable, and non-technical (unlike energy and finance, for example). There’s been a lot of talk about building the commons, but it hasn’t taken off in a way that can challenge capitalism. This model could change that, because it’s not based on debt and it doesn’t require altruism.
- Commons housing will never be sold again. Building societies were demutualised and ‘carpet-bagged’ – members voted to remove the legal asset lock that prevented them from being sold, in order to receive a one-off payment. This can happen with co-ops too. As it grows, the housing commons will be holding a lot of very valuable assets, with no debt, so will be an obvious target for predatory capitalists, with clever lawyers trying to get round the asset locks. But this model, with the Housing Commons Society acting as custodian, is designed to prevent this.
- The state won’t be able to close down the housing commons as it did housing co-ops – by withdrawing funding – because the housing commons won’t rely on state funding.
If a housing commons keeps growing rather than splitting to cover more (but smaller) areas, then it’s possible to imagine a small town being dominated by one housing commons group, and possibly becoming quite exclusive, with members only accepting people like themselves. This is something that custodians can limit, with appropriate, human scale as a guiding principle. Scale can be reached by many, smaller groups rather than one giant group. Then if one group tries to be exclusive for whatever reason, people will go elsewhere.
It’s a new idea, and you can be involved right from the start, and have a say in how it evolves. Contact us if a) you’re part of a group that would like to talk about setting up a housing commons in your community – we’ll co-design a project with you for your community; b) you’d like to talk about the possibility of investing; or c) you’re a legal or housing specialist wanting to contribute to the design.
We’re looking to start in the UK. The legal structures around property are different in different countries, so the model will have to be built differently for each country. As the idea develops, groups will have to do the work to develop their model in line with local laws.
We see the housing commons developing in 4 phases:
Phase 1: pilot schemes
This involves building a few, small, working models as examples. We just need one or two properties in a community to start a pilot. We have a low-risk design for a pilot, with an exit strategy should it not work. We need an activist group that can see the potential of the idea. This could include someone with a second property they’re prepared to put into the commons for RCOs (even with an outstanding mortgage, if there are enough activist / cash investors to pay the mortgage off), and a tenant willing to rent it, some investors, and people willing to manage the housing commons group – ideally with knowledge of housing. Decide why you want to do it. Understand as much as you can – put questions in the comments section below. Talk with us (we’re partnering with Mutual Credit Services) and we’ll hold your hand through the process.
This phase will be similar to the first building societies – groups of people who are currently tenants, and realise it would be better to work together, rather than strive individually to become owner-occupiers. These people could pool their money to form a housing commons.
Legal agreements will be in place, stipulating that, in case of failure, the house will be returned to the ‘seller’ or will be sold to reimburse the investor. Because there’s no debt, the house can’t be lost.
If you’d like to be one of these pioneers, the first thing to do is to contact us. If we hear from other people in your town, we can introduce you. If you’re experienced in any aspect of housing management, maintenance, law or finance, and you want to offer advice or contribute to the national group, let us know.
Phase 2: seeding the housing commons in communities
When we have a small number of pilot projects, to show that the concept works, it will spread to other towns. This can be helped by forming groups of interested people who know their local area, including what local tenants need (student bedsits, small houses for older or single people, larger family homes etc.) – ‘commoners clubs’ if you like. Their role will be to find more people happy to invest in / sell property to the commons, and to set up local word-of-mouth crowdfunding – asking people to put 5-10k into a local, secure investment pool. On the basis of that, the local housing commons will be able to begin to buy the kinds of housing stock required locally.
At this point, the group can help people who can’t pay their mortgage, and are likely to be evicted, but want to stay in their home. The commons group can give them RCOs for the value of the mortgage they’ve already paid, use investment funds to pay off the mortgage, and have a relieved tenant, who can pay RCOs to continue to live in their home.
Phase 3: establishing a market
When the concept has been shown to work, and as fledgling housing commons start to grow in a range of communities, ordinary people selling a house will realise that the housing commons buying their house from them in exchange for RCOs is an attractive option, because the RCOs can be shown to be worth more than the market price of the house. We want to get to the situation, as quickly as possible, where sellers, investors and potential tenants are approaching housing commons groups, because the benefits for all parties are clear.
Phase 4: growth
Once a market has been established, and word spreads, more people will transfer homes to the housing commons in exchange for RCOs, because it makes financial sense. Some people will even want to sell their house for RCOs and use them to keep living in it, because it removes the worry of insuring, repairing and maintaining the property.
Estate agents and letting agents will change the way they work – otherwise, as the commons grows, they’ll lose business.
A national, regulated, ethical, mutual investment fund could be set up, to invest in commons groups everywhere. Specialist ethical financial institutions could help design a fund. Many people would like to invest in their community, but there’s no low-risk, well-managed, simple way to do it.
Each housing commons group will remain small and locally-focused. Scale will be achieved by federating local groups into district networks, which will be federated into regional networks, which will be federated into national networks. This will build resilience, communities of good practice, and allow people to move from one area to another, and swap rent credits.
If it gets to this point, it could really take off, and housing move towards becoming a common resource. The state might fight it, but as this really does solve the housing crisis, we need to get as much support as we can.
We’d like to ask for your help. Let us know what does and doesn’t make sense. Ask questions in the comments section, and we’ll get them answered for you. More details will also be provided in upcoming blog articles, but the above covers the basic concept.
Get together with 6-8 like-minded people in your community. Start a ‘commoners club’ – the housing commons will be first, but other sectors will follow, including energy, land, food, care, finance – everything. You could be part of something world-changing from the start.
Thanks to Dil Green of Mutual Credit Services for information.
The specialist(s) below will respond to queries on this topic. Please comment in the box at the bottom of the page.
Dil Green was an architect and builder for 30 years, working on projects from an extension to London’s Science Museum to an award-wining eco-surgery. He now works away at systemic leverage points around Governance, Wisdom: Pattern Language, and Economy: Mutual Credit Services. He lives in Brixton, and blogs at digital-anthropology.
The views expressed here are those of the author and not necessarily lowimpact.org's
1Dil Green January 8th, 2023
So good to see this up here – thanks Dave.
Just wanted to say, that – although this *is*, at bottom, a really simple idea, it proves, in practice, to be hard to get the hang of, probably because it is so different to what we’re used to.
What we’ve been pushed into believing, that property is *always* about terrifying levels of debt, and about speculation. Which is nonsense, but very convenient indeed for banks and governments and the super-rich.
This means we have to develop a whole range of answers to all sorts of questions that will arise.
So, please, ask anything you want – even the very simplest! Chances are, other people have the same thought, so it will help us all!
2Jane McDonnell January 10th, 2023
This is a fantastic concept which makes me feel very excited !
Im wondering if most of the properties will be in more urban areas rather than in rural areas ? Although perhaps this is a silly question at this stage? But it would be great to get homes that have gardens/land so that people can become more self sufficient in terms of food / running small, rural businesses.
How will the rental amounts be set and who by ?
Will there be an ‘entry requirement ‘list for potential renters that prioritises certain groups/ factors ? Or will it be a level playing field so to speak ?
Will there be some sort of provision put into the rental agreement , if parents want to pass their property onto their children ?
I will spread this around to some likeminded people in my area ( Presteigne, Powys) and see if there might be interest in this .
3Malcolm Purvis January 10th, 2023
A very interesting post, thank you.
There is a lot of info here and the concept is quite difficult to grasp/understand in total.
I can’t understand why an investor would want an RCO, assuming the currency was rent, but obviously not direct money? Can you explain how this works please?
The other thing that confused me was that you say ‘investors want the rental value of the houses to remain high- to maintain the value of their RCO’s’. But, you also say that’ rents can fall to the cost of managing and maintaining the property’. This seems quite a contradiction and possibly a very low return on an investors original investment?
4Dave Darby January 11th, 2023
Jane – thank you.
Urban v rural – I guess it depends on the people who turn up!
Rental values – “RCOs are not denominated in the national currency, but in square metres of the minimum standard of local property that can be rented. More desirable properties (in terms of location, condition, parking, garden, view etc.) are priced at more RCOs per square metre (rental value is ascertained by a local valuer / surveyor).”
But all decisions (inc. entry requirements etc.) are made by each housing commons group. (with a veto from the ‘custodian’ if necessary.
Parents could pass on tenancies but not properties (which will be owned by the commons).
“I will spread this around to some likeminded people in my area ( Presteigne, Powys) and see if there might be interest in this .” – Great. I’m going to try to do the same here in Stroud – https://www.lowimpact.org/posts/were-putting-our-house-into-the-commons-follow-our-progress-and-replicate-it-in-your-community. We could compare notes. I’ll blog about how we get on here.
5Dave Darby January 11th, 2023
“There is a lot of info here and the concept is quite difficult to grasp/understand in total.” – yes. I guess if it takes off, people will get used to it. I guess most new things can seem really complicated at first, until people see them in action.
“I can’t understand why an investor would want an RCO, assuming the currency was rent, but obviously not direct money? Can you explain how this works please?”
All I have is under the ‘investors’ section, above – but again, if it works, RCOs will be valuable – rents tend to rise, and houses are solid.
Plus investors wanting the rental value to remain high – I guess it should say ‘high enough’ – to maintain the value of their investment. But it should still represent better value than market rents, as the commons group doesn’t need to incur debt to obtain properties.
6Dave Darby January 11th, 2023
Jane / Malcolm – I’ll try to get Dil to respond too. Cheers.
7Dil Green January 11th, 2023
Hi Jane – thanks for the enthusiasm and the excellent questions!
I’ll paraphrase them here, hoping to make it easier to connect the Q and the A
Q: will this be more urban than rural?
A: I can imagine it taking off in smaller towns and cities, first – bi enough to grow at reasonable speed due to available stock, but small enough to have strong identity and will to strengthen the locality.
But there is no technical reason it couldn’t happen in rural areas.
It’s likely that differences will emerge if we see these happening in different contexts. The idea is that a national federation would be able to do research and support, and identify such patterns (and context-specific problems too).
Q: How will rents be set? By Whom?
A1: By the Commoners, in the light of what income is needed (there will be access to advice from the National Federation). In the initial ‘getting to ideal size’ phase, rents will probably be very similar to market rents (but bear in mind that Commoners get rent rebates – and can buy Rent vouchers at a discount, so their actual rent will be lower).
A2: ‘Commoners’ will consist of a few groups (a bit like a multi-stakeholder co-op): Tenants, Stewards (those who manage and maintain the housing stock), Investors (those who have holdings of RCO – registered ownership of RCO is restricted to members) and Custodians. Tenants and Stewards together have a majority, but the aim will be, from the outset, to ensure that the interests of all parties align well. Custodians are only there to ‘veto’ anything that goes against Commons Principles – they have no positive power. They will likely be delegates from the National Federation.
Q: Will there be ‘entry requirements’
A: This will be up to the Commoners, who will be as free as possible, within practical and legal limits to arrange their lives how they want. If they insist on policies which are unacceptable to the Federation, membership of that wider group might be suspended, but that wouldn’t shut a Housing Commons down.
Q: Can parents pass on properties to their children?
A: Again, this would be up to Commoners – but I would be strongly advocating for tenancies that have really good continuity for all the things that make sense about ownership – like being able to pass property on to family members who need a place to live – but not the things that don’t make sense about ownership – like keeping a second home empty, or subletting it at a profit.
I grew up a little way south of Presteigne, and have family in Clun, so I know the town, and the country there. It’s lovely – would be great if you could get something going. We think that even one property can be enough to make a start (should not have much outstanding mortgage, be in decent nick, and have a ready tenant – I would not suggest taking on anything that needs money spending on it) if enough locals are willing to put up cash in return for RCO. Owning even one house, without debt, puts a starter group in rather a good position. Of course, ‘the right size’ is likely to mean getting big enough to have a competent maintenance person on at least one-day a week of regular work. Key to keeping costs low in houses is fixing problems as soon as they are evident.
Do keep us in touch – we’d be happy to answer questions from active groups.
8Dil Green January 11th, 2023
You are right, the concepts here do seem to take some getting one’s head around.
And yet they are really simple. This is not to say that finding it hard to see how it works is anything to do with how clever one is – we pitched the idea to some rather sophisticated people who care about housing inequality, and their response was, simply ‘investors wouldn’t get it’!
Which takes us to your first question!
Q: Why will investors buy RCO?
A: Investors *will* have to ‘Get it*. This is going to be the major part of the work of getting this to a critical mass.
But, by comparison to buying shares, or buying property oneself, RCO really are very simple.
a: Each token will be accepted by the Commons Housing Society in lieu of a month’s rent. So they will be worth the same as the rent (actually, a little less, in practice, as a discount will need to be included to make it worth the bother of buying a token rather than just paying by Direct Debit – we’re guessing, about a 5% discount of the rent will make tenants keen).
b: So, investors can use RCO in two ways – as a steady income (sell a few a month), or as an inflation-proof savings tool (since they will always keep track of real rents, ).
c: Rents in the UK are, everywhere, higher than mortgage payments (up to 25% higher). So, over 25 years, the value of RCO will add up to more than the mortgage company gets.
d: If you are an investor thinking of a ‘buy-to-let’, you are exposing yourself to the wild volatility of the housing market – which sees crashes every decade or so, and smaller slumps every few years. Rents are much more stable than house prices – and owning Rent Credits is a lot less work than owning a rental property. More, private landlords often have problems with ‘voids’ – empty properties generating no rent. CHS will be very attractive to tenants much better tenancy conditions, and better maintenance too. But even if a CHS property is empty, the Rent voucher doesn’t go up in smoke – it will still be valid next month.
So, less risk, less work, double your money over 25 years.
Your second question, also..
Q: How can ‘RCO always be sold at (near) market rent prices’ *and ‘rents will come down over time* both be true?
A: this is achieved like this –
a: the CHS needs to keep the RCO price close to market rents to keep investors happy.
b: Since the CHS has no debt – no mortgages to pay – its real income is much, much higher than almost all other landlords (even public housing, insanely, is built with mortgages). This means that it can offer better tenancy conditions than other landlords, and still have cash to spare. Some of this can be used to give tenants rent rebates – lowering their effective rent.
If this all seems ‘too good to be true’, remember that what we are doing is charging enough rent to pay a mortgage on the property, but keeping most of that rent for the CHS, instead of giving it to the mortgage company. The CHS shares it around among the tenants. The RCO are a different way of spreading the initial purchase cost over 25 years, is all.
9David January 14th, 2023
Hi Dil, Dave and All on here. I have a few things I’m unclear about having read the article thoroughly several times, inc. the link on “use credit commons”
I love the concept. I can see the complexity in the simplicity, and really hope we can find a way to spark lightbulb moments for ourselves and many future beneficiaries.
My queries are copied below inc. the relevant parts of the article they arise from.
By the way,I’m a friend of Dave’s and these questions were originally sent directly to him, so, where it may seem I’m suggesting minor edits to the article, it’s for this reason.
Thanks to you all for the work you’re doing.
RCOs will never be the object of insane speculation and the creation of billionaires (like various financial instruments, including crypto) as they’ll only ever represent rent on existing properties, which tenants can pay in cash if RCOs rise in price – Where does this option leave the investor and how could the price rise unless agreed by the commons group as whole? Why would someone invest in RCO’s if they can be in a sense superseded with cash?
Investors get a one-off return, but there’s no interest to be paid to mortgage companies, and commons houses will never be sold again. In time, the group can wean itself off investors, and rents can fall to the cost of providing housing. – Is a one off return the only option? I understood that investors would have various options, such as: Selling RCO’s to tenants, keeping some for future use etc.
I have added the above question with the intention of making the article clearer, as it seems to contradict other parts of the article slightly. As we know, it needs to be simple, so people “get it”.
The interests of tenants and investors are aligned, in that investors want the rental value of the houses to remain high (to maintain the value of their RCOs); and tenants want good-quality housing (which keeps the rental value high). This paragraph is the reason I said to you the article at times suggests rent will be high, again contradicting other parts of the article. Let’s lose the anomalies, so people “get it” and don’t switch off.
Thanks again for your work here.
10David Field January 15th, 2023
Hello again and I hope you don’t mind another question!!
Today, while explaining the commons concept to the best of my ability to my adult niece, she asked: How is it bneficial to the tenant to be permanently paying rent and not ending up owning the property versus having a mortgage, when you would end up owning the property?
I couldn’t answer her. I know the rent may be a little cheaper than a mortgage, possibly? Also that any maintenance would be carried out by the housing commons, but I doubt that’s enough to convince a lot of people that they’re better off with this rather than owning the tangible asset of the house after 25 years. Did I miss something? If not, how do I answer this question please?
11Dave Darby January 16th, 2023
David – comment no. 10. we want to grow the housing commons. But there will still be the option of buying a house or renting from a private landlord (until and unless the housing commons grew to be the norm – which would be great, but even if it’s as successful as it could possibly be, that’s not going to happen for a long time). We’d hope and expect that renters would prefer the housing commons to private rental, because it would a) be more affordable b) involve better-quality, better-maintained housing, and c) the ‘landlord’ would be the housing commons group, of which they would be a member – so no more bad landlords. Then there would be a lot of young people who just aren’t able to get on the housing ladder, and so the housing commons would be a good option for them. So at the moment, we just want to grow the housing commons, and later, people might come to see it as a better option than owning as individuals, which is part of the mindset of the current system. Have a look at the video in the article. It’s supposed to be humorous, but a lot of it is true. With a large housing commons, people might move away from the idea that they have to own property as individuals, and do it with the community instead. But the first wave of tenants will be people who prefer the commons to private landlords, or who can’t get on the private ownership ladder.
12Dil Green January 22nd, 2023
Responding to David (Questions Jan 14th – entirely too many Davids in this conversation – in fact, I’m David on my birth cert., so that makes four of us!)
QUESTION 1: Where does this option (for tenants to pay in cash) leave the investor and how could the price rise unless agreed by the commons group as whole? Why would someone invest in RCO’s if they can be in a sense superseded with cash?
ANSWER in several parts:
ONE: Investors buy RCO at a significant discount on the market rent. They can sell them to tenants at a smaller discount, and still make a return on their investment. Say the investor got 10%, and the sell to a tenant at 5% discount – that’s a 5.5% rate of return [Buy at 90 (100-10), Sell at 95 (100-5) Return rate 5/90*100 = 5.5%].
TWO: The investor discount is determined at RCO auctions, held by the CHS – which decides how many it wants to sell for income and purchases. Investors bids consist of an amount of cash they want to invest, and the discount they want. Auction details will be refined before we get to that stage, but will be designed to dampen speculation, while still allowing market intelligence to operate.
THREE: the CHS will set its rents to broadly match market rates – it will need to do so to attract investors to buy RCO, and maintain its income to manage the estate. Tenants won’t be troubled by this, as the income is what keeps their houses in good repair, and they will be eligible for rent rebates (as described in answer below).
QUESTION 2: Is a one off return the only option? I understood that investors would have various options, such as: Selling RCO’s to tenants, keeping some for future use etc.
ANSWER: Thank you for asking this, because you are right – the phrase ‘one-off return’ is ambiguous. ‘One-off’ refers to the fact that the house will never be sold again – only the investors who put up the cash to buy it into the Commons will get a return on their investment. Contrast this with the mortgage companies, who are always earning interest on almost all the houses in the UK, which are almost all mortgaged, almost all of the time.
Those ‘one-off’ investors do indeed access their returns through selling RCO – either to tenants, or to other investors, or by using them to pay their own rent.
QUESTION 3: (although it’s more like a comment): The interests of tenants and investors are aligned, in that investors want the rental value of the houses to remain high (to maintain the value of their RCOs); and tenants want good-quality housing (which keeps the rental value high). This paragraph is the reason I said to you the article at times suggests rent will be high,
ANSWER: Rents should not be described as ‘high’ – but as keeping pace with market rents (which we do think *are* high). Answered in a question above, but again, for completeness: Tenants, as their own landlords, want rents to be high enough so that RCO are attractive to investors – since the CHS depends upon RCO sales for its income to maintain and manage its estate. Thus, a CHS will want to track market rents (as do so-called ‘affordable rents’ now).
But the actual rent tenants pay will be the market rate less the rebates they pay themselves at the end of the year. In other words, if market rates are high, lots of rent will be earned. But remember, CHS don’t have to pay mortgage interest, so these high rents will provide more cash than it needs to maintain the estate. It can give any surplus back to its tenants as rebates.
Another option, for the CHS, is simply to sell fewer RCO, if it doesn’t want the money. Restricting the supply in this way is another way of keeping investors interested, since it will keep RCO prices up.
In a world where there is a mature CHS ecosystem, with many established all around the country, the Federation will have careful models and will give detailed information to CHS managers on these and other issues.
13Dil Green January 22nd, 2023
Hi David (Field),
Thanks for the question. It’s a good one, because lots of people will ask it.
QUESTION: How is it beneficial to the tenant to be permanently paying rent and not ending up owning the property versus having a mortgage, when you would end up owning the property?
ANSWER: The question assumes that anyone paying rent could get a mortgage. This clearly isn’t the case. The CHS model is not initially aimed at those who are already ‘on the housing ladder’, but at those who are suffering from the appalling travesty of decency that is the private rental market – 4.4 million households, and rising. For these people, the CHS provides a decent alternative.
Rents, all over the UK, are in fact higher than mortgage repayments (they have to be, or landlords wouldn’t make a profit – but remember, the CHS doesn’t make mortgage payments, so can give tenants what people really need – which is security of tenure, and, via rent rebates, decent real rents, too).
There is, in point of fact, a very solid set of critiques of the supposed ‘benefits’ of owner occupation (read this! https://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrible-investment/), all of which are obscured by the remarkable history of house price inflation since the 1980s. The capital gains accrued by people who were lucky enough to buy towards the beginning of this period outweigh the criticisms. However, there is ample evidence to suggest that those gains result, in fact, by a kind of ponzi-scheme, which is not sustainable without endless QE. The future of house price inflation is, at the very best, uncertain – house prices are simply too high a multiple of average wages to continue to rise at the rate they have been.
So we fully expect that if the CHS model takes of as we hope, that many more people will choose not to hock themselves to the mortgage company for 25 years, but pay less for better housing (since professionally maintained by a wealthy landlord of which they are a member).
After all, most middle class Europeans are happy renters.