Even a brief introduction requires a fair bit of explanation, since there are some novel ideas. This is the shortest thing I can manage that conveys the essentials.
The private housing market is broken – in the UK, and in most of the developed world.
It is founded on dangerous economic assumptions.
It produces serious negatives:
- Home-buyers are forced into a speculative, capital-driven market, resulting in increasing insecurity – distinction between ‘property’ and ‘home’.
- Pressure to build more and more houses – attacks on green-belt, land-banking etc.
- Inherent instability guarantees periodic crashes and booms.
With essentially all private housing in the West used as collateral for speculation, the current system cannot easily escape from these negatives.
An alternative must provide:
- Seller bonus.
- Finance without debt.
- Attractive returns on capital.
- Reduced speculation without exclusion of market ‘intelligence’.
- Better housing outcomes for people of all kinds.
- Increasing stability.
- Conditions for rapid stock upgrade to meet the climate crisis.
All deliverable without state support – funding or policy.
A Commons Housing Society (CHS) buys houses, without incurring debt; it doesn’t pay with cash, but with rent vouchers (Rent Credit Obligations – RCO) – enough for 25 years’ occupation of the house. The house will never be sold again.
It lets houses on excellent terms to tenants who, after some period, become Commoners. Commoners govern the estate, and include (as different classes, in a multi-stakeholder governance regime): Stewards (management, workers), Custodians (dispute resolution, veto power only), and Investors (owners of RCO).
RCO represent a month’s rent for a square metre of the minimum lettable-standard property, rather than any specific amount of money:
- Higher-quality houses will be priced at more RCO per square metre.
- RCO can be used towards rent for any house in a CHS estate.
Tenants get a great deal:
- Pay the market rate in cash, or pay with RCO.
- Strong security of tenure.
- Governance rights at human scale.
- Good management at human scale.
- Rent rebates.
Investors get a great deal:
Owning RCO has a variety of benefits:
- INCOME: ready market for RCO at a discount to the cash rent (tenants will buy RCO to save money)
- INFLATION HEDGE: RCO are inflation-proof relative to market rent rises, since they are denominated in square metres
- CAPITAL GAINS: RCO price has good prospects, since:
- cash market rents are higher than mortgage payments, and,
- political and financial systems drive an upward escalator for house prices, and,
- Rents follow house prices upward, but are significantly less volatile (for obvious and durable reasons).
- GOVERNANCE, TRANSPARENCY: as members of a Commoner class, investors can see and influence how the CHS is run.
- LOW RISK: in addition to transparent governance, CHS will have impeccable balance sheets – significant holding of valuable, high quality assets and no debt – RCO are liabilities on the balance sheet, but short term liabilities arising from these will be to provide tenantable housing for 3 months.
A CHS will be a relatively ‘rich’ landlord:
RCO are sold for two reasons:
- In large tranches, to finance purchase and investment.
- On a regular, rolling basis, for income:
- RCO redeemed in lieu of rent may be reissued at need after 3 months. Over time, the future obligation can be reduced from the initial 25 years – but could be extended at need to finance desired work, or address a crisis.
- Its income through selling RCO will be around 10% lower than other landlords, but it has no debt to service.
CHS builds a basis for better outcomes
A CHS will be an excellent landlord.
Interests of all involved in the governance of a CHS are aligned:
- Investors want rents for CHS properties to be high, to generate good returns.
- Stewards want good jobs, with happy tenants.
- Tenants want secure, high quality housing (and rent rebates).
Better housing security (and more flexibility in relocation):
- Secure housing addresses a strong driver for financial stress, homelessness and many other forms of disadvantage.
- Renting allows mobility. CHS federate together to allow RCO swaps.
Addresses the housing crisis:
- There is good evidence that ‘the housing crisis’ is an affordability issue, not a volume one.
A CHS, by:
- providing an attractive, ‘one-off’ reward for transferring houses into the Commons, never to be sold again,
and at the same time,
- providing a new model of housing tenure (secure and high quality, moving steadily towards affordability),
has the potential to
- rapidly transform the culture around housing.
Incentives, conditions and finance for retro-fit:
A CHS will be well-placed to upgrade its stock, and all stakeholders will have a strong incentive to do it.
Local investment for local benefit:
- CHS investment ideally would take place through a national ‘Local Investment Bond’ product, where small investors could specify that a proportion of their money would be invested in places they care about.
- We consider that the demand for this would be in the billions – there is enormous demand for ‘my money to do good’, and the market cannot provide good enough examples. ESG as a ‘brand’ is already tarnished.
- Reduced housing insecurity, engagement in governance, care for place.
Basis for other ‘commoning’ initiatives:
- National CHS Federation.
- Local commons for energy, broadband, transport, water, food, agricultural land.
The views expressed in our blog are those of the author and not necessarily lowimpact.org's