A big part of the affordable housing challenge, is down to our model of land ownership and our dominant culture of seeing houses primarily as products for financial investments, rather than homes for people to build healthy communities. This is where Mutual Home Ownership Societies (MHOS) come in.
MHOS are a recent model that attempt to blend the best of three worlds, community land trusts, tenant co-operatives, and co-operative land societies. As the diagram shows (above), the community land trust is central to the model. The trust owns the land and holds it for the purpose of preserving affordability' in perpetuity. The trust issues a head lease to a tenant ownership co-operative which enables both the land trust and the co-op to organize the financing, with help from a co-operative housing service agency. The tenant ownership co-op is then responsible for getting the actual construction completed with support from an expert development agent.
The eventual mortgage that pays for the build cost is held corporately by the co-op. Like the Swedish model, member-owners lease their units from the co-op. One prerequisite is a deposit of 5%-10% which is converted into equity shares in the co-op. Thereafter equity shares are also funded through members' rental payments. These payments, the asset and the land security provided by the trust, and the co- op's projected lease income together form the basis for financing each project. The pooling of resources into a single mortgage package helps reduce the cost of financing, which is an important contribution to affordability, particularly here in the U.K's current risk-averse market,with individual mortgages being especially hard for prospective home owners to come by. Another cost savings flows from the assignment of equity shares and occupancy rights by members. This eliminates the legal and other closing costs that are part of buying and selling houses.
Once construction is complete, the co-op issues 20-year renewable leases to members. They can stay as long as they want, so long as they meet their obligations. One of the most important obligations is to make lease payments calculated at 35% of monthly household income, after taxes and deductions, this seems fair and equitable. To recognize the higher contributors in the membership, shares are introduced. Everybody pays a deposit up front, these become shares, with a face value at their issue date of say £1,000 each. As the corporate debt goes down and as (or if) average earnings rise over time, the value of the shares goes up. Since the lease payments are what pay down the debt, those who pay higher lease rental charges finance more equity shares. A built in re-sale formula is also introduced into the lease to help ensure long-term affordability, that is why equity share value is linked to average earnings.
Lastly, co-op members democratically control the management and the maintenance of their homes. They jointly organize housing repairs and control management and services. As the LILAC co-housing project demonstrates, low or zero-carbon housing solutions can also be planned and implemented, including combined heat and power systems and photovoltaics. If co-op members have a strong ecological commitment and a committed design team, MHOS hold great potential to deliver construction projects that genuinely have a net positive impact on their ecosystem.
Article Source: The Best of Three Worlds By Michael Lewis and Pat Conaty Mutual Home Ownership combines housing affordability with equity and fairness. Lewis and Conaty. Image source: The Resilience Imperative (New Society, 2012)