Taking housing back from the banks

'The Housing Revolution' by Chris Johnston The housing crisis is here, but its effects are just beginning to be realised. The market has outgrown itself, and the conventional method of buying homes has outlived its usefulness. There must be an alternative.

I started thinking about the power of the housing market when I first considered home ownership for my family. I did the usual calculations and found there is a ridiculous amount of money involved, and I started thinking there must be a way of subverting that power to make it available to those who can't access secure long term housing.

I now work in the crisis housing and support field, helping people who are subject to the desperate shortage of housing. There are two key reasons for the shortage. The first is that housing is controlled primarily by market forces, and a market is only able to understand money, not people — and especially not disadvantage.

The second is a lack of creative thinking and action by governments who are driven purely by economics and politics. Both the market and the government benefit from the way things are, and therefore neither can entertain the possibility of an alternative future.

In the current housing market, Joe and Jo, a young couple considering buying a first home for their family, will have to maintain a double income to do so. The wage of one would cover living expenses, while the other's wage repays the loan. Without interest, the loan would be repaid in 11 years. With interest, the repayment period is extended to 25 years.

In other words, for 14 years half of their work is for the profit of a financial corporation and its shareholders. That represents a high value, which can be used to subvert the conventional method of purchasing a home and create an alternative. Imagine if Jo's employer bought them a house and in return she worked for free for 25 years ...

An alternative source of capital is needed. No-interest capital can liberate a significant amount of people's time. Assuming a source of no-interest capital can be tapped, a 'common equity' housing model could be developed, consisting of a pool of communally owned houses paid off by the occupants at cost.

Instead of buying a property conventionally, or renting from someone else, Joe and Jo could live in a common equity owned house. As a communally owned house, they would treat it as their own, live in it as though they own it, and make modifications and improvements to the property.

They would have security of tenure and could plan to be there for the long term with their family, neighbours and community. They would pay $200 per week back into the common equity, so they can make more creative decisions about the balance between income generation, recreation/lifestyle, family and community.

A basic numeric model shows that with an initial no-interest investment of $2 million, invested in 10 properties, with people paying $200 per week to live in them, and a new property added whenever a balance of $200,000 is reached, after 50 years there will be 115 properties in the common equity. After 100 years there will be 1446.

The key ingredient is an initial outlay of no-interest capital to get the ball roling. Where it comes from, and how, I'm not yet sure. In wealthy countries, massive amounts of capital exist in churches, corporations, individuals and trusts — it's possible one of these sources could be tapped.

What happens when we take the financial institutions out of the housing market? I suspect eventually all properties will be de-valued by the amount represented by interest paid on loans.

It is the interest amount that puts most upward pressure on housing prices. When you sell a property, you want to make a profit over the combined cost of the property and interest. If no one has the burden of interest, when the time comes they can sell for less, as demanded by buyers, without making a loss. (This assumes there is sufficient housing available, which there currently is not — another effect of the overall high price of housing.)

Under the common equity model, everyone who is needed in the industry will still get paid — builders, developers, investors etc. Reductions in income will occur to anyone whose income derives from a percentage of the value of properties — councils, agents etc. The only total loss of income will be for financial lenders.

The result: housing is brought down to a level that is accessible to everyone and is a right rather than a privilege of the privileged. We can only hope.

There are myriad thoughts and ideas still required. More benefits could be mentioned, and more negative effects and impacts will need to be considered. What I suspect we need now are many key-holders to open the many locks in order to make it all work.

This article was adapted from Chris Warren's blog at Bring Down the House. Bring Down the House is neither a commercial profit-making venture, nor a welfare program. The blog was set up to attract more minds to contribute to the project people with the required expertise, passions and connections for it to become more than just an idea.

Chris WarrenChris Warren works in crisis support with people experiencing homelessness. He facilitates a post-church faith community and holds a degree in theology. He lives in Victoria but is soon moving to Alice Springs with his family.

Topic tags: Chris Warren, common equity housing, housing crisis, interest rates, home loans



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