Common Ground – for Mutual Home Ownership Soaring mortgage costs for first-time buyers in the South of England mean that those worst affected are workers on average incomes of between £15,000 and £25,000 per year, who are neither poor enough to rent from a social landlord nor rich enough to rent or buy in the open market. This problem is having huge effects on retaining public sector workers in such high cost areas and current government schemes to tackle this issue have proved inadequate. Common Ground sets out a radical approach to securing permanently affordable housing for key workers (and also potentially for others on similar income levels) in areas that would otherwise be unaffordable. The housing model proposed includes a Community Land Trust, designed to take land out of the market and keep it as a public asset so that affordability is preserved on a long-term basis, and co-operative tenure.

The Mutual State in Action 3 The Mutual State in Action is a series of publications which build on the ideas presented in The Mutual State – the report of a collaborative programme by the New Economics Foundation and Mutuo which invited contributions from a broad range of organisations to explore the potential for the mutualisation of public services. The Mutual State aims to put the public back into public services. Through user participation, accountability to the local community or recasting public services as self-governing social enterprises, a new mutuality could refresh and invigorate our public services. The first book in the series was A Mutual Trend: How to run rail and water in the public interest by Johnston Birchall and the second, The Mutual Health Service: How to decentralise the NHS, by Ruth Lea and Ed Mayo was a collaboration between the Institute of Directors and nef.

Researched and written by Pat Conaty, Johnston Birchall, Steve Bendle, and Rosemary Foggit.

This report is a collaboration between the New Economics Foundation, The Housing Corporation, and CDS Co-operatives.

CDS Co-operatives 3 Marshalsea Road London SE1 1EP Common Ground – for Mutual Home Ownership Telephone: +44 (0)20 7397 5700 Website: www.cds.coop Community land trusts and shared-equity co-operatives new economics foundation 3 Jonathan Street to secure permanently affordable homes for key workers London SE11 5NH United Kingdom Written by the New Economics Foundation and CDS Co-operatives Registered charity number 1055254 Telephone: +44 (0)20 7820 6300 Pat Conaty, Johnston Birchall, Steve Bendle, and Rosemary Foggitt © The New Economics Foundation, the Housing Facsimile: +44 (0)20 7820 6301 Corporation, and CDS Co-operatives. E-mail: [email protected] Website: www.neweconomics.org ISBN 1 899407 75 8 The mutual state in action 3

nef is an independent think-and-do One of the other things we do tank that inspires and demonstrates real economic well-being. We aim to improve quality of life by promoting innovative solutions that challenge mainstream thinking on economic, environmental and social Access to finance: Access to basic financial services issues. We work in partnership and is a vital part of living and working in the mainstream of society. Gaps in financial service provision in Britain put people and the planet first. exclude many people and communities from fulfilling their potential. nef is working to change policy and pilot new financial products and services to ensure proper access to financial services for all.

Appropriate and affordable financial We develop and pilot innovative For more information please call services should be available to all – financial products and delivery 020 7820 6300 whether it be individuals looking for a mechanisms, including the Factor bank account, a social enterprise Four approach to ending fuel poverty, looking for a loan or an inner-city community development credit unions enterprise looking for equity. This is and a wholesale fund for community currently not the case. To address the development finance institutions in gaps in financial service provision nef the UK. are advocating reform to develop a conducive policy environment that ensures access to affordable financial services for all, particularly the most disadvantaged.

The programme aim to stimulate and design more effective and sustainable approaches to investment for local Current priorites include international Current priorites are climate change, Current priorites include democracy. economic development purposes, debt, transforming markets, global ecological debt and local sustainability time banks, well-being and public including social investment vehicles finance and local economic renewal services such as the Adventure Capital Fund.

nef The New Economics Foundation is a registered charity founded in 1986 by the leaders of The Other Economic Summit (TOES), which forced issues such as international debt onto the agenda of the G7/G8 summit meetings. It has taken a lead in helping establish new coalitions and organisations, such as the Jubilee 2000 debt campaign; the Ethical Trading Initiative; the UK Social Investment Forum; and new ways to measure social and environmental well-being. Contents

About the authors 5 Fieldwork Interviews with Key Workers and Acknowledgements 1 Focus Group Findings 38 Preface 2 5.1 Interviews in the South West – Main Findings 38 Foreword 3 5.2 Interviews in London – Main Findings 41 5.3 Summary of Findings from Key Worker Perspectives 43 Executive Summary 4 5.4 Shared equity Co-operative Model – 1 Introduction 7 Focus Group Feedback 44 1.1 Housing Crisis – the Property Market Bubble and 6 Creating Pilots and the Shared Equity Co-operative Negative Equity Threat 8 Housing Model in Detail 46 1.2 London’s Housing Shortage and the Intermediate Market Problem 9 6.1 Legal Structure Requirements 46 1.3 Tackling the Housing Supply Shortage 10 6.2 Investment Finance Requirements 46 1.4 Key Worker Housing: Current Approaches 6.3 Co-operative Housing – and Emerging Solutions 11 Loan Guarantee Society Services 47 1.5 London Housing Commission and the Plan for London 11 6.4 Other Forms of Finance and Funds for Financing Equity Stakes 47 1.6 Starter Homes Initiative and Low-cost Home Ownership Programmes 12 6.5 Making the Model Easy to Understand: Unitisation 48 1.7 Increasing Housing Supply – 6.6 Reduced Land Value or Other Subsidy Input 48 Sustainable Communities Plan 13 6.7 Tenure Requirements 50 6.8 Risks and Sensitivities to Economic Changes 50 2 Mutual Solutions for the Intermediate Market 15 6.9 Community Development Finance Partnership – 2.1 Community Land Trusts – Securing Permanent Long Term Interest Free Finance Service 50 Affordability 15 6.10 Cost Benefit Comparisons with Shared Ownership 2.2 Early British Housing Co-ops – Tenant Co-partnerships 17 and Homebuy 50 2.3 Co-ownership Housing – Key Worker Housing in the Post War Period 19 7 Conclusions and Next Steps 53 2.4 Shared Ownership Co-operatives 21 Endnotes 54 2.5 Comparative Analysis of Co-operative References 56 Tenures Internationally 21 2.6 Evaluation and Key Lessons for a Glossary 59 New Tenure Model in the UK 24 Appendix 1: Research Terms of Reference 62 3 Community Land Trusts and the New Shared Equity Appendix 2: List of Third Party Interviewees 63 Co-operative Model 26 Appendix 3: Legal Advice Summary of Key Issues 64 3.1 Co-operative Homeownership Model – Appendix 4: Shared equity Co-operative Model – Core Principles and Options Rejected 26 Core Elements 66 3.2 Shared equity Co-operatives – Appendix 5: Financial Model(s) – Annexes 1–6 68 Proposed Model and Key Assumptions 27 Appendix 6: Interest-free Home Loans – 4 Key Worker Housing Initiatives in Two English Regions: JAK Co-operative Lending System 83 Urban and Rural 29 4.1 Current Approaches in London and Interest in a Mutual Model 29 4.2 Current Approaches in the Rural South West and Interest in a Mutual Model 32

About the Authors

Pat Conaty is a Senior Associate of the Steve Bendle is Chief Officer of Envolve New Economics Foundation and an Partnerships for Sustainability and a Honorary Research Fellow at the Director of, and consultant to, Wessex University of Birmingham. He led the Reinvestment Trust: the organisations are development in 1997 of the Aston committed respectively to supporting the Reinvestment Trust – the first mutually transition to sustainable lifestyles and owned, local Community Development providing the financial framework needed Finance Institution in Britain. He is also a for local rural economies to work. regular trainer for the Community Previously he worked for five years as an Development Finance Association. independent consultant, focusing on Recent projects include product housing, community and environmental development work for London Rebuilding issues and from 1980-1993 was Society on housing finance, Community Managing Director of the Horizon Development Credit Union work on bill Housing Group (at that time South payment systems and work over the past London Family Housing). He has played three years on Community Land Trusts a part with others in seeking to initiate for affordable housing and workspace and implement a broad range of social projects with Community Finance initiatives, among them ‘People for Solutions at the University of Salford. Action’, where empowerment and holistic thinking are built-in rather than bolted on. Johnston Birchall is a Senior Lecturer in Social Policy at Stirling University and Rosemary Foggitt is a solicitor and a Senior Associate of the New Economics director of Common Futures Ltd, a Foundation. He has a research specialist social enterprise research and programme developing a ‘mutual development consultancy. She works incentives’ theory of what motivates both as a translator and researcher and people to participate. Since writing has been involved in a number of major Building Communities: the Co-operative European Union funded projects in the Way (Routledge, 1988) he has published area of financial services, consumer extensively on co-operatives and mutuals, rights, financial literacy and financial including: Co-op: the People’s Business exclusion. Most recently, she has been (Manchester University Press, 1994), The engaged in research fieldwork for International Co-operative Movement Community Finance Solutions at the (Manchester UP, 1997) The New University of Salford, looking into Mutualism in Public Policy (edited, 2001, workspace, housing and finance issues in Routledge), and Rediscovering the Co- the rural South West. This research led to operative Advantage: Poverty reduction the establishment in late 2002 of the through self-help (ILO, 2003). He also Wessex Reinvestment Trust, the first rural wrote the second report in the New Community Development Finance Economics Foundation’s ‘Mutual State in Institution in the UK. Action’ series: How to run rail and water in the public interest (2002).

Common Ground

Acknowledgements

This research is one of a series of Angela Ayton, The Housing Corporation portfolio and replace interest with more reports funded by the Housing Ken Bartlett, Joseph Rowntree affordable fee payments. Corporation in the last few years on the Foundation use of Community Land Trusts (CLTs) to Nic Bliss, Confederation of Co-operative Les Haswell, of CDS Co-operatives, has secure affordable housing solutions. Housing provided additional help on housing Aston Reinvestment Trust in Birmingham Stephen Hill, Capital Action management issues and costings while produced the first report in June 2000. It Naomi Kingsley, London Rebuilding Jane Cameron of CDS Co-operatives looked at how American-style CLTs might Society and Steve Wraith of the New Economics be used to assist with equity release to Ed Mayo, National Consumer Council Foundation (nef) have helped with help low-income homeowners repair their Adrian Moran, The Housing Corporation administration. Final editing benefited properties where servicing a loan was Matthew Pike, The Scarman Trust from the expertise and eagle eyes of not realistic. Further reports in the Dame Sally Powell, London Borough of Andrea Westall and Mary Murphy of nef. research series have looked in particular Hammersmith & Fulham We are grateful to the contributions of a at rural regeneration and how the CLT David Rodgers, CDS Co-operatives range of national and local authority could be used to provide both affordable Anne-Marie Rafferty, University of Central experts on our Advisory Council for housing and village workspace (Centre London, Centre for Policy in Nursing vetting the final draft. They include: for Community Finance Solutions, 2001 and 2002) The authors have striven to summarise Peter Baker, The Co-operative Bank and give clear expression to a wide Neale Coleman, Greater London This report was prompted by the key- range of fieldwork methods which Authority worker crisis in London and initiated by involved: international and historical Professor Janet Ford, University of York CDS Co-operatives, the largest specialist enquiries; one-to-one interviews; focus Mike Franks, Regeneration Trust co-operative housing service agency in groups; consultation work; and legal Clerkenwell London and the South of England. CDS investigations across a broad range of Pippa Gough, The Kings Fund Co-operatives’ Board had the foresight to subject matter. For this we wish to cite William Grosvenor, London Borough of commission this research after its specifically the patient interview work of Newham, Housing & Regeneration Executive Director, David Rodgers, had Warren Garrett and Toby Lloyd of London Meg Hillier, Greater London Authority set out his innovative thinking at a New Rebuilding Society, and of Matthew Theresa McDonagh, Joseph Rowntree Economics Foundation seminar in Porter and Peter Watherston of First Fruit Foundation September 2001 on how a permanent in Newham. We would also like to thank Professor Henrietta Moore, London limited-equity housing co-operative for Bob Paterson of the University of Salford School of Economics key workers might be structured. The for his specialist housing expertise and Andrew Robinson, RBS NatWest research builds on the previous work of assistance with work in the rural South IainTuckett, Coin Street Community two of the authors. We are also West. We are deeply indebted to Jerker Builders enormously grateful to the Innovation Nordlund of JAK Bank in Sweden, for Peter Williams, Council of Mortgage and Good Practice Programme of the practical ideas on the operation of Lenders Housing Corporation for funding for the Swedish Tenant Ownership Co- series, and in particular, for match operatives and on the use of interest- Finally we would like to thank the US funding CDS Co-operatives’ investment free finance services in supporting Community Land Trust movement – in the research and this latest report. mutual housing mechanisms (see including Julie Orvis of the Institute for Appendix 7). For additional work on Community Economics in Massachusetts, To date, CLTs have been established in interest-free lending for housing Susan Witt of the EF Schumacher the Highlands and Islands of Scotland. maintenance, we are grateful to Anthony Society and John Emmeus Davis of We hope that this latest report will enable Salt of the Wessex Reinvestment Trust. Burlington Associates in Community CLT development to start in England. Development LLC – for input on In tackling the legal issues presented by Community Land Trusts practice and The authors would like to thank all those mutual housing and CLTs, we have been legal issues. Sadly, during the course of who agreed to be interviewed and who guided by Malcolm Niekirk of Lester this research, Bob Swann of the EF gave their views as key workers in either Aldridge Solicitors in Southampton. We Schumacher Society, founder of the London or the rural South West or who are also very grateful for additional legal Institute for Community Economics and shared their professional housing guidance on leases, tax, social security pioneer of CLTs in the United States, development experience with the fieldwork and Commonhold issues from Keith died on 13 January 2003. We dedicate team (the latter are acknowledged in Jenkins, of Jenkins and Hand Solicitors this report to his ingenious work and Appendix 2). Special thanks are due to in London. Guidance from Jenny enduring co-operative spirit. members of our Advisory Group for their Goodwin of the Housing Corporation on invaluable expert guidance in overcoming Co-ownership model rules and In Memory of Robert Swann – diverse legal, regulatory and financing documents is most appreciated. During Community Land Trust Pioneer challenges. Without their wisdom and the course of the fieldwork we identified helpful suggestions, the project could not fascinating parallels between CLTs and have been completed. The members of this Islamic Finance solutions, and we would group included: like to thank Sher Khan of the Noah’s Ark Fund for his superb insights on ways to ‘unitise’ a housing development

1 Common Ground

Preface

The Joseph Rowntree Foundation’s Land Joseph Rowntree, in setting up the Inquiry (2002) documented the problems Foundation that bears his name, foresaw facing people employed on low-to- that the land question would continue to medium incomes in high-value areas in be critical. He referred particularly to the finding affordable homes. The Inquiry need to consider “the appropriation of called for fresh thinking on new forms of the unearned increment”, a telling phrase tenure between the twin poles of renting for a society where people in some areas and ownership, noting that permanent are enriched not by their work, but by renting failed to meet the aspirations of increasing land values, to the detriment most people, while ownership in many of those who are not yet owners. areas was out of their reach. This proposal addresses that key Against this background, the Common question. By doing so it offers the most Ground proposals are timely and economical and best-value-for-money significant. They are based on a structure way of using public or private investment that captures increasing land value for to meet housing needs. It provides for the benefit of local communities, so that the needs of successive generations in a initial investment creates affordable way that acknowledges the ownership housing opportunities for successive aspirations of most people in this country, generations. It aims to do this in a way and the need to bridge the gulf between which avoids both the original renting and owning. disadvantage of council housing – an inability to move on to ownership – but Ken Bartlet also the penalty inherent in the right to Adviser, Joseph Rowntree Foundation buy, which confers advantage on the first buyer at the expense of future generations. The ownership of the land remains permanently in trust, while occupiers gain access to homes, which are affordable now, and equity shares later connect them to the wider housing market.

Common Ground 2

Foreword

The origins of the Community Land Trust holdings, thereby creating inequity in the speculate in land. Rather he looked to the (CLT) model are simple. Robert Swann economic system. day when a Community Land Trust would conceived the CLT as a method of hold most of the land in a region. Monies holding land in public trust rather than Bob studied various communities formed now tied up in land speculation would be treating it as a commodity. This is not a to experiment with land reform methods. freed for re-investment in the local socialist concept, for Bob supported and In most cases the land was held co- economy, creating new jobs and products. encouraged private ownership of operatively by those who built their Bob shared his friend Fritz Schumacher’s buildings and other improvements on the homes and shared their lives on the land. advocacy for sustainable regional land. While he accepted the analysis of However, after several generations, the economies in which the goods consumed Marx and Henry George, which explained descendents of the founders would in an area would be largely produced in the persistence of poverty despite simply change the company rules of the the area. By forming a system in which economic progress, he did not seek their co-operative and sell land and homes to access to land was via social contract solutions in terms of the elimination of the highest bidder, pocketing the profits. with a locally governed, democratically ownership or taxing ownership. He What was an effort for the good of all based institution rather than via market strongly believed that land, water, turned out to be a benefit for a few. forces, then a great injustice and minerals, and other natural resources hindrance to new productive activity in the should be treated differently in an To avoid this problem Bob conceived of a economic system would be addressed. economic system from items produced three-part board to a Community Land by human labour applied to land. Rather Trust. A CLT is a regionally based non- Rosemary Foggitt and Pat Conaty, two than overthrow capitalism, Bob sought to profit corporation with membership open authors of this report, visited Bob during improve it and to do this by example to any resident of the area for a nominal the last year of his life. Their visit was a rather than with words. CLTs are only one yearly fee. The CLT acquires land by gift thorough delight. He saw members of a way in which he made a contribution to or purchase, creates a land use plan younger generation committed to a making the world a better place. meeting social and ecological model he had worked hard to foster considerations for each piece and then through the years. They clearly had the Collaboration on the land problem leases the land on 99-year leases for capability of turning their vision into between us began by correspondence in purposes outlined in the plan. All reality. This report would have moved him, 1976 through a network orchestrated by leaseholders must be members of the telling as it does the story of the growing John Turner, a World Bank self-help CLT and they then elect one-third of its application of the CLT model in Scotland, housing expert. The correspondence board, ensuring a strong voice for England, and Wales. revealed not only a shared interest in residents, but not a controlling vote. reforming the nature of the ownership But Bob would have been embarrassed and control of land, housing and The non-leasing members then elect by the dedication to him alone. He would enterprise, but also the need for one-third of the board. This group keeps want to recognise his mentors: Henry community-controlled banking through the organisation dynamic, seeking new George, Leo Tolstoy, Mahatma Gandhi, the development of local currencies.1 It land so that more people can have Vinoba Bhave, Arthur Morgan, Ralph was in 1979 that we met for the first affordable access. The elected members Borsodi, and Martin Luther King. And he time after one of us (Shann) had of the board then appoint another third would credit you as well, reading this attended a conference that Bob had of the board from the professional report, for working to shape a more been invited to in India to consider how community, bringing needed skills such equitable future by forming Community to put into practice the Trusteeship as land-use planning, financing, legal, or Land Trusts in your own neighbourhoods. concepts of Gandhi for owning and development skills. It will take such common vision and controlling land, housing and enterprise. common work to free land from the Through a one-time purchase or gift to bondage of a market system, so that it is For most of his life, Bob worked as a the CLT, land is taken permanently off again recognised in the culture and carpenter who also designed homes. the speculative market. Sale of homes on treated in social practices as common Deeply committed to issues of social CLT land is limited to the current ground for community life and renewal. and economic justice, he would describe replacement cost adjusted for his experience of trying to build deterioration of the buildings and other Susan Witt affordable homes. No matter how improvements. The land value is not 11 September 2003 innovatively he worked to reduce included in the transfer. In this way the E F Schumacher Society construction costs, the final price of his CLT is an important tool in the creation Great Barrington, Massachusetts, USA homes continued to rise. This forced of affordable housing. Families may www.smallisbeautiful.org him to realise that it was the sharp purchase and finance the homes on land inflation in land costs, not building costs, trust land, but not the land itself. Shann Turnbull Ph.D. that was the dominant factor in Principal, International Institute for mounting home prices. Those who While the short term benefits of a Self-governance, P.O. Box 266 owned and controlled access to land community investing in the creation of a Woollahra, Sydney, Australia, were benefiting from the need of a Community Land Trust was visible in the http://members.optusnet.com.au/ growing population for land to live, newly developed homes for working ~sturnbull/index.html conduct business, raise families, grow families, Bob Swann was also concerned food, and play. Landowners gained an with the long-term benefits. He did not Papers: “unearned increment” from their land believe that only the poor should not http://ssrn.com/author=26239

3 Common Ground Executive Summary

In most areas of southern England from £20,000 and £30,000 in the year to cost English regions, urban London and London to Exeter, 2002 was the first December 2002. the rural South West. year where houses earned more than the average annual pay of people working in A number of schemes have sought, and The housing model proposed by the public services. Soaring mortgage costs continue to seek, to make home report has two main aspects: a for first-time buyers have been ownership accessible and affordable for Community Land Trust, designed to exacerbated in the South of England by people on moderate incomes. Shared extract the land from the market and a disproportionate gap between housing Ownership and Homebuy are two major retain it as a public asset, so that supply and housing demand in both schemes operated by registered social affordability is preserved on a long-term homeowner and rented sectors. Those landlords. Shared Ownership provides for basis, and a co-operative form of tenure. worst affected are workers on average the purchase of part of the value of As land costs in many outer areas of incomes of between £15,000 and housing (conventionally 50 per cent) by London can range from 40-60 per cent £25,000 per year, who are neither poor the prospective resident, with the option of the house purchase price, the enough to rent from a social landlord nor to ‘staircase’ up to a higher percentage permanent removal of the land into a rich enough to rent or buy in the open of ownership in the future; the registered Community Land Trust can massively market. social landlord (RSL) retains the reduce the cost of homeownership to ownership of the remainder of the equity, meet future local housing needs for This so-called ‘intermediate market’ for which it then charges the leaseholder generation after generation. problem will almost certainly continue or rent. The rent charge is set as a even worsen for some time ahead, percentage of the affordable rent the Taking an international perspective, because new housing construction is at its RSL would charge for a similar rented limited-equity co-operative housing lowest level for over 50 years. According property; the percentage reflecting the (where returns on equity shares on sale to the Joseph Rowntree Foundation Land percentage of the equity retained by the are restricted) is popular in Scandinavia, Inquiry, there is a national shortfall of RSL. In Homebuy, the buyer contributes Canada, and the US where it provides affordable housing construction of 75 per cent of the price of the housing affordable solutions. About one in four 100,000 properties per year. through personal savings and a housing units in Sweden is co-operatively mortgage, and the registered social owned. The research shows that this The high cost of housing in both London landlord lends the remainder. There are form of limited-equity mutual housing has and the South West is having a heavy no repayments on the 25 per cent been popular in Britain in the past, prior impact on staff recruitment and retention typically funded by the RSL; it is repaid to the First World War and in the 1960s in essential public sector services such as when the property is sold. and 1970s when it was developed for schools, hospitals, social services, and what were then key workers. However, transport. London Transport has over As housing prices have continued to rise, this history has been long forgotten, even 1,300 vacant posts for bus drivers and both schemes have been heavily over- by housing professionals, as most of this Newham Council has a 23 per cent annual subscribed and, despite this, have either stock has been lost, primarily through turnover of teaching staff, almost half of struggled or been unable to meet the privatisation. whom leave because of housing problems. affordability crisis faced by key workers Increasing numbers of young teachers, in Starter Home Initiative areas. Many As in these earlier periods and in other social workers, nurses, and doctors leave would-be purchasers have simply been countries today, the advantage of limited- London after five years or so in order to unable to raise a sufficient mortgage or shared-equity co-operative housing is establish a family, because they simply unless the share held by the registered essentially practical. Uniquely co- cannot afford adequate housing locally. social landlord is increased from 50 to operative forms of housing benefit from 75 per cent. Thus, while the Starter several intrinsic cost savings: In both London and the South West, Home Initiative has functioned as a health-sector and local-authority stopgap measure, it has been overtaken a) In the cheapest limited equity forms, managers are dependant on agencies to by the sheer force of housing market borrowing is corporate, not individual, fill vacant posts, often doubling the cost pressures and has proven inadequate to which can reduce interest on to the taxpayer. This problem has been bridge this widening gap. borrowing costs for new housing compounded by tumbling stock markets acquisition. in the past three years, leading investors The aim of this report is to examine the to shift their attention to the property scope for a radical approach to securing b) Tenant participation in management market and further fuelling the spiral in a permanently affordable solution to this can save on some overheads and house prices. dilemma for key workers (and also exert continuous disciplinary pressure potentially for others on similar income for “best value” in professional In 2000, the impact of rising house levels) in high-cost housing areas. Core management fees. prices on key workers in London and the criteria are the need to protect any public South East of England began to be subsidy while addressing the central c) Tenure can be kept simple; a recognised, and in September 2001, the issue of escalating prices caused by both repairing lease (where it is the Starter Home Initiative was launched as a chronic shortage of housing supply in tenant’s responsibility in this case to a response. Since then, the problem has the South of England and a shortage of carry out interior repairs) can be become a crisis; small flats in inner development land. The focus of the assigned, and equity shares can also London and small terraces in the East research has been on the housing needs be assigned through a transparent End increased in value by between of key workers in two contrasting, high- resale formula.

Common Ground 4 Shared-equity co-operative housing has Fourteen per cent have to service loan housing societies will partner with the the further advantage that it can support payments of over £300 per month. The CLT to develop, own and manage people in gradually building up ownership pattern is similar in London with 16 per multi-unit residential buildings. Each of buildings (as opposed to the land), cent making debt payments in excess of co-operative will have a membership while simultaneously dealing with £300 per month. made up of people who occupy the depreciation through a service payment co-op’s units and own shares in the covering repairs and maintenance. Affordable housing costs: In both society. Residents can therefore acquire an regions, the interviewees reported similar interest in their home, which they can sell levels of payments they could afford for G Rights of occupation: to be when they leave, through a local mutual an attractive and secure property. In the governed by both membership in the organisation in which they actively South West the average net affordable co-op and by a contractual full- participate through their voting rights. income contribution for housing was 32 repairing lease which allows both for With studies showing that nine in 10 per cent compared to 31 per cent in assignment of equity and for households aspire to homeownership, co- London. entitlement to Housing Benefit or operative housing with equity earning Income Support in circumstances of stakes provides a cost-effective way for In addition to the key-worker interviews, unemployment or long-term ill health. key workers to access low-cost 40 interviews were conducted with homeownership and move from high-cost housing professionals, local authorities, G Corporate mortgage finance: for rent to a secure form of affordable registered social landlords, co-op constructing new housing and mutual shared ownership. practitioners and key-worker employers negotiated on the basis of low-cost across both regions. Current low-cost rates comparable to the interest Key Worker Circumstances affordable homeownership solutions are levels negotiated by registered social problematic. In the present low-interest landlords (RSLs) and preferably on a and Needs environment, Shared Ownership has low-start basis with payments become unaffordable for most key Sixty-one in-depth interviews were weighted so that they are lower in workers in both regions. To make Shared conducted (40 in London and 21 in the the early stages and higher towards Ownership work in Gloucestershire, for rural South West) which revealed the the end. example, needs heavily discounted land following housing needs and problems (or the equivalent in subsidy of 65 per G Equity units: for key workers: units of equity acquired cent of market value). incrementally through a structure Current housing: Tenures are typically similar to a Property Unit Trust, in Homebuy is popular but, at the standard insecure, too small, and very expensive. In which an element of the monthly 25 per cent equity loan rate, is in most London, one in four key workers have to payments made is applied to the circumstances only a realistic option for resort to bedsits and hostels and 48 per acquisition of units which represent households with two salaries. In the cent were living in overcrowded an interest in ownership of the built London Borough of Hackney, the rate conditions. In the South West, environment on a mutual, shared needs increasing to the maximum 40 per circumstances are generally similar and ownership basis. cent to be viable. For that reason, there tenancies are typically only for six was much interest from the housing G months. In both regions, many key Affordable and equitable housing professionals consulted in the idea of an workers are unable to move out of their payments: Shared ownership innovative mutual approach with lower parents’ home. payments in the model are based on transaction costs and other inherent an affordable proportion of salary. savings. Commuting costs and time: In the Thus, a teacher with a salary of South West, many key workers have to £23,000 per year who pays 30 per find accommodation they can afford by The Proposed Model cent of net salary for housing costs commuting from lower-cost areas. One in to the co-operative will pay more per two interviewed has a long journey to The shared-equity co-operative model month but, on the other hand, will work, while one in 10 spends over 2.5 the report proposes has the following earn equity stakes at a faster rate; hours a day commuting. In London key features that we consider “Canons their relative share of mortgage debt problems are similar, with 69 per cent for Mutual Homeownership Success”: is repaid faster compared with a having long journeys to work. health service worker paying 30 per G Community Land Trust (CLT): a cent of a lower salary of £18,000. Levels of savings and debt burdens: form of non-profit company or charity One in three key workers in London and established for ‘community benefit’ G Resale formula: a clear and one in four key workers in the South and well developed in the US which transparent means of valuing equity West have savings of over £2,500 but acquires and holds parcels of land, stakes when a member wishes to sell the majority have no savings or are scattered throughout a specified and leave the co-op. struggling with financial commitments. geographic area in order to ensure Younger key workers in particular have the permanent affordability of any G Deposit: members would pay an additional outgoings in terms of student housing (or other developments) that initial deposit set in the first instance loans and in some cases, career is located upon that land. at five per cent of housing unit costs, development loans. One in four key but subject to review in later years in workers in the South West make G Co-operatives: leasing land from the order to maintain affordability in unsecured loan or credit repayments of CLT under a 99-year ground lease, relation to earnings. between £150 and £300 per month. any number of separate co-operative

5 Common Ground The key workers interviewed in both permanent affordability can be guaranteed regions were strongly attracted to this for generation after generation of low to shared-equity co-operative housing moderate income households. model, which would enable them, as one interviewee put it, “to stop pouring rent We propose that, as a clear way of money down the drain”. Ninety per cent testing the Joseph Rowntree Land of those in the South West, and 92 per Inquiry recommendation for CLTs to be cent of those in London supported the developed in England, the mutual shared- mutual model explained to them. equity co-operative/Community Land Nine in 10 interviewees in both Trust model proposed should be piloted regions were attracted to the idea of in two urban and two rural areas, with participation in the management of the Challenge Funding support under the co-operative. Most were reassured by the Sustainable Communities Plan. Based on idea of self-management and local, local authority interest stimulated by this democratic control. research, the four initial pilot areas proposed are North Devon, Stroud, East In general, the response to the mutual London and Milton Keynes. Several housing model was very positive indeed, potential sites have been identified although the ‘key worker’ concept was during the course of the fieldwork. Thus almost universally viewed negatively. development work on the pilots could Because the Starter Homes Initiative has commence in early 2004. focused on particular groups of public service workers to the exclusion of others, We believe that a dynamic, democratic it has been seen as unfair and divisive. and fully mutual form of key-worker This is an issue that will need serious housing is not only achievable but close review and consideration in any future to becoming a reality. It simply needs the housing policy or in specific initiatives. same innovative support from the Office of the Deputy Prime Minister that CLT- The model was further discussed in based affordable housing solutions have focus groups in both regions. The received in the past 10 years from the findings were highly supportive of the American Government. It should be noted model. Participants understood the that in the UK, the funding from differential shared ownership payments Highlands and Islands Enterprise for CLT and endorsed them as fair and sensible. developments in rural areas of Scotland They also found the five per cent down is already going from strength to payment acceptable. They viewed strength with new legislation this year to participation and shared responsibility in support it. CLT action in England should governing the co-op positively and found now quickly follow suit robustly and cost- these features reassuring. They agreed effectively to begin to tackle the key- that a realistic level of additional costs worker housing crisis. for a managing agent and insurance costs were affordable and necessary, in order to collectively fund upkeep of the grounds, common areas, and external repairs.

Potential Sites and Next Steps In the Sustainable Communities Plan, the new national policy for affordable housing provision and area regeneration in England, the Government has announced the allocation of £1 billion of funding over the next three years for key-worker housing. It has also indicated a willingness to consider non-registered social landlord providers of key-worker housing. In this Housing Corporation funded project, the model developed is robust. It is also innovative in including a Community Land Trust structure which can deliver ‘best value’ by ‘capturing the value’ of any subsidy in perpetuity. Thus the CLT aspect ensures that, unlike other previous low income shared ownership models,

Common Ground 6

1. Introduction

In the past few years, house price rises all over Britain have led to a crisis of What is a Key Worker? affordability. Small flats in inner London Defining a key worker has become highly contentious. The strict definition is drawn and terraced houses in the East End from the Starter Home Initiative (SHI) of the Government, which, since late 2001, rose in value in 2002 by between has assisted 10,000 public sector workers to become homeowners (ODPM, £20,000 and £30,000 – more than the 2003). Priority key worker categories reflect the priority attached by the average income of the capital’s key Government to tackling recruitment and retention problems in key public services. workers. The bizarre nature of the current Under the SHI these services are defined as teachers, police, nurses and other over-heated property markets is evident, essential health staff. The latter category excludes administrative staff and lower in that for the first time houses are skilled health service workers but includes in some cases therapists. Key workers earning more than people. Since in a lower priority category include social workers, fire fighters and transport February 2003, the market has begun workers and they have also been assisted under the SHI. Additionally, teachers cooling off in London but prices in other must work in publicly funded schools to qualify and key workers also must have a regions are still on the rise. permanent leave to remain in the UK. This SHI requirement has meant that the rising numbers of nurses from abroad have not been able to qualify for assistance The affordability crisis is particularly acute and ‘permanent leave’ requires a minimum work period in the UK of four years. in Greater London, the South East and the However, the bidding guidance for SHI allows local authorities to approve support South West, where the fastest price rises for other groups of key workers in “local areas where recruitment and retention have occurred. In many ways the crisis is problems are being experienced”. Thus, in theory, the definition can be made more unprecedented and, some would argue, flexible. Most recently the Registered Social Landlord, Threshold Housing and demonstrates that the housing market has Support, has bid for the definition to be extended to “solicitors working for housing become dysfunctional. There are a associations, actors, and PFI construction workers” (Beveridge, 2003). number of contributory factors. Not surprisingly, investor funds have fled the Stock Market, which has lost half its value indicate that it has the potential to help partners for a pilot was carried out from in the past three years, to safer address the present housing crisis for key June to December 2002 in both London government gilts and property. Buying to workers, potentially on a large scale. and the rural South West. The full Terms rent has become popular, and aspiring of Reference for this research are set out small landlords have snapped up so many However, it is vital that we are absolutely in Appendix 1.2 properties in popular areas that demand clear about the problems encountered by for accommodation has outstripped supply. earlier British attempts at such a hybrid The ambition of the project is to seek to form of tenure, particularly to the develop a robust form of limited-equity As a result, in many parts of the South of structural weaknesses of earlier forms of mutual housing that could be piloted in England today only the rich or the poor limited-equity co-operative housing and both regions from 2004, subject to a can gain access to housing – the rich the inadequate ways such tenure forms positive outcome in terms of both because they have the income to do so were promoted by Government in the demand and feasibility. There is growing and the poor (where the queue is not too 1960s and 1970s. Such lessons are evidence in most London boroughs that long) through the provision of social essential to take on board if we are to Shared Ownership is not affordable for housing. Across a broad range of avoid the recurrence of similar problems lower income key workers. The reason employment fields, both public and in a third attempt to provide such mutual for this is that the minimum equity private, the thresholds have become too solutions in the present housing proportion for the mortgage element is high for those on average income who circumstances. It is also important that normally 50 per cent and is not are not on the ownership ladder already. such new housing should be built to high affordable. To seek to overcome this The alternative, of acceptable housing to standards (in other words, Egan growing limitation, the research has rent, is also in too short a supply and too compliance – see Glossary for details of looked at various design elements that expensive to be considered. this and other technical terms) and is could be synthesised through a robust sustainable from an ecological and social new tenure model, including: This report explores the scope for mutual perspective within the funding constraints. solutions involving limited or restricted a) Legal structuring of the mutual equity co-operative forms of tenure. Such This research has been commissioned to tenure form to reduce transaction forms have worked in the past in Britain identify the lessons to be learned from costs and management overheads; prior to the First World War and in the the weaknesses in previous British 1960s and 1970s. But, since the 1980s, limited-equity co-operative housing b) Institutional ways of locking in any most of the stock has been privatised models, and to gather information on the public or private subsidy on a long due, on the one hand, to the lack of successful elements of the model as it is term basis through separation of protection against demutualisation and, operated abroad. In addition, the research ownership of the land and ownership on the other, to the incentive of the Right has been funded to investigate the of the buildings through a Community To Buy. Such affordable co-operative potential demand for such housing from Land Trust; housing is a hybrid between renting and key workers in two contrasting high-cost owning with some resemblance to Shared regions in England – London and the c) Innovative finance solutions3 such as: Ownership. Its popularity and success in rural South West. Fieldwork with key Scandinavian countries and the US workers and potential development G Index-based forms of borrowing

7 Common Ground G Low-start and tilting mortgage 2003). This sign of future trends In most boroughs, these public sector finance anticipates a ripple effect, with regional workers could not afford the mortgage G Islamic finance4 house prices falling as well. This has even for a one bedroom flat on their own. already led to predictions of negative Average Greater London prices for a flat G Interest-free co-operative finance equity, with forecasts from Professor or maisonette soared to £195,000 in tools, such as those developed Andrew Oswald of Warwick University of March 2003 (Buchan, Finlayson and over the past 30 or more years a 30 per cent house price deflation over Gough, 2003). To enable some chance of by the successful JAK Banks in the next three years (Hill, 2003).7 In July accessing housing, some lenders have Sweden and Denmark for 2003, Alliance & Leicester sounded increased the multiple of income ratio to housing finance; alarm bells about the housing market five times single salary or four times the d) Attracting ethical investors and bubble in London and the South East combined salary. Such risky practices institutional funds through and have tightened their lending criteria also occurred prior to the 1989 crash Community Finance Tax Credits accordingly ahead of other mortgage (Inman, 2002 and Papworth, 2003). applicable to community finance for lenders (Jones, 2003d). social enterprises.5 In the rural South West, the region with the In January 2003, the Financial Services second-highest property levels in the Authority (FSA) expressed serious country, the prices are not much lower than 1.1 concern about the record levels of London levels. An average semi-detached Housing Crisis – the Property household indebtedness. According to house now costs about £148,000 and a Market Bubble and Negative the latest Mintel survey, British household terraced house about £124,000. As Equity Threat debt is now over £800 billion – more London salaries are somewhat higher, the than double its level a decade ago (Mills, difference in relative terms between both In the year to 31 October 2002, house 2003). Average household income is regions is not significant. prices nationally rose by 30.1 per cent – almost £36,000, but this nearly matches the fastest yearly rate rise since records the average household mortgage debt For lower paid seasonal and agricultural began (Collinson, 2002). This rate was level of £33,000 (Elliott, 2003). workers in the South West, the housing almost double the annual rate rise of Borrowing levels are now in excess of crisis is often worse than in London. 15.8 per cent in the year to June 2002 £10 billion per month and the ratio of Special assistance programmes for key (Bar-Hillel, 2002). Since the peak last household debt to disposable income workers are limited and primarily cover year, the annual rise has fallen back in soared to 130 per cent in July 2003 – northern urban or suburban areas of the June 2003 to 12.5 per cent for England some two and a half times the South West region near to Bristol, Bath and Wales (Paterson, 2003). But while percentage level of 1970 according to and in South Gloucestershire. Recent the Greater London annual rise Thomson Datstream (Elliot, 2003). research by the Rural Housing Trust according to HM Land Registry in June shows that because of lower incomes, 2003 had slowed to 6 per cent, the Carol Sergeant, the FSA’s managing rural homeowners in England need to annual rates in the South East at 15.9 director, has warned about the devote much more income on average to per cent and in the South West at 19.8 consequent dangers of a housing price housing than their urban counterparts – per cent were still racing ahead at levels slump and the growing risk of recession 57 per cent compared to 32 per cent well above the national average. and rising unemployment (Jones, 2003a). (Hetherington, 2003). Nationwide Building Society expect the annual rise in house prices to slow down “There is a heightened risk for Prince Charles has drawn attention to in the last quarter of 2004 and the consumers taking on these debt this acute crisis in rural areas, which he annual rise in London and the South levels in a low-inflation has described as ‘a desperate situation’ East to fall back to 5 per cent by the end environment where the outlook forcing young people out of their of the year (Cooper, 2003). for employment may also no childhood villages (Hetherington, 2003e). longer be secure. There is a risk Lord Haskins has recently observed It is the sheer rate of escalation in the last that when a correction comes, it (BBC Farming Today, 2003): quarter of 2002 that alarmed the Bank of could be rapid and disorderly. The England and led the Deputy Governor results could be lower overall “The biggest problem in the Mervyn King to announce on 14 November economic growth, hardship for countryside is the lack of affordable 2002 that the property market boom was consumers and increased credit housing for key agricultural workers unsustainable. Other experts have pointed risk for lenders.” and others. This is a bigger problem to parallels with what happened in 1989; than rural transport to renew the just before the property market bubble Rises in house prices vary considerably local food sector.” burst leading to years of negative equity across each region. In the past year in problems (Elliott, 2002). London, price rises have been steepest Table 1.1 shows the escalation of house in the poorer boroughs. Based on a very prices nationally in the past thirty years According to HM Land Registry, the high first time mortgage of four times since the homeownership revolution average house price in England and annual salary, a recently qualified primary started, during which owner-occupation Wales hit £149,935 in June 2003 school teacher would be able to borrow rose to almost 70 per cent of all tenures. (Paterson, 2003). By comparison, in £82,000 and a nurse £74,000. The Since 1970, there has been a thirty-fold Greater London, it rose to £240,126.6 In average house price in London’s increase in house prices. the second quarter of 2003, Halifax cheapest borough, Barking and reported that house prices began to drop Dagenham, is over £128,000 for the What is clear from the doubling of price in some areas of London (Stewart, smallest properties. levels since 1999 is that homeownership has moved beyond the reach of young

Common Ground 8

Table 1.1: How House Prices Have Risen above £24,000 and at a higher level above this threshold for those Year Average House Price seeking to buy;

1945 £1,000 b) At £233,000, an averagely priced London house is 12 times the annual 1970 £5,000 wage of a bus driver, 11 times the 1973 £10,000 wage of a staff nurse or a postal worker, and nine times the salary of a 1983 £25,000 primary school teacher (Bar Hillel, 2002). 1999 £75,000 2003 £150,000 Additionally, the housing stock in London is generally ageing, in a poor state of Sources: Building Society Association and HM Land Registry repair and consequently expensive to heat and to maintain. To ensure long- workers on average incomes in the fundamental problem. According to the term affordability, there is thus a vital Midlands and the South of England. With London Housing Federation, there are need for any new housing supply to income levels lower, this is also the case more than 187,000 households on council ensure that high quality standards are in many areas of the North of England as waiting lists for affordable housing across designed in from the outset. well. According to the National Housing London’s 32 boroughs. Additionally, there Federation, in 46 out of 87 counties (53 are 51,000 statutory homeless In the National Health Service in London, per cent), households with incomes households living in bed and breakfast the problem of staff shortages is below £30,000 cannot purchase a home. and other temporary accommodation and particularly acute. In the South East As 70 per cent of UK households have waiting a home. In addition, according to alone, the Government projects a need incomes below this level, the Unison, 500,000 key public sector for an extra 35,000 nurses, midwives and homeownership opportunity is once workers in London cannot afford a home other health workers by 2008 (Adamson, again becoming a preserve of the upper in the capital. 2002). In many major London hospitals, middle classes and the rich. more than a quarter of nursing jobs The pressure of growing demand against remain unfilled. Nurse and mid-wife long- More recent figures confirm this with the inadequate supply of housing is term vacancies were running at 6.1 per sharp fall off in numbers of first-time escalating year on year, fuelled by a cent. There were 2,750 vacant posts in buyers (FTBs). In its July 2003 research population explosion in Greater London March 2002, which is twice the national bulletin, FPD Savills show that FTBs and South East England. In London alone average (Buchan, Finlayson and Gough, have fallen fast over the past year to an the population is expected to increase by 2003). NHS turnover for nursing staff all time low of 31 per cent of all buyers. 700,000 in the next 15 years to 3.4 annually is 19.4 per cent, which is about This compares to 38 per cent in 2002 million households (Lydall, Bar-Hillel and one third higher than the national and is in stark contrast to the long-term Atik, 2002). To accommodate this, an average. Among seven inner London average of 47 per cent (Stewart, 2003 extra 43,000 homes per year are NHS Trusts and hospitals where housing and Papworth, 2003). needed. In 2000-2001, however, only prices are highest, turnover rates are far one third of this number, 14,205 new higher and range from 30-38 per cent. It Moreover, these findings show that the homes, was built in London. is clearly economically efficient to average age of FTBs has risen to 33 increase the supply of affordable years in 2003 (Papworth, 2003). This In their report, Key Issues for Key housing. reflects a marked decline in recent years Workers, the Greater London Authority’s of the numbers of those in the 25-34 (GLA’s) Affordable Housing Scrutiny Vacancies for bus drivers, which London year range and a rise in the number of Committee (2001) analysed the problem Transport has been unable to fill, exceed FTBs aged 35 years or more. It is as one of a double market failure. In 1,300. Moreover, the rising cost of assumed that rising levels of student debt London the problem for those on housing in London is driving people out. and the average deposit levels required to average income is one of housing double West London Training and Enterprise buy a house for the first time are jeopardy – being able neither to afford to Council (TEC) estimates that by 2005 contributing to this change. According to buy nor to rent. The GLA and the London four out of 10 teachers may be forced the Halifax, in July 2003 the typical FTB Housing Federation have both out of accommodation by increasing in London needs to find a deposit in highlighted the emergence of a huge and house prices. The National Institute of excess of £20,000 and pay £193,500 for growing housing gap with these features: Social and Economic Research projects a property (Denny and Collinson, 2003). that 60,000 key workers will be driven a) Those priced out of the London out of London by property costs in the housing rental or purchase market fall 1.2 next 10 years (National Housing into a sub-market, which especially Federation London, 2001). Enrolment in London’s Housing Shortage affects those households with annual London’s major universities is now falling, and the Intermediate Market incomes of between £12,000 and as students from other regions go Problem £24,000. Registered Social Landlords elsewhere because they are unable to (RSLs) cater for housing needs of the afford housing in London. The pressure on the price of housing in poorest below an annual income of London has been mounting since the mid- £12,000; the property rental market 1990s. Sheer lack of housing is the begins to operate at salary levels of

9 Common Ground 1.3 boom in high-rise and non-traditional, and at the Office of the Deputy Prime Tackling the Housing systems-built council housing. It is also Minister (ODPM) on the strategic issue Supply Shortage fair to point out that this development of housing policy in the years ahead. took place in the context of bomb sites For the past 20 years, against a and slum clearance, so there was more The Land Inquiry’s recommendations for background of continuous growth in the land available at that time. action provide a broader viewpoint on rate of homeownership, housing policy how the enormous housing supply has been largely left to market forces. Two thirds of the housing shortfall to be challenge can be tackled effectively. First, There are indications that this is now met is in southern England and 20 per it recommends that government develop changing and that a more interventionist cent is in London. However, at present a proactive planning culture and move policy by Government is at last emerging. almost 50 per cent of new housing is away from over-reliance on Section 106 Numerous reports published in the being developed in the North and the agreements (see Glossary). Here lessons course of the past two years have Midlands. The Land Inquiry research can be drawn from greater pointed to the growing nature of the estimates that 63 per cent of supply can interventionism in Germany and France, crisis, but one report in particular seems be met by the market sector, but for the where planners rather than private to have had some impact in shifting remaining 37 per cent, the Government developers take a leading role, and are government’s attention to the has, to date, only been willing to provide thus strategically involved in land significance of the point that the lack of subsidy for half of what is required. The assembly and land pooling (see Glossary affordable housing is a major impediment conclusion drawn here by the Land for full explanation). to the efficiency and effectiveness of the Inquiry is that it is the need for subsidy in economy as a whole. the intermediate sector, which has not As well as learning from continental been addressed: Europe, the Inquiry highlights the need to In March 2002, the Joseph Rowntree learn more from Community Land Trusts Foundation (2002) published its Land “The reality of shortfall is primarily (CLTs) in the US, where non-profit Inquiry Report on underlying problems of experienced not by ‘roofless’ groups are directly involved in developing the growing housing crisis, which had people or people on very low sites for affordable housing and previously been examined from different income, but by people on low to workspace. CLTs take land out of the perspectives in successive government medium earned incomes – on market in order to maintain moderate and non-government reports. These whom the viability of both urban levels of rent, homeownership costs and diverse reports indeed anticipated the and rural areas depends. It is commercial lease prices against need for additional housing supply in unacceptable for Government to excessive market pressures in areas of England over the next 20 years, but the refuse to address these high land cost. The Land Inquiry indicates Joseph Rowntree findings concluded arguments because of the political prospects here for local authority estate that the Government has nevertheless difficulty of achieving higher levels regeneration through CLTs. seriously underestimated the need for of provision, or the unwelcome new housing. public cost of funding a much In particular, the Inquiry identifies wider range of affordable homes. significant potential for equity-sharing The Land Inquiry team concluded that the The indirect consequences can solutions between the land trust and Government has underestimated the now be seen in the disruption to prospective key worker homeowners. It number of affordable houses required by public services and the social and identifies a potential partnership, in which at least 50 per cent. In total, the Joseph economic costs to other sectors more interventionist planners pool and Rowntree Foundation identified a housing of inadequate and excessively assemble land and CLTs deliver solutions supply shortage of 100,000 per year; expensive housing.” in local communities where the official estimates are only 62,000. Supply affordable housing is needed. falls far short of this lower target with But the Land Inquiry assessment of government figures showing a decline in government inaction goes further, to The report also raises concern about the the number of affordable housing units conclude that the neglect of housing as split between rural and urban affairs built from 27,800 in 1997-98 to 20,700 a social and economic issue is presently created potentially through the division of units in 2000-01 (Foot, 2003). exerting a debilitating impact on the roles between the Office of the Deputy performance of the British economy. Prime Minister (ODPM) for urban areas Where there is the political will, there is a and the Department for Environment, way to achieve such high targets. The “Moreover, there is increasing Food and Rural Affairs (DEFRA). In this development of affordable housing evidence that the relationship context, it observes: supply has been secured at much higher between housing and labour levels in the past. When Harold markets in the UK is producing “Current policy is based on the Macmillan was Conservative Minister of inflexibilities, including labour traditional typologies of enclosed Housing, the Government developed supply and cost, which impact city systems and an urban/rural 240,000 units in 1952, 318,000 in 1953 both upon the UK’s international split, rather than understanding and 350,000 in 1954 (Guardian, 2002). competitiveness and its abilities cities as functional systems, with It was Harold Macmillan who, while to deliver the environmental flows and linkages into and out of housing minister, insightfully said that: improvements required under EU rural areas.” “Housing is not a question of membership obligations.” Conservatism or Socialism. It is a It is this integration of urban and rural question of humanity.” Harold Wilson It is this conclusion in particular that has thinking that will be vital if housing developed 400,000 new homes in 1967 concentrated minds both at the policies over the next 20 years are to be (Foot, 2003). However, this led to the Department of Trade and Industry (DTI), properly configured and sustainable. For

Common Ground 10 instance, the Land Inquiry report stresses Housing units built in recent years have the level of extra housing subsidy sought the need to integrate public transport been at the lowest levels recorded since from the Government is a further £150 development with new housing 1927, apart from the war years (Inman, million per year. development plans. 2002). Housing built by the private sector has fallen from 127,800 in 1997 Livingstone sees brownfield sites and to 115,700 in 2002 (Foot, 2003). New greater housing densities in new 1.4 construction can rise to close the gap developments as the way to secure the Key Worker Housing: Current but, according to the National land for the new housing. The London Approaches and Emerging Housebuilders Federation, the market Plan identifies a number of major sites for Solutions cannot achieve affordable housing concentration of the housing – both in the solutions through Section 106 centre and City fringe areas as well as in In July 2002, Gordon Brown announced agreements alone under the current East London and the Thames Gateway the largest sustained increase in public planning system. The private sector corridor running out to North Kent. spending for nearly 30 years in his argues that either cheaper greenfield Comprehensive Spending Review (Dean, sites will be needed or more subsidy will Government endorsement has now been 2002). While health and education have have to be found to deliver the large given by Tony Blair and John Prescott for been the largest beneficiaries of volume of low and moderate cost the creation of this ‘linear city’ along 40 Labour’s return to Keynesian style housing needed in southern England. miles of the Thames to Medway City on economics, housing has benefited the south of the river and to Southend- significantly as well. The new planned 1.5 on-Sea on the north. John Prescott’s spending, largely based on increases in plan is to develop 300,000 affordable government borrowing, will increase London Housing Commission homes in the South East of England and spending on the NHS by 7.3 per cent in and the Plan for London the South Midlands by 2016 to cope real terms over the next five years, with the housing shortage and spending on education by 6 per cent The London Housing Commission, set up overcrowding in London (O’Hara, 2003). over the next three years and spending by Livingstone in 2000, advised the This is in addition to the 1.1 million on housing by 4.2 per cent. Interestingly, Mayor of the potential to increase the homes that will be built commercially by transport will see the sharpest rise in real proportion of affordable housing to 50 the private sector for sale or to rent over terms of 12 per cent annually. per cent of all future new developments the same period to cope with rising (Livingstone, 2001). Achieving this would demand in Greater London and the In launching the expanded budgets, require a partnership with all 32 London South East. The Thames Gateway will Brown described the rise in housing boroughs, the Housing Corporation, account for 120,000 of this total. Inner expenditure as “the most sustained rise major employers, and private developers East London in Newham and the in housing investment for 25 years”. and house builders (Walker, 2002). Docklands area alone are targeted for Factually this is correct, but it ignores the According to the London Housing 48,000 new housing units (Hetherington, lean years for housing under the Commission, financial subsidies from the 2003d). Conservatives, when market forces alone Housing Corporation would also need to were seen to be the primary solution and be increased by a minimum of £122 Crucial to the viability of these when housing expenditure by million per year for London – a highly developments will be major government fell by 83 per cent from 3.6 sensitive request in light of the fact that improvements to public transport. One in per cent of GDP in 1976 to 0.6 per cent registered social landlords in London seven Londoners relies on public in 1997. So in many ways the increase already receive 43 per cent of the annual transport to get to work already and this represents a return to a more even- Social Housing Grant budget for England is likely to increase in future. Two Cross handed approach to housing provision by (Wintour, 2002). Rail links are planned to provide rapid government. But given the twenty or transit connections from Whitechapel to more years of under-investment, the In June 2002, Livingstone launched his ‘central activity zones’ in Newham and deficit is now enormous and the budget long awaited London Plan – setting out Canary Wharf on the one hand and to increases, while overdue and welcome, in 400 pages a comprehensive 15-year speed up travel from Hackney to Central leave a large financing gap that needs to development plan for transforming the London on the other. The Thameslink be filled by other means. capital by 2017 into a 24-hour multi- 2000 project will significantly reduce cultural city (Wintour, 2002). The journey times from the centre to the In response to the Chancellor’s proposals are integrated and set out an suburbs south of the river. North of the announcement on housing expenditure, ambitious strategy for bringing together river, both the East London and the West the Royal Institution of Chartered massive transport improvements with a London lines will be extended and a new Surveyors (Dean, 2002) has noted that huge increase in housing and education orbital rail network, OrbiRail, will be the annual rise to a spend of £5.9 billion facilities. constructed. in 2006 from the low point of £2.7 billion in 1997 will only provide for an extra In terms of numbers, the London Plan High-rise housing is seen as a major part 10,000 affordable homes per year. They calls for the construction of a minimum of the plan – particularly in transport and describe this as “a splash in the ocean” of 459,000 homes to accommodate the business development hub areas such as when measured against the projected 630,000 new jobs by 2016. Paddington, Waterloo, Kings Cross, and Government’s recognised figure of an The annual rate of new housing Elephant and Castle. Outlying areas for annual gap of 60,000 homes needed construction sought in London is 23,000, development include the Isle of Dogs, between the 162,000 housing units treble present levels. Half of these are Stratford in Newham, and Croydon. constructed in 2001 and the 220,000 called for by delivery of affordable homes Livingstone also sees the need for a new new households currently being formed. through development partnerships, and density standard and wants to change

11 Common Ground current planning regime rules to raise Round 1 funding assisted 4,000 nurses, report reviewing Low Cost Home maximum housing density from the 2800 teachers, 900 police officers and Ownership (LCHO) initiatives such as the present average level of 20 housing units 300 other sundry key workers to finance SHI, the Government shows that the per acre to a new minimum level of 30 affordable homeownership. Round 2 number of LCHO funded properties in units per acre. Plans are developing to funding from May 2002 provided an England has fallen from 16,871 in 1995- build homes on top of single-storey additional £20 million of funding to help 96 to under 4,000 prior to the start of supermarkets and petrol stations. Tesco a further 2,000 key workers in high-cost the SHI (DTLR, 2001). Consequently, the has reported to the Mayor that they could areas outside London. Subsidies in SHI does not even take the LCHO provide an extra 10,000 homes on their London have averaged £27,000 per key figures back to what they were under the existing London sites alone (Lydall, Bar- worker and in Round 2 were based upon Conservatives, when 30 per cent of Hillel, and Atik, 2002). £10,000 equity loans – these were not housing subsidies went to LCHO available in Round 1. programmes (Weaver, 2002). The London Housing Commission has recommended that, of the new affordable The Round 1 initiative has come under Other evidence shows that LCHO housing unit target (50 per cent annually considerable criticism from public sector programmes are extremely popular and of all housing developed), 35 per cent unions. Unison has stressed that, as a there is no shortage of demand. should be for social housing for those on consumer demand side solution, the Approximately one in two of LCHO low incomes and 15 per cent should be initiative was fundamentally flawed and properties are in London and, in 2000- for the earners in the intermediate served mainly to push up house prices. 2001, 1,300 new low-cost properties were market such as nurses and teachers. Unison argued that such demand side funded by the Housing Corporation in the Further research has indicated that the measures as the SHI should be capital against demand from 41,000 50 per cent target can feasibly be recognised by Government as “a eligible applicants (Martin, 2001). In 1999- achieved in two-thirds of London’s temporary solution to the current crisis” 2000 the average income of a LCHO boroughs. But in 13 of the 32 boroughs, because the “fundamental problem is buyer was £18,185 – 46 per cent were Livingstone has accepted that only a one of under-supply of housing of the social housing tenants opting for Shared target of 35 per cent affordable housing right type, size and cost in the right Ownership and 54 per cent were low- and may be achievable. places” (Blackman, 2002). The Royal moderate-income households seeking an Institution of Chartered Surveyors has affordable means of homeownership and Opposition group politicians and business agreed with this criticism. not renting from an RSL (Martin, 2001). groups have rejected the very ambitious targets contained in the London Plan as Richard Donnell, Head of Residential In 2000, the Joseph Rowntree being unrealistic (Wintour, 2002). Property Research at estate agents, FPD Savills, Foundation set up a Task Force to review research consultants, FPD Savills, has has argued that the funding should be LCHO programmes and commissioned estimated that the volume of housing supporting more rented accommodation Graham Martin to analyse low-cost home sought annually was not achievable – as otherwise government subsidy will ownership submissions in response to particularly as the levels of affordable simply be lost (Blackman, 2002). The the Government’s Housing Green Paper. housing outputs sought from the house National Housing Federation has also The Task Force focused on the two main building industry would squeeze out raised concerns that the shift in subsidy current LCHO programmes, Shared profitability to the point that it would not in London for mid-market housing runs Ownership and Homebuy (Martin, 2001). be possible to entice those with land to the risk “that developers may take a view The latter is a 25 per cent equity loan bring it forward for development. that key-worker accommodation can be subsidy to assist the purchaser with an the affordable housing required through ‘interest-free’ shared investment from the Section 106 agreements”. state, enabling them to acquire a 1.6 property while maintaining their mortgage Starter Homes Initiative The shift in Round 2 towards equity share stake of 75 per cent, which is within their and Low-cost Home loan finance with no repayment until the means. The Task Force found from its Ownership Programmes property is sold reflects the concern of investigations that: the Government that the funds should be On 6 September 2001, the Government recycled, but also that some return from a) There is a substantial level of unmet provided £230 million under Round 1 of property price inflation should be demand from LCHO programmes in the Starter Homes Initiative to assist obtained. A report by FPD Savills has England and Wales; 8,000 key workers in London to buy their shown that surging house prices in first home. Funding assistance was given London alone have left 800,000 b) Strategic use of LCHO initiatives can in the form of interest-free loans and households unable to afford even a achieve increased housing supply Shared Ownership. Assistance to key £75,000 flat, and that the Starter Homes and more inclusive communities workers was provided primarily from Initiative funding was nowhere near the contributing to economic and social registered social landlord members of extra £20 billion they estimate is required stability in both high and low value the ‘Keys to the Capital’ Consortium by government to tackle the key-worker areas; including Tower Homes (a subsidiary of problem in London (Inman, 2002). London & Quadrant), Metropolitan Home c) Local authorities often fail to see the Ownership (a subsidiary of Metropolitan What this criticism loses sight of, though, importance of LCHO initiatives under Housing Trust), Boleyn & Forest Housing is that under New Labour the balance pressure to house the homeless; Society (a subsidiary of East Thames between subsidy for social housing for Housing Group) and Notting Hill Home the poorest and subsidy for low and d) Homebuy is popular with lenders and Ownership (a subsidiary of Notting Hill moderate income workers has shifted purchasers and in Wales is more Housing Trust) drastically away from the latter. In a popular than Shared Ownership.

Common Ground 12 The key recommendations from this Funding to resource implementation of Kent and the Thames Gateway. study are that: the strategy will be taken away from the Expansion of these areas and use of local authority Housing Investment greenfield sites as necessary are a) Government planning guidance and Programme and from the Housing intended to provide the additional Housing Corporation guidance on Corporation’s Approved Development land needed to accommodate the sustainable social housing should Programme and held in a single regional housing required for London, the ensure LCHO properties are included pot for housing investment. South East and the East of England. in schemes of more than 25 properties; In objective terms, Prescott described G Modern methods of construction Sustainable Communities as a “step and off-site manufacture: The b) A standard modular lease8 for change”. There will be both more funding Housing Corporation and English Shared Ownership should be for housing development and regeneration Partnerships see enormous scope for developed; and over the next three years and a shift in using modern prefabrication priorities. Since 1997 the Government’s technology to provide housing at c) Homebuy equity loan elements priorities have been to deal with a backlog much lower costs and more quickly – should not be confined to a 25 per of £19 billion of disrepair problems in the particularly on the major development cent proportion but be more flexibly social housing sector. Strategic objectives sites planned. The Sustainable available. will now shift on the one hand to tackling Communities Plan endorses the the severity of the housing shortage in recommendation of the Sir John In addition, the Task Force concluded that London, the South East and the East of Egan Task Force on construction Homebuy could be made more flexible by England, and on the other hand to dealing methods (Egan, 2000).9 the use of three elements in house with low demand and abandonment purchase in some high-cost circumstances. problems in the North of England. Other ideas set out in the Sustainable For example, this might include a 50 per Communities Plan include measures to cent conventional mortgage, a 25 per cent Sustainable Communities data show that reduce the 730,000 empty properties low interest equity loan, and a 25 per cent an extra 155,000 households are formed (3.4 per cent of the national housing no interest equity loan. each year against a net housing stock). Eighty per cent of these are construction figure of only 120,000. privately owned and 135,000 are in The former Housing Minister, Lord Closing this gap is a top priority of the areas of the North of England where Rooker, announced at the National strategy and ensuring that the new housing supply exceeds demand. The Housing Federation conference in Regional Housing Boards overcome Government intends to use a range of September 2002 that, over the next three problems of over supply of new housing fiscal measures (from VAT reduction on years, LCHO programmes will receive units in the North of England in recent repair work and reducing Council Tax more funding and that, with the additional years and under supply in the South of discounts on second homes) to reduce £1.4 billion allocated for housing under England. this number steadily in areas of high the Comprehensive Spending Review, housing demand. more will be spent on helping those on In the South of England, accessing new low and moderate incomes to buy their land supply is vital. The Government’s Since the announcement was made, homes. With a lower level of subsidy, the National Land Unit Database has Prescott’s four Growth Areas have Government sees the scope to provide identified at least 66,000 hectares of encountered political resistance from two units of key-worker housing for each brownfield land, which can be deployed local authorities. While the ODPM have unit of social housing. to build 920,000 homes or 60 per cent costed the new housing, the local of the homes the Government estimates authorities have produced estimates for will need to be constructed by 2016. the infrastructure required for new 1.7 However, in the South East only 28,000 schools, hospitals, roads, rail Increasing Housing Supply – acres are available for 380,000 homes. improvements, and other facilities to Sustainable Communities Plan With 43,000 homes per year needed accommodate the new homes. For the until 2016 in London and the South East, 130,000 homes planned for the Thames In February 2003, John Prescott it is clear that most of the greenfield loss Gateway and Ashford, Kent County launched the Government’s long-awaited will be on sites in this region. Council estimates that an extra £3 billion Sustainable Communities Plan, which will be needed – more than six times the sets out a framework for housing There are several solutions set out in the budget for the housing element regeneration for England over the next Sustainable Communities Plan to tackle (Hetherington, 2003d and O’Hara, 15-20 years, as well as costing the housing supply gap in southern 2003). In addition to this, Kent estimates government-spending priorities over the England. The main ones are as follows: that a further £1.1 billion will be needed next three years (ODPM, 2003). The for infrastructure development in Ashford. Plan is a radical one in that it devolves G Growth areas: Following feasibility responsibility for delivery from central studies, John Prescott has The expenditure under Sustainable government to regional government. announced six Key Growth areas for Communities over the next three new affordable housing development: financial years from 2003-04 to 2005- Under the new system, Regional Housing Milton Keynes and Northampton, the 06 will include: Boards (involving the Government Office, South Midlands (including Bedford, the RDA, the Regional Chamber, the Luton, Aylesbury Vale, Corby, a) £22 billion overall to improve housing Housing Corporation, and English Wellingborough and Kettering), and communities; Partnerships) will be responsible for Harlow, the London-Stansted- preparing a Regional Housing Strategy. Cambridge (LSC) corridor, Ashford in

13 Common Ground b) £5 billion for affordable homes – homeownership programmes. John a) Tax reforms so that tax relief for including £1 billion for key-worker Prescott’s Homeownership Task Force private landlords is equivalent to housing; chaired by Brenda Dean, which will those of other small businesses. complete its findings later this year, will c) £446 million for the Thames develop new policy and practices. The b) Use of Section 106 agreements to Gateway and £164 million for the wider scope for non-RSLs to function as expand the sector. three other Growth Areas; and providers could be a significant opportunity for the non-registered housing co-operative c) Wider use of longer tenancies on an d) £350 million invested for better sector to play a key role under Sustainable assured basis. training, for updating procedures and Communities. The private rented sector is as a result speeding up planning also potentially a delivery agent here. d) Wider development of tenant deposit decisions on housing provision. and rent guarantee schemes. At present, 40 per cent of households are Most of the new housing funding will be one-person households. This will increase e) Training courses and selective targeted on London, the South East and sharply in the next 20 years and there is licensing for landlords and agents. the East of England. The Sustainable scope for reviving the private rented Communities Plan shows that the West sector to address these needs. In the early f) Major reforms to simplify and improve Midlands and the South West are not as 1980s, the private rented sector housing benefit administration. seriously affected by supply and demand represented 11.4 per cent of all housing imbalances. But the Government will tenures; today it is even less at 11.1 per Another change, which may possibly be allocate funding for the development of cent (Walker, 2002). Elsewhere in the introduced by the Government, could be 5,000 affordable homes in villages. From European Union and in North America, the changes to the existing Right To Buy government figures, it would appear that private rented sector is a very significant system. Since 1981, more than one about one in five of these would be in provider of housing. For example in million people have become homeowners the rural South West (ODPM, 2003). France, private renting accounts for 24 through purchase of their council house. per cent of housing provision and in This has operated significantly to The initial budget for key-worker housing Germany private landlords house 42 per increase homeownership in the past 20 will be the Government’s Challenge Fund, cent of households. years from 57 per cent to just under 70 which has increased to £300 million for per cent today (Kampfner, 2002). 2003-04 – a threefold increase on the In May 2002, an independent Private £100 million available in 2002-03. The Rented Sector Commission organised But continuation of this policy, and its new budget seeks to deliver 6,000 new jointly by Shelter and the Joseph potential extension by a future homes in London and the South East for Rowntree Foundation called for a new Conservative Government to Registered key workers in the first year – at least settlement for the private rented sector. Social Landlord properties has a 1,800 of which will be built with modular, The Commission, involving representatives significant impact on the social housing off-site construction techniques. from landlord associations, local stock available for rent. For example, in authorities, tenant rights groups, student 2000-01, Registered Social Landlords Under the new system, any grant aid from groups, housing advice agencies and developed 18,000 properties for rent, but the Housing Corporation will require new environmental health officers, has called in the same year, 53,000 council units to comply with the latest Building for a package of measures to significantly properties were sold off. It is a source of Research Establishment’s EcoHomes increase the amount of quality concern that, with current discounts of Pass standard for sustainable residential accommodation in this sector over the up to 80 per cent, the costs of replacing development. The forthcoming Housing next 25 years. By 2027, it is projected that homes lost under the Right To Buy are Bill, anticipated in Spring 2004 will there will be four million more households little different from the cost of new require all sellers to provide a home than today and that 80 per cent of the provision. With an average discount of information pack to prospective increase will be in one-person households. £17,000 on each council house sale, the purchasers. This will require information to long term cost to the public purse has be provided on the energy performance Evidence shows that, as in continental been estimated at £850 million annually of the building for purchasers. Europe, for many of these households (Hetherington, 2003b). Of this cost, private renting can be a more attractive £308 million applies to London. The Government envisages several and a better option than buying – mechanisms to facilitate low-cost particularly as more city centre housing is As the Government is well aware, there homeownership. These include: developed. However the quality of such is also evidence of an increase in private housing is often the poorest for this property company practices, typically a) Shared Ownership but especially growing target group. The Commission involving provision of large cash Homebuy. estimate that just to maintain and incentives to persuade council tenants to improve existing levels of private rented buy their property and then to let it to b) The lifting of restrictions on the Cash sector accommodation will need £1 someone else immediately after Incentive Scheme to assist tenants to billion of investment annually. To expand purchase. The ODPM has commissioned leave Council housing and become the private rented sector in 25 years to Heriott-Watt University to identify abuses homeowners. 25 per cent of tenures will need £3 and to investigate what can be done in billion of annual investment. legal terms to close the loopholes. There The Government is also considering is a suggestion that future social housing extending the Housing Corporation’s power To expand the sector and the quality of developed may be exempt from purchase to fund bodies other than housing housing provided, the Commission and the Right To Buy system restricted. associations for the delivery of low-cost recommends:

Common Ground 14

2 Mutual Solutions for the Intermediate Market

To date, the main response to the crisis operative housing developers to get the property market. Unless this happens, has been the Government’s Starter design right. people who stay in a mutual form of Home Initiative (SHI), launched in housing for any length of time are February 2001 to help key workers in Limited- or restricted-equity co-operative disadvantaged compared with those who London to access housing. This housing is an intermediate form of are already in the property market. programme has since been extended to mutual housing between the par-value areas outside London in the Home rented housing (see Glossary) that exists These two conditions are incompatible. Counties and Oxfordshire, with smaller in Britain and full-equity or market-value They can be made to co-exist through initiatives elsewhere. mutual models, such as the new shared ownership, in which ownership of commonhold tenure in the UK, or the up- a dwelling is held partly by the individual The main delivery vehicle for the SHI by market condominiums popular in the US resident and partly by a landlord or co- registered social landlords has been for flat owners.11 Such housing has been operative. This form does not attempt a traditional forms of shared ownership. popular and has worked in the past in trade-off between affordability for the But the Government is open to other Britain in the form of co-partnership future and capital gains for individuals, approaches. In her speech to the housing prior to the Second World War but simply keeps them separate. There Guardian’s Key Worker Conference on and co-ownership housing in the post- may be other, more mutual solutions, in 27 February 2002, Sally Keeble MP, war period. Unfortunately, however, these which the equity is held collectively by Undersecretary for Housing Planning and forms of tenure have proved to be the residents, with some kind of ring the Regions, called for “imaginative new unstable and, through privatisation, have fencing to stop them distributing this schemes, which give more choice virtually disappeared. equity to individuals, but enabling people through innovation in housing and wider who are leaving to receive a premium access to housing across different However in other countries such as reflecting the value added to the property tenures”. In his keynote address to the Sweden, Norway, Denmark, and the US, during the time they were members. same conference, Ken Livingstone, limited-equity co-operative housing is Mayor of London went further to call for both popular and important as a tenure Previous attempts to square the circle in an entire new intermediate market. form to tackle intermediate housing Britain have included tenant co- market needs – especially in cities with partnership (1904–1920s), co-ownership “This conference today is high costs such as New York, Los (1961–1980), and Shared Ownership primarily about people on low or Angeles, Chicago, Stockholm, Oslo, and (from 1978 onwards). In this section, the moderate incomes, say £15,000 Copenhagen. history of these is traced and lessons – £25,000, who form this drawn from their successes and failures. intermediate sector. My longer The need is to find a form of housing Co-operative housing sectors in other term vision is that London should tenure that is affordable for low to countries are also identified where the develop a new intermediate middle-income people where housing is same balancing act has been attempted. housing market to meet this new permanently in short supply and In conducting the investigation the demand for which the supply in therefore expensive. It has to meet two objective has been to look for co- neither conventional social rented conditions. First, it must be stable, and operative forms that have managed to housing, nor market housing… I able to offer a continued supply of exist, and hopefully prospered, in the see the development of an housing on similar terms over a long spaces between non-equity co-ops and intermediate housing sector in period of time. If it deforms into freehold owner occupation. London as a vital strategic and owner-occupation or market renting, then economic issue.” it has failed in its ability to deliver 2.1 affordable housing. Also, in order to be Livingstone’s challenge stems from the affordable, it will need some kind of Community Land Trusts – conclusion of the GLA’s Affordable subsidy by government or by financial Securing Permanent Long Housing Scrutiny Committee inquiry into institutions that have a social purpose. Term Affordability key-worker housing needs. In particular, the GLA identified the need for new The subsidy cannot be allowed to leak The British and North American housing forms of limited-equity housing out into one-off capital gains for markets are unique in having such high investment models and called on the individuals. This means that sale of the levels of homeownership. However, in the Housing Corporation and the Association property has to be either ruled out or US by contrast to the UK, the private of London Government to take a lead in restricted. It can be ruled out altogether if rented sector is larger and so are other sponsoring research studies into how a non-equity co-op is set up that has forms of housing such as limited-equity these could be developed.10 In the GLA’s some built in restriction on the distribution co-op housing in major cities like final report (2001), Key Issues for Key of assets on winding up. It can be New York. Workers, it was observed that unlike restricted either by allowing only part of shared ownership which is developed for the equity to be owned individually Aspen, Colorado provides an extreme sale, mutual housing is “more beneficial (shared ownership) or by restricting the case, even by American standards, of to the long term provision of housing for price. Second, the tenure form has to how a reliance on the market alone can key workers and their recruitment and provide some means by which individuals lead to average-income households retention” because it can be designed to can make capital gains, or at least realise being completely priced out. During the be permanently affordable. The GLA some kind of cash payment when they 1990s, the ski resort town of Aspen was posed a specific challenge to co- leave the property to enter the private- expanding quickly and property prices

15 Common Ground soared to 12 times the average potential of the CLT structure to secure CLTs incentivise homeowners to maintain American level (Salman, 2002). The sustainable housing development in a and improve their properties through a demand for vacation homes took over 70 locally managed way, but it is only in the resale formula that grants a share of the per cent of all private housing, leading to last 10 years that the CLT movement has appreciated market value of their homes an absurd situation where teachers, shown how to grow to scale. when they are sold. The resale formula hospital workers, hotel staff and varies from CLT to CLT and from area to restaurant workers were forced to live on CLTs in the US are developed in local area. The original resale formula campsites or even in their cars. In the areas to provide permanently affordable developed by Bob Swann values the end, only by providing massive subsidies housing. They are a dynamic form of building only through the local town for key workers and requiring all new housing tenure where parcels of land are assessor for property taxes, the developments to provide 70 per cent acquired by a non-profit company (the equivalent of the British district valuer. targets for affordable housing has the Community Land Trust) and held in The resale price appraised is based on crisis in Aspen slowly been brought back perpetuity. Residential structures that current building rebuild costs adjusted for under control. already exist on the CLT’s land, at the deterioration and obsolescence. Insurance time of acquisition, or structures that are adjusters are familiar with this calculation The US housing market in New England built later on the CLT’s land are sold to and depending on deterioration can range has boomed in the same way as the individual homeowners, a housing co- typically from 50 to 95 per cent of new. market in southern England, with operative or another non-profit company. demand outstripping supply and the The owners of these buildings lease the More restrictive resale formulae can be reliance on the free market leading to underlying land from the CLT. Embedded applied as with limited-equity co-op dysfunction. One interesting innovation in in these long-term (typically 99-year) housing in the US. These resale rules are the US (and more recently in Canada as ground leases are provisions that allow common among CLTs affiliated to the well) has been Community Land Trusts the CLT to regulate the occupancy, sub- Institute for Community Economics. Such (CLTs). letting and resale of the buildings. When a limited-equity appreciation formula may a building’s owner decides to leave their allow the homeowner to pocket 25 per The pioneers of the Community Land home, they must sell to the CLT for a cent of the increase in the market value Trust movement in the US were Bob below-market price that is designed to of their home. This is usually done by Swann and Ralph Borsodi. They had balance the interests of the homeowner obtaining two valuations of the building’s been inspired by the success of Vinobha in receiving a fair return on their original worth (not including the value of the Bhave, a successor to Gandhi, who, by investment and the interests of the CLT land), one at the time of purchase and walking the length and breadth of India in maintaining the home’s affordability for one at the time of sale. The homeowner in the 1950s and 1960s, made personal the next homebuyer of modest means. receives 25 per cent of the building’s contact with hundreds of large appreciation.12 landowners in India and persuaded them Parcels of land are acquired by the CLT to put over four million of acres of land through transfers of ‘surplus property’ CLTs have a wider application in North (almost 1.5 per cent of all land in India) from state or municipal agencies, through America than just housing and are also into trust to enable destitute landless charitable donations from private sector used for revitalising disinvested peasants to feed themselves through property owners, or through the neighbourhoods, developing workspace access to locally managed ‘commons contributions of funds made available to for local businesses, developing land’ (Bhave, 1994). The growth of this the CLT by governmental programmes, community facilities for non-profit service Indian ‘bhoodan’ (or ‘land gift’) movement private foundations, and individuals. providers, developing retail and housing came to the attention of Dr Martin Luther in the same projects, providing King. With the support of individuals who Through this form of housing ownership, recreational space in urban areas and had been actively involved in the Civil homeowners hold a deed to their preserving natural space in rural areas. Rights struggle around Albany, Georgia, dwellings and a long-term lease for the Swann, Borsodi, and a number of land beneath their dwellings. By taking In western Massachusetts, CLTs are also colleagues established the first US land out of the market, frequently being used to revive small towns and to Community Land Trust in rural Georgia in through government subsidy, the cost of protect and preserve small farms. The E 1967 to provide affordable housing and buying a house can be reduced by 25 to F Schumacher Society worked with farm land for African Americans. 30 per cent in most markets. Because Swann to tailor the CLT model to this the land is never resold by the CLT and purpose. A collaborator of Swann’s in Learning from the weaknesses in the because affordability controls are placed Australia, Shann Turnbull, has indicated Indian model, the ingenuity of Swann was on the resale price of the housing that is the future potential for Co-operative to devise a stable mechanism for local land on the land, any public (or private) Land Banks (CLBs) as vehicles for wider management which involves three subsidies that have gone into creating application beyond housing, wherever complementary sets of local stakeholders: affordability, once locked in place, can be there is a need to secure permanently the leaseholders on the land, recycled to assist subsequent affordable land (Turnbull, 1975 and representatives of the wider local generations of low- and moderate- Morehouse, 1989).13 community, and professionals (architects, income homebuyers. Indeed, it is the surveyors, finance experts, and builders) specific mission and primary raison d’etre In the last two years, the application of with necessary skills willing to gift time and of most North American CLTs to provide CLTs to rural and urban areas in England effort to help develop viable Community permanently affordable housing has been researched with funding from Land Trusts. The idea has taken time to (although a number are also involved in the Housing Corporation (Dayson, become rooted in the US affordable leasing land for commercial and Paterson and Conaty, 2001). housing movement. Early projects in the recreational purposes as well). Independently of this research, the first 1970s and 1980s amply demonstrated the

Common Ground 16

subsidised land. CLTs can also provide Land Trusting – Stewarding the Commons the ideal legal framework for government subsidy to be locked in and used for Commons land is at the root of British history and, “until the 14th century, land was several generations into the future, to not purchased or even bequeathed by legacy but bestowed in trust and in return guarantee the permanent affordability of for certain services. It was not even held by law, much less by a money transaction, housing to meet local needs. but by custom alone and so upon a traditional basis.” (Massingham, 1942). Today commons and wasteland represents only eight per cent of land in the UK (DETR and Cahill, 2001) or 4.8 million acres. As local authorities or government bodies It is interesting to note that, in manage most commons land, the traditional stewardship role by local people or bequeathing the money to establish his ‘commoners’ is now largely part of folklore. Movements for tenant management charitable trusts in 1904, Joseph and resident control of regeneration programmes perhaps foreshadow a change in Rowntree was so impressed with the this and demonstrate how wider local land stewardship by local people can be prospects of model villages like New revived. The development of initiatives to revive the use of the ‘commons’ to meet Earswick for providing long-term th solutions to poverty and disadvantage local people’s housing and enterprise needs began in the 19 century and was that he charged the directors of the central to the vision of the co-operative movement. Robert Owen called for trusts to focus future research ‘Villages of Co-operation and Unity’, enabling the poor and unemployed to resettle investment programmes on the practical on the land in sustainable villages. John Ruskin established his St. George’s Fund issue of land reform. in 1871 to finance the acquisition of land to be held in trust for affordable housing in villages to help protect and revive rural industries and crafts. One of the first “I desire in the following initiatives was the funding provided by Ruskin to Octavia Hill, which initiated the Memorandum to indicate in Housing Association movement in Marylebone, London in 1871. Following in the general terms the considerations footsteps of Ruskin’s success, the National Trust was founded by Octavia Hill and which have induced me to found Canon Hardwicke Rawnsley in 1895 to hold land in the public interest. [these] trusts...... I have already alluded to the land question. Such aspects of it as the European CLT developments have growing number of CLTs to be nationalisation of land, or the already been achieved in Scotland in the established. The CLU has recently taxation of the land values, or the Highlands and Islands over the past 10 assisted a community buyout by 3,000 appropriation of the unearned years (Scott, 2003). The buyout of the crofters to purchase 93,000 acres on increment – all need a treatment North Lochinver Estate by the Assynt South Uist. The South Uist plan is much far more than they have yet Crofters in 1993 and the establishment larger than the recent purchase by 800 received. If one or other of the of the Isle of Eigg Heritage Trust in 1997 local residents of 22,000 acres of the Directors and Trustees were able pioneered the Scottish CLT movement. Amhuinnsuidhe estate on the Isle of to collaborate with competent Harris which Johnathan Bulmer, the cider investigators and workers upon Inspired by the these grass roots heir, put on the market in 2002. The these questions, it would be successes, Brian Wilson MP led the Scottish Land Fund has provided the suitable for large sums to be setting up of the Scottish Community majority of the £2 million purchase price appropriated in this direction.” Land Unit (CLU) in 1997 under from Bulmer. Highlands and Islands Enterprise to 2.2 provide technical assistance and funding In concept, CLTs are very similar to the (Highlands and Islands Enterprise, 2003). co-operative land-use practices promoted Early British Housing Co-ops – The CLU has secured Lottery funding to and partially implemented almost a the Tenant Co-partnership establish the Scottish Land Fund to century ago by Ebenezer Howard Experience finance buyouts. Today the CLU has a through the Garden City movement in staff of 15 and an annual budget to Letchworth and Welwyn Garden City The tenant co-partnership form of co- support Scottish CLT projects of £5 (MacFayden, 1970). CLTs are similar as operative began in 1901, when Ealing million. A high profile example supported well to the Quaker-led model village Tenants was founded. Its main promoter by the CLU has been the Isle of Gigha trusts implemented philanthropically by was the Liberal MP Henry Vivian, who Trust where a CLT for the local George Cadbury through the Bournville had set up a labour co-partnership, population of 120 has been established Village Trust in Birmingham in 1900, and General Builders Ltd, from whom the first through the purchase of 3,200 acres for by Joseph Rowntree in the New Ealing members were drawn. Labour co- £4 million. Ninety-five per cent of the Earswick model village in York in 1902 partnership was a marriage of ethical funding was provided by government (Harrison, 1999). investment and worker profit-sharing that sources including the CLU (12 per cent) had arisen partly as a reaction against and the Scottish Land Fund (83 per CLTs are not just about housing but the consumerist emphasis of the co- cent) with the local community raising about securing affordable and operative movement, and partly as a five per cent. Following the buyout, 41 sustainable communities (Minton, 2002). liberal alternative to the class houses have been improved, 14 new They are a modern and flexible vehicle antagonisms of industrial capitalism. It houses built (eight to rent), a community for neighbourhood regeneration and can was deliberately designed to reconcile building built and three small business limit the pressures of gentrification. conflicting interests by giving a ‘bonus to units constructed. Limited-equity housing co-operatives for labour’. From reconciling labour and key workers, constructed on land that is capital, it was an easy step to reconciling The Land Reform (Scotland) Act 2003 leased from a CLT can potentially be tenant and landlord. provides a full framework for assisting a developed through the use of gifted or

17 Common Ground The Ealing society signalled a serious given the same access to central together not just by proximity but by the intention to involve tenants in the government aid as council housing, but nature of the tenure. business by setting their minimum most local authorities chose to build for shareholding at £50, payable in themselves. Some existing societies A linked aim was to avoid class conflict instalments. The building of their estate, completed their estates, but only a few by deliberately mixing different income known as Brentham Garden Suburb, new societies were formed: some were groups in each estate. The evidence began along conventional lines in 1904. set up by partnerships formed between concerning the range of rents charged Roads were laid in straight lines, and local authorities and large employers in shows that they succeeded in this. What ‘pattern book’ terraces built which were South Wales, and Howard used the they did not succeed in doing was undistinguishable from those built for model for several societies in Welwyn promoting a form that was generally private landlords. However, the movement Garden City. In general, the energies of accessible to people on low incomes. soon broadened out. There was an influx reformers switched to council housing One estate in Hereford did house mainly of rich and influential supporters of and the co-partnership movement farm labourers, but most tended to Ebenezer Howard’s garden city declined. attract clerks, skilled artisans, local movement, who oversaw the marriage of government workers, and even a few garden city design and tenant co- The aim of co-partnership was explicitly professionals such as teachers. The partnership tenure. The progressive to combine the best elements of renting mixing of classes did not usually extend architect, Raymond Unwin, was brought and owning. Tenants would be joint to semi- and un-skilled workers. The in to redesign the estate along modern owners, having pride in ownership and an requirement to find a large deposit put lines, with low-density housing, curving incentive to keep up their home and the off anyone on a low or irregular income. street patterns, narrower residential estate, their efforts being directly linked streets than had been allowed under to the level of rents and the dividend The promoters tended to be diverted local bylaws, and artfully designed they received. Like owner-occupiers, they away from provision of working class terraces that departed radically from the were responsible for repairs and housing by this emphasis on innovative traditional speculatively built industrial decorations inside the home. The £50 design and garden suburb layouts. At housing that was the norm. investment demanded by most schemes Ealing, for instance, the lowest rent was a very large sum at that time, when houses were built only because of a A central body, the Co-partnership the cost of building a small house was condition laid down by the Public Works Tenants Housing Council, was set up to only around £125. Their dividend Loans Board (schemes obtained a loan promote the idea, and soon societies payments could not be withdrawn until of two thirds of the value of the homes were springing up all over Britain. In this minimum was reached. On the other from the PWLB). This was a major failing 1907, the Council became a federation, hand, they would be freer than owner- and goes a long way to explain why post- Co-partnership Tenants Ltd. This central occupiers to move in search of work, and war housing policy swung in favour of body was the key to rapid expansion of would not bear the risks associated at council housing. the movement; it co-ordinated loan that time with a minority tenure (only 10 finance, advised on site layouts and per cent of households were owner- At first this new form of tenure worked plans, did some of the on-site building occupiers, the rest privately renting). well. However, it was unstable. Early on, work, and set up two subsidiaries that the aim of the promoters, like that of bought in materials and provided ready- Outside investors also gained. They were previous co-operative experimenters, was made joinery. Between 1901 and 1912, like private landlords, but their risks were that tenants would eventually gain 14 societies were formed under this minimised by the financial involvement of control. In four estates where property system, building 6,595 dwellings, for a tenants. Loss of income through empty values did not rise much and outside population of 30-35,000 people (Birchall, property was negligible, since less than investors were willing to sell their shares 1988, 1995a). five per cent of the tenants moved each (Keswick, Sevenoaks, Leicester, and year. Rent arrears were almost non- Manchester), tenants did eventually The most famous co-partnership estates, existent. Furthermore, the investors did achieve this. apart from Brentham, were at not have to give tenants real control. Hampstead Garden Suburb where five Voting rights went with the number of However, in areas where property prices societies produced 5,650 homes, and shares, up to the limit of £200 imposed were rising and investors saw the Letchworth Garden City, where one by Industrial and Provident Society law. In benefits of keeping control (Ealing and society built 323 homes. Many more some cases, in the first few years one or Hampstead), they changed the rules. For societies were formed that did not two places were reserved on the board instance, in 1911, tenants at Ealing were register as members of the federation; of directors for a tenant-representative, deprived of their right to a representative, 54 have been found so far, but it has but tenants were in the minority. and soon afterwards new tenants at proved impossible to estimate the Hampstead were discouraged from number of homes built (Birchall, 1995b). The promoters were keen to point out that becoming members. After the War, Co- The First World War interrupted the the underlying aim was not merely to partnership Tenants Ltd acquired a movement, leaving several societies with provide hybrid tenure but to go further, controlling interest in Ealing, Hampstead, more land than they could build on inventing a more collective form of tenure, Garden City, and Fallings Park, and they (though Government used the co- in which individual incentives gave way to a were sold on to property trusts which partnership form to build estates for co-operative spirit and dwellers identified began to sell houses to tenants and, as munitions and naval dockyard workers). with the estate as a whole. The annual they came vacant, to sell them on the galas and pageants held before the First open market. After the War, supporters of the World War were a conscious attempt to movement made sure that, under the inculcate a sense of community, but it was Two more estates eventually fell to the 1919 Housing Act, co-partnership was explicitly a co-operative community, bound property interests – Stoke-on-Trent in

Common Ground 18 1963, and Harborne, a few years ago, alternative the Government had found them to rely on their managing agent. after tenants had resisted several hostile was ‘cost-rent’, by which non-profit The co-operative nature of the schemes takeover bids. At Cardiff and Oldham, the housing societies were to provide new was played down, only being mentioned societies began to sell their houses on rented housing, but it was thought the where it had to be, in the model loan leases to tenants, and were eventually rents might be too high. Campbell took agreement and rules (Birchall, 1988). wound up. At Sealand (and probably also the Scandinavian co-operative housing the post-war estates in South Wales) the model and applied it to Britain. It had two The way co-ownership was developed and property transferred to the ownership of key elements that found favour. First, as regulated contrasts sharply with the the local employer, which had sponsored a group of owner-occupiers, co-owners Scandinavian co-operative model on which the society. With a few exceptions, then, could claim tax relief on their mortgages the co-operative promoter Harold this form of tenure gradually deformed and thus provide a cheaper alternative to Campbell had drawn when he began to into the two dominant tenures, owner- cost renting. Second, if members were promote the idea of co-ownership. In occupation and private rental, with some allowed to build up an equity stake over Norway and Sweden, a ‘mother’ co- cynical and greedy asset stripping along time, this would help them to gain access operative linked to a savings bank would the way. to owner-occupation. found ‘daughter societies’, making sure that they were real co-operatives, Lessons learned from the Tenant Co- Between 1961 and 1977, 1,222 co- educating and training their members, and partnership history are: ownership societies were formed, offering management services that the producing over 40,000 dwellings. They daughter society could take or leave as its a) A mix of outside shareholders and were aided by a new Housing Corporation, members wished, subject only to some tenant shareholders proves to be established in 1964 with £100 million of basic regulation and accounting rules. highly unstable. Capital should be Treasury funding and a pledge of £200 raised from financial institutions that million from building societies. At first the In a few early societies founded by do not require a share in ownership; Corporation promoted cost renting and it committed co-operators, educational was only when the Labour Government work was done to prepare the dwellers b) Where tenants do gain control of appointed Campbell to the Corporation’s to take over control. The Housing their equity, in the absence of a co- board in 1966 that this new form of Corporation had the task of educating operative movement their estates tenure took off. members, but confined this to some become isolated and members see leaflets, the main tone of which was that themselves as ‘collective owner- It was helped by the introduction in 1967 co-owners should leave management of occupiers’; by the Labour Government of option their estates to the professionals mortgage tax relief. This was the (Birchall, 1988). In most cases, all that c) However, the idea of tenant precursor to Mortgage Interest Relief at the members received was the legal shareholders proves to be a sound Source (MIRAS), aimed at people on low documentation relating to their tenancy, one, making members take an incomes, and could be applied to the co- and many members did not understand interest in their housing and in the owners’ collective mortgage. Also in 1967, the difference between co-ownership wider community. changes were made to the structure, and renting. Nor were they particularly making it easier for people to become committed to the idea; no attempt was members; the lease was reduced from 99 made to vet prospective members for 2.3 years to three years or less, and deposits their willingness to take on the Co-ownership – Key Worker reduced from five per cent of the cost of responsibilities of active membership. Housing in the Post War Period the dwelling to no more than the Also, the founding association had an equivalent of six monthly payments. interest in keeping the members locked The demise of co-partnership and the into long-term management contracts, rise of conventional public sector rented This form of tenure was constrained from and sometimes tended to play down the housing meant that co-operative housing the start by the ‘top-down’ way in which status of co-ownership. did not reappear until after the Second the schemes were developed. A new World War, and then only in one isolated society was registered by founder With hindsight it can be seen that it was common ownership co-op, at Dronfield. members, who were usually the often easier for both parties to lapse In 1961, a new experiment in co- committee members and staff of a local back into the mind-set of landlord and ownership began. Harold Campbell housing association. They had the tenant rather than to do the work of (secretary of the Co-operative Party) and scheme designed and built, selected the creating a new identity as co-owner and Reg Freeson (a Labour and Co-operative first co-owners, and then usually tied the managing agent. Sometimes members councillor) promoted the idea, but they society to a management agreement with only found out that they were members had little success in influencing the the association for anything up to seven of a co-op and not the tenants of their Labour Party, though Freeson managed years. They were supposed to ensure self-appointed managing agent when to promote three small co-ops in his own that, six months after letting the scheme, something went wrong.14 Some schemes local authority, Willesden. resident members would be elected and were poorly designed or built with take over, but sometimes the agents unsuitable materials, and it was only They had more success with the then failed to get round to doing this for years. when the members began to organise Conservative Government, which was themselves in response to deteriorating keen to find new ways of promoting When the residents did gain control they conditions that they discovered they good quality private rented housing for were not expected to do any self- were, collectively, the owners. those who needed to rent, and a way into management. In fact, guidance from the owner-occupation for people who could Housing Corporation discouraged them Sometimes, societies had to face serious not otherwise afford it. The only from becoming self-reliant but advised design and building faults, and began a

19 Common Ground long battle in the courts, suing the had defaulted on their rent because the left, and societies would periodically architect and sometimes the builder and courts could not decide whether they experience a high turnover of members, in some cases winning substantial were owners or renters. Many active making it difficult to maintain a co- compensation. At the end of the 1970s, members eventually reached the operative spirit. there were 48 societies in ‘loss rent’ conclusion that it was an over-complex status, unable to pay their mortgage to form of tenure that few understood, and In 1976, co-owners formed a federal the Housing Corporation; most of these whose legal status was in doubt. Also, body, the Council of Co-ownership were in trouble because of design faults Housing Corporation guidance notes Housing Societies. It suffered from the and building failures. At the beginning of required that societies seek the usual problems that co-operative the period the Corporation officials were Corporation’s approval for all rent federations face in trying to generate telling co-owners to leave it to the increases, premium payments and enough membership income to sustain professionals. By the mid-1970s, the changes of managing agents. Active themselves and be effective. However, in Corporation had to provide them with members tended to resent the its short life, it managed to tackle a long loans towards their legal action. restrictions this imposed on them, and catalogue of problems faced by co- the implication that management should owners,15 and began to generate the Sometimes, members wanted to get rid be left to the ‘experts’. beginnings of a real co-ownership of their managing agent, whom they ‘movement’.16 At first the mood was associated with the failures of the In Norway and Sweden, members had to confident, and delegates to the annual founder members, only to find that they provide a significant down payment, meetings defended the idea of co- were locked into long contracts that the saved up over time in the mother ownership by large majorities against Housing Corporation officials were society’s savings bank. In co-ownership, the idea of demutualising the societies reluctant to cancel. In interviews carried in order to provide easy access, the and allowing members to become out by one of the authors, Johnston Corporation required only a nominal owner-occupiers. Birchall, in the early 1980s in four shareholding, which was bound to limit societies, active members expressed the amount of equity members could By 1979 the mood had changed, and clearly the view that the professionals build up, and also prevented societies members were asking whether co- involved as founder members had been from building up reserves. In Scandinavia, ownership had failed, through internal interested more in the development fees members built up an equity stake, problems within the societies and a and ongoing management allowances expressed in law as a ‘right to occupy’ failure of premium payments to enable that the schemes would generate than in that they could sell on when they moved members to raise a deposit towards the idea of co-ownership. Their out of the scheme. owner-occupation. They voted that if the suspicions were not eased by the terms were right they would sell up. In a attitudes of Corporation officials who, At the time when co-ownership began in survey carried out by the Federation, two although only following current policy, Britain, this equity stake was regulated thirds of members agreed. Then seemed to be unwilling to acknowledge closely in both Norway and Sweden and members of one co-ownership lobbied the Corporation’s own failures of the sale price calculated according to a Margaret Thatcher to let them dissolve regulation (Birchall, 1988). formula that kept it affordable (though, their societies and sell to the members; as we shall see below, in both countries the result was the inclusion of the ‘right However, the experience in three of these the price soon became deregulated). Co- to sell’ in the 1980 Housing Act. Most societies was coloured by long and ownership was based on a similar idea, societies sold up, leaving those that were difficult court action to sue architects for namely that members would build up an still battling with poor design or building poor design. In other societies, the equity stake in the property over time. work to carry on until they, too, were in a experience was a happier one, and in After five years of continuous tenancy, position to sell. In 1983, the Council was many cases co-ownership was a success. they had the right to a ‘premium wound up. There are 24 societies still in Where the scheme did not have any payment’ on leaving. existence; of which 16 are still registered serious design or building defects, the with the Housing Corporation and the managing agent was efficient, and some At first this was calculated on the basis rest are unregistered.17 co-owners took the trouble to run the of a complex formula that included the society, it provided a relatively stable form amount they had personally paid off the Key lessons learned from co-ownership of tenure. However, the form that co- collective mortgage plus a percentage of are: ownership took kept on evolving in the rise in value of the dwelling, response to experience; by the late calculated on a notional rise in building a) A particular form of co-operative 1970s, the Housing Corporation had costs. This was later modified to take into housing cannot simply be lifted from issued five sets of model rules. Running a account the market rate achieved for the another country and be expected to co-ownership society was a difficult job. new rent; a departing co-owner could not work unless wider conditions are be paid more than the society could raise similar, and attention is paid to all the Even well run societies faced problems through its rents. This often worked well, elements that go into making it work; whenever the legal form of their society making it easier for departing members had to be tested. Members found that to afford a deposit to buy their own b) Promotion and development should they were in a kind of limbo between home. However, if the society not be left to housing professionals renting and owning; they were declared experienced a high turnover of departing who do not share co-operative values ineligible for rent rebates because they members, or had not built up sufficient and ways of working; were owners, yet denied insulation grants reserves, it would have to borrow more because individually they were not money. There was also a potential for c) When education and training of owners. They had no security of tenure, loss of experienced active members. The members are not built in from the yet it proved hard to evict owners who premium was only payable if a member

Common Ground 20 start, co-operatives will fail to become exceptionally well run (Birchall, 1988,). It member co-operation and participation in in practice what they are in principle; is a ‘community leasehold’ co-op. The co-management. This makes the local authority is the freeholder.18 It has unconventional style of Glenkerry House d) If members are not involved from the given the co-op a long lease, in which it particularly attractive for our purposes in start with estate layout and housing is stipulated that: trying to develop a model that will both design, mistakes may be made for provide equity stakes for members that which they will later have to pay; a) No more than 50 per cent of the respond to market signals, and lock in equity can be bought by individuals; the subsidy so as to remain affordable e) If members can only realise the for new members. financial benefits of co-operation by b) Sales of this equity will not be on the leaving, then after the qualifying open market but at the district 2.5 period there may be a high turnover, valuer’s valuation. leading to a crisis in participation and Comparative Analysis of high cost of socialising new members; The co-operative bought a 99-year lease Co-operative Tenures for £1,435,000, with a Housing Internationally f) If the financial benefits are calculated Corporation grant of £717,000 and a on too complicated a formula they Greater London Council grant of Clapham and Kintrea suggest that co- will be uncertain and lack legitimacy; £144,000. Sales to members brought in operative housing can vary along a about £464,000. The residual amount continuum from individualist to g) If the financial benefits on leaving are was raised through a loan from the GLC, collectivist, more or less resembling set too high and there is a high which qualified for option mortgage relief, owner-occupation or social rented turnover, then the co-operative may and charged to members as ground rent. housing (1987). The main characteristic not be able to finance the payouts; that varies is the amount of equity stake The co-op was registered in 1978. Two owned by individual members. One h) If the co-operative involves a new thirds of members were chosen from lists should expect to find examples around form of tenure the costs will be too of people in housing need provided by the world of co-operatives that have no high; there will be misunderstandings, the local authorities. Although the significant individual equity-stake, some high legal fees, unnecessary disputes, scheme relied on ‘founder members’ regulated and limited-equity stake, and a and a need for new legislation. from the GLSHA board, it was developed stake that is sold freely in the market. along co-operative principles. Non-equity co-ops – 2.4 There was an educational programme, Canada and Denmark Shared Ownership prospective members were involved at an Canada and Denmark have non-equity Co-operatives early stage, and a consultative committee co-ops. Canada is of interest because of was formed before the first management its system of mixed-income groups, in Another way of bringing the advantages committee was elected in 1980. They which government subsidy goes of owner occupation and renting soon became self-managing, opting to directly to low-income co-op members. together is to combine them in one hire their own co-op manager rather than This provides the kind of mixed scheme, but without mixing them rely on managing agents. That the community that tenant co-partners together. By the late 1970s, it was clear subsequent history of the co-op was envisaged, and also the skills needed that the co-ownership experiment had uneventful is due in no small part to the to run a co-op. run its course. Harold Campbell, the quality of this manager, but also to some director of the Greater London highly skilled committee members. The Interestingly in the 1980s, the Co- Secondary Housing Association fact that members own 50 per cent of operative Housing Federation of British (GLSHA), began to develop this option the equity means there is no problem in Colombia developed the Community as a new, and less-complex, alternative to generating an interest in governance Housing Land Trust Federation (CHLTF), co-ownership. among the members. which became a non-profit charitable society in 1993 (Lew, 2001). CHLTF Glenkerry House is a tower block in the The Conservative Government of the has since been developed as a East End of London that, like the more time was not prepared to back this mechanism to establish a foundation for famous Trellick Tower, consists of an model, because the model did not allow the permanent affordability of co- immense 14-storey wall of flats, at each co-op members to staircase to full operative housing in Canada. Most end of which is a separate lift shaft. individual ownership. GLSHA developed Canadian housing co-ops lease land Unlike much of the high-rise and a staircasing co-op model which, when from government bodies. These lease systems-built housing of the post-war the agency was wound up, was taken agreements typically have rental period, its design and building are of good over by CDS Co-operatives. At this point escalation clauses based on the quality. There are four four-bedroom the agency had developed 700 units of percentage of market rents in the area. maisonettes on the ground floor, 17 one- accommodation in shared ownership co- bedroom, 45 two-bedroom and 12 three- operatives. The problem with the model In the 1990s, for example, land price bedroom flats; 78 flats in all. in conventional applications (e.g. as rises in Vancouver have led to large practiced by housing associations today) rental increases for co-ops which have in Researching the co-op in 1983, Birchall is that through staircasing, as the turn impacted upon affordability. Also the called it a “friendly but reserved members gradually buy out the co-op government leases typically run community”, in which there was no interest, they can correspondingly lose a concurrently with the building mortgage problem in generating enough interest commonality of spirit, the commitment to for the co-ops, so expiration of the among members, and which was leases threatens the continuity of

21 Common Ground dwellings in the mutual sector should which the co-op is financed. Because percentage rise each year. The practice government priorities be different when co-ops have been set up under several varies between co-ops, but once the the leases expire. different mortgage and tax subsidy formula has been set, individual co-ops regimes, all with different requirements tend to stick to it; a lot of dissent is Since 1996, the housing co-operative as to affordability, it is hard to generalise caused if the rules change for new sector in British Colombia has steadily about how the initial equity stake is members. transferred properties to the Community revalued. Land Trust established with the support In summary, there are three basic of the provincial government. The Many California co-operatives, for categories of co-operatives in the US: charitable status of the CLT though example, use a limited-equity formula zero equity, limited equity and market means that the housing units developed that allows shares to appreciate at a rate rate. The middle group is the most are restricted for the use of low-income of 10 per cent of the original value of the common and, within it, many different households only. In recent years a Land shares per year. Many others tie the rate formulae are used to set the resale price Trust Development Fund has been of share appreciation into changes in the of shares. established to acquire additional land by consumer price index. the purchase or donation for the CHLTF As well as formulae written into bylaws, to establish more and more housing co- The conversion of public housing to a co- there are two indirect ways in which the ops on the basis of permanently op in Nashville, Tennessee offers another price of shares is restricted. First, many affordable ground leases without example. Here, the prospective member co-ops have an income test restricting escalation rental clauses (Merkley, 1996). has to pay a non-refundable membership applicants for membership to people on fee or working capital contribution of low incomes. Co-ops in New York Denmark is of interest because of the $100, plus a subscription price of $400 classed as Housing Development way in which the co-operative form has based on the value of the occupancy Finance Corporations (HDFCs) have a influenced all non-profit housing, so that agreement. If a member wishes to leave, certificate of incorporation specifying that it is hard to distinguish between co- the board has the right to purchase the they must provide housing to people on operative and public-benefit housing. membership at its transfer value. This is low incomes, with resale restrictions and the sum of the initial subscription fee, income guidelines. Even when these In order to qualify for government support, plus the value of improvements, plus the guidelines expire, the low-income all non-profit providers have to establish amortised element19 of the principal of provision continues. This automatically each residential project as a legally the loan which was paid off by the co- means the shares must be within reach independent entity, under the direction of operative using the payments made by of low-income people. Second, co-ops a management council, composed entirely the departing member after the first can have a ‘no mortgaging’ rule. For of residents (Richman, 1995). Residents three years of occupation, plus the value instance, in the Brooklyn co-ops set up also have the power to oversee election of any sweat equity contributed (Rohe 70 years ago by the Finnish community, a of the majority of representatives who in and Stegman, 1995). resale restriction of sorts is achieved by turn oversee the parent housing the co-op refusing to sign a recognition association. Associations fall into one of In New York, the price of shares in agreement with the bank. Without this three types: co-operative societies, whose limited-equity co-operatives currently restriction shares could be mortgaged, as shareholders are prevented from realising ranges from $250-$2,500. A group of they are regarded in law as real property. appreciation on their membership share, new co-ops that has recently taken over This is a ‘natural’ way to restrict prices. self-governing associations whose power the apartment blocks has an entry price is devolved from local government, and of $250 for existing tenants, which There have been problems with the joint stock companies, where outside recognises the ‘sweat equity’ they have limited-equity arrangement. If share ethical investors limit their return to five put in over the years to keep up the prices match prevailing market rates per cent. Resident democracy works in all buildings. When someone sells, the price locally, most co-operative shares will be three forms. will be $6,000 for small and $9,000 for unaffordable for low-income houses, larger units. This is fixed for the first which is why resale limits are placed on Limited equity stake co-ops – the US three years, and then it will be revised the transfer value of shares in limited- The limited-equity stake is found primarily upwards on a national scale based on equity co-operatives. in the US. Limited equity co-operatives movement in median incomes. restrict the resale value of shares by If prices fall far below those rates, there is applying a formula established in the co- Other co-ops are more flexible, with just a problem of enforcement, because op’s bylaws. The co-op often has the an income restriction and the co-op payments can be made ‘under the right of first refusal to buy the outgoing deciding on the formula. Here, the only counter’ by an incoming member to the member’s share, and the right of first check on prices is how much people can outgoing one. This is the principal reason approval of prospective members. This raise in personal loans; the low-income why co-operatives buy back the shares of form is generally affordable because the rule restricts what people who are buying departing members and why they are cost of membership shares is low. On into the co-op can afford. The price in being developed on CLT land. The former leaving, a member receives the original these cases will be much higher than in prevents under-the-counter deals. The share, plus the cost of any improvements city- or state-subsidised co-ops and more latter prevents the co-operative itself from made, plus some limited appreciation as like what one would pay as a down becoming lax in enforcing its own limited- specified in the original agreement (Rohe payment on a condominium. Some have equity restrictions. The CLT provides a and Stegman, 1995). strict formulae prescribed by the state, second line of defence for affordability. consisting of two elements: amortisation The formula for increasing the value of of the mortgage and investment in If the share price goes higher than shares depends on the program under capital improvements. Some have a fixed market rates, outgoing members can be

Common Ground 22 stuck and unable to move. For instance, because the other factor is the monthly be, because lenders prefer to lend to in San Francisco the shares of federally charge, which is low and good value. condominiums and it is difficult to obtain sponsored limited-equity co-ops became There is individual greed, but if members a share loan. very expensive. The only people who converted or sold at market value they could afford them were immigrants from would end up paying much higher In Sweden, people cannot own an Asia who came to the area with large monthly charges. apartment in a multi-occupied block sums of cash, but who had trouble without belonging to a co-operative; the finding employment and had little income. However, property prices are spiralling law prohibits individual ownership. Co- upwards in some areas; on the Lower operative tenure, bostadsratt, is usually A different problem was experienced in East Side apartments now sell for translated as ‘tenant ownership’, Sacramento, California. In that case, the between $400,000 and $1 million. somewhere between tenancy and market did not keep up with the formula. Considering that co-op members have ownership, and fully enshrined in law The shareholders were very upset and did paid $1 for their building, this is bound to (Svensson, 1995). Under the Tenant- not know what to do. They would not sell become an issue eventually. Owner Act of 1930, all other types were their shares below the formula price and prohibited, though existing ‘rental’ (non- felt trapped. Needless to say the co-op It has already appeared in one set of co- equity) co-ops remained. This Act was not a happy place. In Los Angeles ops. The ‘Mitchell-Lama’ co-ops, so- established the credibility of the co- co-operatives the situation is stable, and called because of the legislation under operative form of tenure. equity share increases are more like which they were founded, comprise half receiving interest on the share price as if of all co-ops in the US, including the For more than 40 years, HSB Bank, which it was in a savings account. They pay famous ‘Co-op City’ in New York. They all specialises in housing, maintained a simple interest; if it were compounded had zero equity, with an entry fee of system of transfer and price control. this would cause affordability problems $500 per room, and with no increase in People had to be on a waiting list of the for incoming members. value over time. Then the restriction regional HSB society to stand a chance of period ended and they now have the getting a co-operative flat. Transfer prices To what extent do the members opportunity either to go back into were based on initial payments and individually have an incentive to break up regulation with tax abatement or to ‘go amortisations. By the 1950s, these the co-op to make speculative gains? In market’. How they decide depends on arrangements began to be criticised, but New York there are currently no strong their leaders. Many have decided to HSB managed to resist change until pressures to break up the co-ops for uphold co-operative values and maintain 1969, when market transfers were finally personal gain, for four reasons. First, their limited-equity status. Tens of allowed. Riksbyggen made the same there is the low-income rule, which thousands of units have been lost; they decision around the same time. Until restricts the type of person who comes turn into market-value co-ops and sell for 1973, buyers and sellers were informed of into a co-op. Incomes average around $450,000 instead of for the $5,000 HSB’s recommendation on price, and then $10,000 in new co-ops and $15-25,000 incoming members would have paid the were allowed to agree a market price. in more established ones. In co-ops that limited-equity co-op. have Section 236 funding,20 members The lifting of price controls was done in whose income goes above a ceiling have Market rate co-ops and tenant the context of a market in which supply to pay an extra monthly charge. Second, ownership co-ops – the US and had overtaken demand. It became more there are legal restrictions. New co-ops Scandinavia contentious when prices began to rise. tend to be dependent on the consent of In the US, Norway and Sweden, market From the mid-1980s, banks began to a bank, or of politicians, who can write in rate co-operatives operate. Here, accept a tenant-ownership certificate as restrictions. Restrictions are written into shareholders may buy and sell their collateral for long-term loans. This the bylaws, so it takes a two-thirds shares at full market value. In the US, contributed to the soaring price of co- majority to change them. Also there is a prices are similar to those in operative flats. Low-income households regulatory agreement that comes with condominiums. The co-op is financed were priced out, especially in central the mortgage, or tax abatement, or a land through mortgages with interest rates at Stockholm and other big cities. disposition from the City. It can also be market level. There are no restrictions on written into the deed for the co-op. So in the resale price of members’ shares. The HSB and Riksbyggen have begun to practice there are numerous most successful market rate co-ops are develop more specialised housing for the opportunities to write in restrictions. ‘senior co-operatives’ for people over 55. elderly, young households, and so on, but There has been considerable abuse – Government-guaranteed loans are used have not been able to reinstate price not by co-ops but by other agencies to reduce the cost of finance, and mainly control. Some commentators think it is receiving subsidy – so lenders are now the development is done by private now a commodified tenure, similar to building in many more restrictions. developers. The buyer signs a purchase owner-occupation (Lundquist, Elander contract and makes a down payment. and Danermark, 1990), but others see it Third, the number of sales is low – less more as a tendency away from the than one per cent yearly. More frequently, It takes about a year to reach a point ‘social’ aims of the past (Svensson, units become available because people where 90 per cent of units have been 1995). The high price of co-operative die, so there is not much pressure on sold, at which time the co-op comes into housing has recently led to a new resale values. If the co-op members were existence as a democratic, member- interest in rental co-ops, and new ones more transient, it would be more difficult, controlled body. Unsold units remain the have been established on the basis of but as it stands there is time to build up responsibility of the developer. Senior co- trial legislation. But political support for a co-operative spirit, through education ops have been developing quickly in them has been patchy, and they remain and training of members. Fourth, the many parts of the US. However, it is no marginal in the housing market. share valuation does not cause trouble, longer as popular an option as it used to

23 Common Ground In Norway, a similar process of gradual quality private renting, and speculative differ in their interests. A co-op is much commodification of co-ops has occurred. conversions of rental housing to more likely to succeed if there are no In the early post-war period, there were condominiums. serious differences of interest between strict controls on the exchange of second members. It does not seem too difficult hand co-op dwellings, with deposits for There is one area of similarity. The US to find ways of preventing the break up new entrants set at an initial price plus military is developing limited-equity co- of a co-op for private gain. Lenders can some allowance for inflation. During the ops to house its personnel on army and attach conditions to their loans, but as 1970s, a widening gulf between owner- air bases, using low-cost land it already the American case illustrates this can occupiers and co-op members led to a owns and has prepared. The idea is that cause problems when the mortgage black market in sales of co-op dwellings its personnel, who currently experience period is ended. It is better to lock the (Kintrea and Munro, 1985). Some problems in the conventional housing assets into ownership through a independent co-ops dissolved in order that market, will be able to live in a co-op, and community land trust, taking a freehold their members could to sell on the open when transferred to another base, find a interest and then issuing leaseholds. market. In 1981, following the election of similar co-op to transfer to, thus saving However, leaseholders now have strong a Conservative Government, price ceilings on transaction costs. rights to enfranchise, and any scheme were adjusted upwards substantially, and must be exempt from the Right To Buy then entirely abolished everywhere except In general, though, the lessons to be the freehold. Alternatively, a publicly in Oslo and 11 other areas. learned from the US are that the more accountable agency could take out a limited the equity, and the more ‘golden share’ in the co-op to prevent its break up. 2.6 transparent the method by which it is revalued over time, the more likely the Evaluation and Key Lessons co-op is to succeed and to remain For key workers on middle incomes, the for a New Tenure Model in affordable. It is better for low-income limited-equity model does not offer the UK workers than for those on middle enough of an opportunity for the incomes, but with the advantage over increase in equity needed eventually to The experience of limited-equity co-ops non-equity co-ops that it takes some attain owner occupation. The in Britain is not a positive one. In tenant financial commitment on the part of Scandinavian tenant ownership model is co-partnership, tenants gained five per members, and provides a ‘nest egg’ if much more relevant, or rather, the model cent interest on their shares, and were they leave. as it used to work before market value able to sell them back to the society on sales of the ‘right to occupy’ were leaving. But because the shares were not The problems with the US co-ops can be introduced. The Scandinavian model revalued in line with the market value of overcome. For instance, the simplest way could be made to work in the UK under the homes, there was a growing to raise the cash needed to buy these conditions: mismatch between the book value of the someone out is to have the new member shares and their value to property pay over the full amount. But this causes a) A mother-daughter structure (see developers who wanted to take over the affordability problems. In co-ownership Glossary) of financing and developing society. Members of Ealing Tenants were this meant some societies having to schemes is set up; offered £24 per £10 share by the remortgage in order to remain affordable. property trust that gained control. In co- This put a burden on existing members. If b) Education of prospective members in ownership, the initial share was set low, there is a source of loan finance for what it means to be a co-op member; and it took a long time for members to incoming members, the better option is build up the ‘premium’ that they could to have the new member pay out the old c) Members are asked to pay a take away with them. The formula for one. It insulates the society’s own significant sum for their ownership calculating this was too complicated, and finances from the buying and selling of share, perhaps in the region of 10 the payments led to some societies memberships. per cent of average local house having to borrow substantially just to pay prices, and certainly not less than out departing members. Alternatively, the society could arrange £5,000; for mortgage funds, which could increase Limited-equity co-ops in the US are not a or decrease so that the co-op could buy d) The payment to departing members very good test of whether such a form out a departing member and finance a is based on a clear formula that would work in the quite different loan for an incoming member. The tracks market values but without circumstances of key workers in the UK. revaluing of shares must be transparent becoming unaffordable; They are much more like our own non- and simple. The easiest method would be equity co-ops set up in the 1980s under to shadow average earnings or a retail e) Members ought to be able to access the Housing Corporation in England and price index. The democratic process in a some of their equity without having to Wales, and they are even more similar to co-op is not designed to handle this sort leave the co-op, perhaps by being the community ownership co-ops set up of issue well, and because some able to withdraw interest or dividend in Scotland to take over public housing members will be intending to stay all payments; estates. No references in the US their lives in the co-op while others literature could be found to the policy expect to leave sooner, members will f) The legal form of the co-op is clear intent that these co-ops might be a therefore have different incentives. and not subject to costly litigation or stepping-stone towards home ownership. challenge from related property laws; For dwellers, they are an alternative to Hansmann (1996) argues that there is a private renting, squatting or direct correlation between the existence homelessness. For policy-makers, they of co-ops or mutuals in any business are an alternative to abandonment, poor sector and the degree to which members

Common Ground 24 g) There are strong and lasting it had not been for the opposition of the safeguards against breaking up the Conservative Government of the time, it co-op for private gain. might have become the model for a new co-operative form to replace co- However, there is a model that may be ownership. It could still do so. more attractive than the Scandinavian one and one much closer to home. The community leasehold/equity sharing model of Glenkerry House fulfils all the relevant criteria. It locks equity into the property permanently, in two ways. First, the freeholder can specify in the terms of the lease that the co-operative may only grant up to 50 per cent of the equity to its members, and if desirable, that this must be revalued in a way that lags behind house price inflation. This means there is no incentive to demutualise the co-operative.

Second, the individual member is a sub- leaseholder for 50 per cent of the equity, and also a co-op tenant on a monthly tenancy for the other 50 per cent. This makes the co-op ineligible for leasehold enfranchisement. Also, since members are getting a market return on their equity, as well as saving on management costs by being in a co-op, there is little incentive for them to try to buy more equity.

The freeholder can be any public interest: a local authority, hospital trust, or community land trust. To set up the co-op, a promotional and development agency is needed, such as CDS Co- operatives in London. The co-operative members are incentivised to participate, and there are no major differences of interest between them. Because the 50 per cent equity share is simply bought by an incoming member from the outgoing one, the co-op does not have to get involved in remortgaging, and so there is no conflict of interest between those who stay a long time and those who intend to leave soon.

There is no complicated formula for revaluing equity – this is revalued in line with the market. Basing the valuation on the opinion of a third party such as the district valuer has the virtue of making for a cautious valuation that evens out the peaks and troughs in the market. Of course, co-op members will need to take out a mortgage on their equity share, and can either borrow from conventional mortgage lenders or from a local investment agency. The question of how to provide low-cost finance is a separate one that will not be dealt with here.

Glenkerry House has been working successfully for the past 24 years. It has not deformed into individual ownership. If

25 Common Ground

3. Community Land Trusts and the Shared-Equity Co-operative Model

In any sustainable new model of tenure, equity appreciation, to enable the remain and build their life in the area. the challenges are financial, legal, fiscal occupier to gain a foot on the and, first and foremost, customer demand. housing ladder. Property investment models The proposals set out here have been At a time when the stock market has developed with a view to ensuring a A number of options have been seen three successive years of robust model design for piloting in high- considered and rejected as not meeting decline and interest rates are cost areas of southern England and these principles: historically low, there has been ensuring that all these considerations are renewed interest in property as an met as comprehensively as possible prior a) Reduced standards investment (although the end of a to trial of the model – particularly in view period of rapid property inflation is b) Property investment models of the weaknesses previously experienced not the ideal time to begin). A in existing co-ownership models. c) Shared ownership number of financial models can be devised which could be attractive to d) Co-ownership societies investors, for example: 3.1 e) Capital subsidies Co-operative Homeownership Seeking investors willing to finance land Model: Core Principles and Reduced standards purchase for a future return. In this Options Rejected The minimum size generally acceptable model, housing for rent is built on the for a one-bedroom flat is 45m2. Housing land and rents repay the construction A co-operative form of low-income can be provided at lower space cost only, over a period of 15 years. After homeownership has been investigated standards, for example 30m2 studio flats 15 years the investor can realise the land because: or shared housing which requires around value through outright sale of the homes 25m2 of space per person. An example as they are vacated or sell the whole a) Historically, mutual housing forms investment. The overall return on is a 15m2 bedsitting room, which has use have been good at addressing investment would reflect the rise in value of a kitchen/lounge, bathroom and w.c. market failure; of the property and not just the rise in shared with three to five others. In land values. It produces rates of return at shared housing of this kind, there is a b) If managed collectively and over twice the level of inflation, a useful further cost saving on fittings. Studios or corporately, costs can be controlled; hedge against other investments. bedsitting rooms in shared flats can be c) Limited or restricted equity housing built and let for cost rents within the Seeking investors willing to rely on rent co-operatives allow for equity stakes means of key workers (Appendix 6, plus rises in property value to provide a to be built up and repaid under a pre- Annex 1c indicates affordability). return. Realising the return, however, set resale formula; inevitably means outright sale when a Low space standard housing is best vacancy arises so the tenure disappears d) Tenure can be kept simple, with low suited to students or those undergoing in the medium term. transaction costs on entry and exit training before taking on a permanent through a repairing lease, which can job. The first experience of many single Both these models rely on providing the be assigned. people is similarly of a room in a house investor with the benefit of capital shared with friends or acquaintances or returns or repayment. This creates Consideration of viable co-operative family. models for key workers has been based conflict with the core principle in (4) above: the aim of enabling the maximum on four core principles: It is important to ensure that enough equity stake to be built up by the shared accommodation is available. occupiers. 1) The housing provided may not be for Student housing in particular can the short term and so must conform otherwise exert pressure on the market, Shared ownership to normal standards; increasing the value of cheaper properties Shared ownership has been a successful as shared housing for rent and taking tenure, which has usefully met a gap in 2) The cost must be related to the them outside the means of those seeking the market. Its most common form relies means of key workers: no more than to purchase outright. Both RSLs, such as on Social Housing Grant (SHG) to meet 30 per cent of net salary for those Kensington Housing Trust, and private the cost of the part retained by the RSL. earning under £16,000, rising to a companies like Unite, work to meet this RSLs have made large windfall surpluses maximum of 35 per cent for those need. In university towns especially, from shared ownership homes when earning above £23,000; providing enough accommodation to further shares are purchased if the avoid additional pressure on the housing 3) Any subsidy provided should be homes have increased in value since first market is an important goal. locked in for the benefit of future sale. The SHG is in effect an interest- residents; free loan for the RSL’s share of the Housing of this kind is not considered equity. Often, shared owners arrange to here, however, as the aim is instead to 4) The payments made by the occupier buy the RSL’s remaining equity to meet the needs of those who have taken should generate an equity stake, achieve 100 per cent ownership up employment and may well wish to based on both capital repayment and simultaneously with onward sale rather

Common Ground 26

than just selling their existing share in Diagram 3.1 The Proposed Model the property. In a rising market, the valuation that determines the price of the remaining share may well be below the price that can be obtained on onward sale. This is either as a result of the lapse of time or simply because it is possible to find a buyer willing to pay a price above the figure assessed by the valuer.

Conventional shared ownership also requires payment of rent on the RSL’s share of the equity. In some cases the rent charged to cover high management, maintenance, and loan costs has meant that outgoings are not sufficiently lower than outright sale to create new opportunities for the less well off. In very high price areas, shared ownership may also fail, as even property sold at 50 per cent of its value can remain unaffordable for lower-paid key workers.

Shared ownership has a place, therefore, but does not lock in the subsidy for the value homes available to key workers. It opportunities for low and moderate- benefit of future occupiers. It also may then be a requirement that resale is income households. This model would be requires relatively high levels of social based on the same percentage of value, a Shared-equity Co-operative system, housing grant, the long-term benefit of with the remaining equity held by the which protects the land equity or other which accrues to RSLs rather than housing provider. Depending on the subsidy indefinitely. It would be a co- occupiers. nature of the provider, this may be a operative which holds the equity in the stable form, but it could run the risk that buildings and issues tenancies to the Co-ownership societies the provider would decide or be required residents who are also its members, and Co-ownership was a successful way of to realise the investment by releasing the hence its managers and owners. Through meeting the needs of middle-income equity it holds at some future date. their ownership rights, residents would households in the 1960s and 1970s, build up an equity stake in the property, which they can take with them when they with option mortgage tax relief as a 3.2 source of subsidy to make it affordable. leave. In this context, the Mother and Much of the stock has been lost, Shared-equity Housing Co- Daughter Society relationships in the however, as a result of the right to sell; operatives – Proposed Model Swedish system can indicate how best to existing owners benefited from windfall and Key Assumptions structure the legal relationships. capital appreciation. Once the windfalls were taken, the housing reverted to Affordability will depend on keeping The following aspects would feature in market cost, as the model includes no costs down. Appendix 6, Annex 1 shows this new fully mutual model illustrated in mechanism to protect the tenure’s affordability compared to housing costs Diagram 3.1 (there is a full description of affordability for the future. Having said that are reduced in various ways. It core elements and rationale in Appendix that, some of the co-ownership housing shows that affordability is only possible if 3) of affordable homeownership: provided in this way does still exist and subsidy is broadly equal to the value of some of the principles of mutual the land and is combined with low-cost a) A Community Land Trust (CLT) is set involvement in management and repair finance. up and takes ownership of land; seem to have proved durable. The main problem with the British Co-ownership The availability of both subsidy and low- b) The CLT holds any spare equity in Society model was that the equity share cost finance will therefore determine the trust to ensure long-term affordability. arrangements were not well designed, scale on which key-worker homes can be A standard model would be for the and the co-operative practices and produced. The model should lock in any CLT to be gifted land to provide this structures were not developed because subsidy for future occupiers and be equity but the model could work the model from Sweden was not adapted based on a structure which can secure using some form of subsidy which is properly. The stakeholders were the low-cost finance. used to buy land or by holding land developers rather than the tenant provided below value through a owners. To achieve this, a new UK tenure model, planning agreement or planning gain; which incorporates the key features of Capital subsidies the Swedish Tenant Ownership Co- c) A Shared-equity Co-operative is set One-off capital subsidies have been operative system and the American up, to which all occupiers will belong used, through reduced land cost or Community Land Trust system, offers an and which will let and manage the grants, to bring property costs down innovative new approach to establishing housing; below value and to make these reduced permanently affordable homeownership

27 Common Ground d) The co-op builds the homes under a leave. The net result is that the co-op, The model described here has been building licence from the CLT; unlike a conventional RSL scheme, focused on what can be achieved where would not move into a position where the land value can be used as the main e) On completion, finance is raised for there is additional equity to increase form of subsidy. This provides a readily the building cost (and any residual financial ratios of security. Security understood route to affordability in that it land cost) using a guarantee from the for its finance will always depend on is high land values rather than high Co-operative Housing Finance rental income and any retained equity building costs, which are the main Society Ltd, at rates available to held by the CLT, not on any increase obstacle. It also provides an alternative to social landlords. The CLT’s equity in retained equity; public land being sold to secure a cash would be required as security for use return, when it would make more sense to only on default, to be realized by a k) Payments by key workers are exchange the equity for a social return. 1 mortgagee in possession; indexed at RPI + /2 per cent which However, in practice the subsidy can take produces a surplus contingency fund. any form – that of a cash subsidy, free f) The key workers’ payments to the co- This fund might be needed for land, or land substantially below value as operative must first meet the cost of example for additional cyclical repairs a result of Section 106 planning outgoings: management, to maintain the property in future or, agreements. Where salaries are low or maintenance, insurance, services subject to a certain level of reserve, it values especially high, the land value such as cleaning, and a sum set could be used to provide mortgages alone may not be enough but, as the aside for cyclical maintenance to outgoing key workers; table in Section 6.6, Reduced land value including external painting; or other subsidy input, shows, it usually is. l) Internal repairing obligations lie with g) The scheme is set up on the the occupier so as to reduce running It is worth explaining why a percentage assumption of an average level of costs and help provide appropriate of salary is proposed as the basis for payment e.g. £100 per week. incentives. Other running costs are calculating the payment charged. Key- Residents will be required to make kept to a minimum by involving the worker housing is about housing people payments equating to 30–35 per cent residents in the management of who are by definition in employment and of their salary and, for viability, the repair and cleaning contracts; on salaries below, or only a little above, average level of payment (say £100) the average wage. Any subsidy secured must be achieved. To counterbalance m) The proposed tenure would take the needs to be used cost effectively: payments by occupiers at levels form of a lease which is assigned, so Outgoings must be affordable but at the below the average required to meet that the incoming tenant must same time subsidy cannot easily be the mortgage payments, there must purchase it from the outgoing one, justified to reduce outgoings beyond a be an equivalent group paying more eliminating void losses and keeping certain point. This means that the than the average. For example, if the sale and purchase costs to a housing is affordable, but at the same target payment is £100, and 32.5 per minimum; the aim would be that the time the subsidy is no higher than it cent (net) of a net salary of around process would be more akin to the needs to be. £19,000, this could be achieved if transfer of a tenancy than the three of the occupiers earn net conveyancing normally associated In the flexible model proposed, occupiers salaries of £15,000, £19,000 and with house purchase. will be required to make payments which £23,000 respectively. The greater the relate to their salary at the time they buy occupier’s payment, the greater the n) The assumption made for the model into the co-operative and which in turn equity stake that is built up: those is that key worker salaries for the are calculated as equivalent to loan paying more would therefore receive groups at which the scheme would repayments on a mortgage. The higher a greater share of ownership; be aimed are £17–25,000 in the payment the greater the equity stake. London, and £15–23,000 in the The percentage of net salary used here h) Residents may reduce their outgoings South West. Bringing housing costs is 30-35 per cent as described above. by taking over responsibility for down to an affordable level for those management, and for maintenance on these salaries requires a The saving achieved through resident and cleaning contracts; combination of reduced costs and control of services as compared to an low-cost finance. external manager is around £1 per week, i) When residents leave, they can take an £50 per annum per occupier. It would be equity stake. The maximum level of this In consultations in the South West, paid as an annual dividend based on would be a sum equal to the equity in administration and cleaning staff savings made in the account compared the property that has been repaid as a pointed out that their salaries are much to the budget. Because it is a relatively result of their payments, plus capital lower still, at around £11-£14,000 small amount, this seems a better way of appreciation in the value of the including overtime. For single people, providing an incentive. This approach is property they occupied based on their even these relatively low salaries take intended to provide further incentives for share of overall value excluding any them outside the scope of housing residents to take responsibility for equity retained by the CLT; benefit and they may be paying as much managing the housing effectively, as 50 per cent of their salary on rent. keeping it in good condition while j) The co-op makes the payments to The model will still work at lower salary keeping costs to a minimum. outgoing key workers by topping up levels: it simply requires more subsidy. If its total loan to the original level plus the salaries of the employees to be inflation, which ideally would include housed are much lower, the model will increasing the loan above the original require both zero land cost and additional level if a high proportion of occupiers subsidy on top.

Common Ground 28 4. Key Worker Housing Initiatives in two English Regions: Urban and Rural

Any potential new approach to meeting Action on the ground and needs than short-term requirements. Without the needs of key workers for housing Newham is about the fourth lowest cost better quality accommodation, retention must first assess the strengths and area of London, with only Barking and problems will worsen. There is little weaknesses of current solutions. Further, Dagenham, Waltham Forest and possibly accommodation from this source for for a new approach to be successful, it Greenwich offering cheaper house teachers with families. Most units have needs to be cost effective and to find prices. But even in Newham, the problem only one bedroom. Bynon described the robust ways of addressing needs not of a dire shortage of key worker housing accommodation preferred by most being met by current housing models. To is chronic and worsening by the month. teachers from an affordable housing discover where there might be a niche in There are fears that this process may scheme in this way. the market for a mutual housing model accelerate when its location and for key workers, interviews were regeneration developments, including “Middle class aspirations mean conducted in both London and the South Stratford and the lower Lea Valley, take that investing in property is one West with existing providers of key effect with the result that Shared of teachers’ expectations. I think worker housing and other bodies, which Ownership as a solution is likely to they would prefer two-bed could become development partners for become increasingly unaffordable in its properties, even if they are single piloting a new model. existing form. Newham Councillor Alec because their previous living Kellaway, Cabinet Member responsible conditions in the parental home Twenty-five organisations agreed to take for Business Partnerships and Access to were relatively spacious and this part in the research. They included Jobs and Training was very supportive of allows for either a lodger or the affordable housing providers for key the limited-equity co-op model and saw growth of the family unit with workers and/or potential development the attraction immediately of the partner and offspring. The rooms partners. Ten of the interviews were Community Land Trust mechanism to and particularly window sizes conducted in the South West and 15 in keep housing permanently affordable. He must be generous – pokey rooms London. commented “Newham has more spare are not attractive. Detailing will be land than most boroughs” and “I would very important. Quality says: ‘You Additionally several group sessions were be very interested in seeing how the are important and we value your conducted to explore in more depth the mechanism would work out.” contribution.’” Community Land Trust based mutual model and its regional or local Redhika Bynon of Newham’s Education Bynon felt from her experience with applicability. Two sessions were Department has responsibility for some of the more popular developments conducted in the South West and one in assisting teachers find local for teachers and other key workers London. The London event was accommodation. She described the crisis provided by Toynbee Housing conducted as a focus group in order both this way: Association, that a block development to feed back to housing professionals the with one- and two-bedroom units would findings of the research and to compare “The need for [affordable housing] be very popular, if it were spacious. In her and contrast the features of the mutual schemes is critical. Of the 2200 experience, teachers would pay £130 model with other innovative approaches teachers in Newham, we lose 500 per week for two-bedroom flats and currently being developed in London. each year. Forty per cent of those possibly up to £150 per week. She has who leave say that it is for trouble finding takers for properties at housing problems. There are £160 per week at the moment. Bynon 4.1 always a large group of young felt that a limited-equity co-op model that Current Approaches in London teachers, newly qualified, who could economise on costs would be and Interest in a Mutual Model come in at age 22 plus because attractive to teachers if it is “high quality there are enhancements offered and within their price bracket”. Interviews in London were pursued with to come here. Two hundred or so existing large-scale providers of key of these new qualified teachers Kate Eldridge, senior planner with worker housing and shared ownership, as come for two to three years, win Hackney Council observed that recent well as with local authorities, health spurs and then return to their research by Llwellyn Davies has found service bodies, and regeneration home area. Some would like to that London boroughs and the NHS organisations. Additional interviews were stay but cannot. They have to pay often lose staff after five to nine years of held with co-operative housing a lot for their housing and they employment, because of the inability of practitioners and a diverse group of think it is poor quality.” younger workers to find larger affordable developers of innovative approaches – accommodation for “having kids”. The each striving in different ways to tackle Newham BC has nomination rights for costs of this loss are enormous for such the key worker housing problem with teachers on 60-70 rental units with well-trained and experienced staff. creative intermediate market solutions. Peabody Unite, Toynbee Housing Most of the interviews were in East Association, Boleyn and Forest and a few Jakki Moxham, Chief Executive of London with a view to the potential of smaller RSLs. But according to Bynon, Springboard Housing Association, the Thames Gateway. this housing is frequently too small and, commented that the Association uses as social housing, does not meet more shared ownership as a mechanism for

29 Common Ground helping people in diverse circumstances accommodation. Thus in the Catalyst police don’t want to live near of need. They use it to help older people group, it complements the work of Ealing police stations. Where the fire in serious disrepair situations and also Family Housing Association and fighter chooses to live is very for mortgage rescue following marital NorthCote, which specialise in shared much dependent upon their breakdown or unemployment, to help ownership. KHT has developed its partner’s income.” those in debt and who are equity rich and portfolio by taking over old nursing cash poor to avoid being evicted by property from the NHS and redeveloping New Solutions to key worker housing becoming shared ownership tenants. the housing on site. Mike Youkee, a former Development Moxham is very interested indeed in co- Director of Ealing Family Housing housing projects like the Danish model in Parkside Housing, their cluster flat Association, has developed a powerful Stroud. In particular, the Association model, is based around two- to three- approach to providing more substantial would like to pilot a project for women in bedroom cluster units where tenants and permanent key worker housing. The London. Springboard also has some land share a kitchen but do not share living company he has pioneered, Noah, was in Newham which could be deployed for space or bathrooms. The units can be founded in December 2002 and is the a CLT and mutual housing pilot. developed and let for £90 to £100 per first Trades Union Housing Company in week per bed space. However with Britain. The project backers of the Rachel Power is the Human Resources rapidly rising prices in London, the venture include the TUC, Unison, the Manager at Richard House, a Children’s construction contracts have been Greater London Authority (GLA), and the Hospice in Newham. Assisting newly fraught with challenges to control price Britannia Building Society. appointed staff to find affordable housing inflation problems prior to completion in the borough is the bane of her life. and letting. The company is a non-profit company Some help has been provided by limited by guarantee with four TUC- Peabody Unite with studio cluster flats The main customer for these flats is the appointed directors, four public sector with shared kitchen and shared lounge NHS, but KHT also provides employer directors and three directors facilities. These cost around £340 per accommodation for the London Fire drawn from the ‘great and the good’. month including Council Tax and utilities. Service and Transport for London. The Power felt there was a real need for flats are let to single people as The housing model is a shared bigger properties, if possible with more temporary accommodation when they ownership system based on very simple privacy, and was attracted to the co-op come to London. The tenancies are rules. Key workers take a 50 per cent idea to keep costs down. shorthold and rent payments are shared ownership stake and purchase deducted from salary. The additional equity units yearly at “Balancing privacy with the cost accommodation is tied to a public sector incremental steps of one per cent up to a of building and therefore the cost job and the maximum time period maximum stake of 80 per cent. The to the key worker [is allowable is normally 12 months. rental levels are based upon salary levels fundamental]. A new build should Paddington Churches and London and with 30 per cent net salary payments for not have a corridor with just Quadrant are providers of similar bed those on £20,000 per year ranging up to accommodation off like old- space units to public service employers. 45 per cent net for those on incomes of fashioned student £40,000 per year. These rates are fixed, accommodation. I think a shared Gwyneth Allen, Business Development though, so that, as pay increases year on kitchen is ok, but a shared Director of KHT, liked the limited-equity year, the fixed percentages decline. shower is yuk! A co-op for co-op model as there is clearly a deciding about cleaning chronic need for more permanent To be effective, the system relies on communal areas, lighting, etc. is accommodation. Many nurses move on discounts or subsidies, so that nothing is good……Key workers with from the cluster flats to shared private built that costs more than 72.5 per cent families will need two bedrooms sector rental or purchase housing jointly, of full market value. Britannia Building and more.” but at this second stage, overcrowded Society has agreed to provide mortgages accommodation is equally only a short- to shared owners, and UIA, the insurance Kate Eldridge commented that, for these term solution. partner of Unison, will provide insurance reasons, the Peabody Trust was services at specially discounted rates to experiencing difficulty in some places in Kate Eldridge of Hackney BC key workers. The scheme relies upon letting cluster flats. commented that the attitude towards mortgage protection insurance to be paid cluster flats varies depending on the by partner employers. Thompsons Kensington Housing Trust is part of profession and she raised concerns Solicitors have designed a cost effective Catalyst – the Housing Group that about “key-worker ghettoes”. conveyancing service. includes Ealing Family, NorthCote, and two other smaller housing associations. “The new housing boards are As Youkee points out, demand for shared Catalyst includes some 8,000 units of taking a regional approach and ownership massively exceeds supply at social housing for rent, over 2,000 units this may help get round the key present with “40,000 plus applicants for of shared ownership and an additional worker ghettoes. There is a need the 1,200 shared ownership units built” 1,500 units of cluster flats, which have for key workers to be integrated yearly across London. Noah was been developed for key workers. into the community, rather than designed on the assumption that clustered. Whereas health property will be developed through Kensington Housing Trust (KHT) workers want to live near the Section 106 agreements and not require specialises in cluster flat development hospitals they work in, teachers Housing Corporation subsidy (though work, some hostel space development don’t want to live near the they may choose in future to register but does no development work for family schools where they work and Noah as an RSL). Charitable status is

Common Ground 30 also being explored, as is the possible Noah’s Ark will either commission or London. Over 60 per cent of the co-op idea of mutual status. To limit establish a property management members are in work and Coin Street demutualisation and enfranchisement of company to provide a professional but provides housing for many key workers the unsold equity, Noah is considering low-cost housing management service to including nurses, teachers, fire fighters the new Community Interest Company the tenants. and the staff of Transport for London. structure proposed on 26 March 2003 by Government for social enterprises Another system under development by Christine Czechkowski, Coin Street’s (see Glossary). Peabody is a form of modular Director of Housing Service was very construction being designed by John attracted by the limited-equity co-op Sher Khan, a fund manager with Prewer, a housing systems engineer with model. She advised that Coin Street is Marathon Asset Management (though Spaceover. This approach tries to blend planning four new developments on their the project is not linked to this two housing needs in London, on the one site over the next few years. Two of investment company in any way) has hand that of key workers and on the these sites could be for key workers, and developed a second interesting approach. other hand that of business visitors to include a 30-storey tower development Khan’s motivation has been to develop a London. The template here is drawn from with some 200 units. This is conceived non-interest-based solution for key the huge success of Extended Stay as a mixed development of one- and workers from the Muslim community. He America, the fastest growing hotel firm in two-bedroom flats – including par value has been dismayed at the struggle his the US with an annual average rate of co-op rental, private sector rental, and sister, a teacher in Newham, has had in growth of 21.3 per cent. The hotel’s cost rental specifically for key workers. finding a house she could afford. ‘unique selling point’ is based upon a Czechkowski pointed out that they hope two-room hotel suite system with shared to put this scheme out to an architectural Coincidentally, his solution, a Property workspace between the rooms. design competition soon. She could see Unit Trust company called Noah’s Ark potential for a limited-equity model to Ltd, has a similar name to that of Youkee. Prewer has taken this idea and given it a assist with the key worker element. Based on the Islamic finance principles London ‘key worker’ twist. In Prewer’s of murabahah (cost plus) and approach, Peabody collaborates to Further interest in the key worker model musharakah (risk sharing), using develop the two-room system with came from Peter Elia, chief executive of institutional funds, Khan believes another commercial organisation, but West Ham and Plaistow New Deal for significant economies can be made. with the partnership yielding one Communities in Newham. Elia is a permanent key worker room and one chartered surveyor working to develop In practice, the Property Unit Trust buys extended stay business visitor room – three Community Resource Centres property and gives a cost mark up of say both sharing a workspace area. With a (CRCs) in Newham. These are mixed 10 per cent. The property portfolio is modular design, each unit could include a developments anchored by Primary then unitised. For example, a property kitchenette, bathroom and studio with a Health Care Trust objectives and developed at £100,000 with a £10,000 sofa bed. Good design can readily halve involving mainstream and non- mark up will be sold at one per cent units the typical floor area for these units. The mainstream public services on site such of £1,100 (or even lower at £550 each). key worker accommodation rental would as a GP surgery with a nursery, a Through rental payments, tenants thus be only 50 per cent of the cost of the pharmacy, a job centre, and a mental buy units and acquire homeownership extended stay rental. health service. steadily. Higher monthly payments can accelerate house purchase. Potential sites for limited-equity co-op Elia has secured outline planning developments permission for the largest of the three In practice the system resembles hire The outline tenant ownership co-op CRCs on a site opposite Plaistow tube purchase but the main difference is that model based on a CLT was shared with a station. The proposals include a GP under hire purchase the final payment number of organisations interviewed. practice, a pharmacy, a Youth Service conveys ownership, while under the Strong interest (as in the South West) facility, and a community education Noah’s Ark system, purchase is was found from both the local authorities project with affordable housing above. incremental in a similar way to shared and the RSLs consulted. In London, two The planners have required the addition ownership. In this system, both tenants potential sites emerged from these of residential accommodation. The and the ethical investors in the Property interviews. objective of the Community Resource Unit Trust are part of a joint venture and Centre is to secure a lasting community thus equitably share both risk and Coin Street Community Builders is a facility for community benefit when the rewards, as the ethical principle of secondary housing co-operative and a NDC completes its work, so Elia was musharakah requires. community development trust in very attracted to the CLT ideas and to Southwark. Over the past 20 years it has the scope for including key worker Khan has discussed his system with a developed a most impressive mixture of housing, which is in very short supply number of banks and has raised venture co-operative housing, workspace and locally, in the residential element of the capital funds to develop the company. For amenity space on its 13-acre site on the development. significant economies to be made and South Bank. Its award winning rent levels to be brought down, he seeks redevelopment of the Oxo Tower has Elia suggested that it would be worth to lever in institutional property attracted international attention. To date, looking closely at this development once investment funds of £100 million. The it has developed 221 units of par value the model is available. In addition, the system has been designed so tenants co-op housing (see Glossary). Priority for NDC has an acquisition strategy locally can claim housing benefit in housing has been given to those living in and a building could be acquired circumstances of unemployment. north Southwark, Lambeth and those in specifically for a key worker low-income employment in central development. Any plans would need full

31 Common Ground community consultation but residents “There may be a role for social a great deal to meet both housing need were aware of accommodation shortages enterprise here. I would like to and improve the street environment and in the area for key workers, so approval see the co-operative ethos community safety”. for a mixed development should be advanced and this will involve a achievable so long as the community big commitment to training and benefits can be demonstrated. education. New co-ops will need 4.2 handholding. It’s amazing how Current Approaches in the Interest in the tenant ownership co- much you need to know about Rural South West and Interest operative model came from the New Deal housing legislation and in a Mutual Model for Communities (NDC) company on the regulations, Housing Corporation Ocean Estate in Tower Hamlets. Peter policies, insurance, health and The South West region is predominately Corbishley is a consultant to the NDC safety and employment law as rural with 80 per cent of the land in Housing Sub-committee. He has also well as how to manage on a agricultural use. Just over half the been active in housing co-op activity in democratic basis. Housing co-ops region’s population of five million is Tower Hamlets for the past 20 years and need professional input. based in rural local authorities (ODPM, is the current chair of the Bromley Street Secondary co-ops could help to 2003). Moreover, since 1981 the Housing Co-op in Stepney. This is one of organise building and population of the rural authorities has five, fully mutual housing co-operatives in maintenance. Co-ops also need grown by 17 per cent compared to only the borough with an asset base of £4 support and advice on how to win eight per cent growth for the region’s million. Corbishley advised that there is a arguments with funding agencies urban authorities. huge problem of teacher turnover in and how to conduct rent reviews. Tower Hamlets linked to housing costs. It’s also important that the co-ops Earnings in the South West are 10 per Similar problems apply to social workers own these secondary co-ops and cent below the average for Britain and NHS staff as well as other key not just through representation, (ODPM, 2003). The region has the third workers. Corbishley was interviewed with co-ops must be on it.” lowest unemployment rate and has the Steve Inkpen, Senior Housing Manager fourth fastest growing regional economy with Tower Hamlets Council, currently on Steve Inkpen found the Community Land nationally. In 2001, according to the secondment to the NDC. Trust element in the co-op model very ODPM, the new homes built were only attractive as a way of maintaining long- 70 per cent of the number needed. In Inkpen explained that Tower Hamlets term affordability. 2002, the average rural house price for supports a variety of low-cost the South West of £130,300 was the homeownership schemes for key “Yes it is attractive if it could be second highest for any region of England workers, from Shared Ownership to made to be more affordable to outside London and the South East Homebuy. The Council also allocates key workers than Shared (ODPM, 2003). The South West suffers some of its own stock for key workers on Ownership. The proposal under from the unfortunate combination of the the waiting list. In recent years, with your CLT model to enable entry second highest housing price levels rising house prices in the East End, for the low paid and better paid nationally and one of the lowest average Shared Ownership has become less and key workers alike sounds good – income levels nationally. less affordable. Two-bedroom flats in the especially if it can operate to borough, including former council build up equity at a different rate Contact was made with the Housing properties, sell for £160,000 and require of appreciation depending on Corporation to gather a list of key worker a minimum income of £40,000. income levels.” housing providers in areas of the South West ranging across South Augustina Nyamaah, Home Ownership Both Inkpen and Corbishley were keen Gloucestershire, Somerset and West Housing Development Officer with Tower to follow up on potential development Dorset. From this list, a range of bodies Hamlets BC, observed that lower entry opportunities. Inkpen summed up the was approached. Three high-cost areas levels of Shared Ownership, beginning at challenges in this way: in the South West were selected for 25 per cent, have been introduced to gathering key worker interviewees – make Shared Ownership more “Defining who are the key Stroud, Bath and Bridport. The most affordable. RSL developers have also workers is core. Availability of interest was gathered in Stroud and Bath subsidised schemes by paying legal suitable sites is a problem. There and North East Somerset (BANES) and costs and stamp duty as well as partly are not many bid sites in the these two areas became focal points for furnishing properties with white goods. borough – although there are the work. They need separate But despite this, Shared Ownership has many opportunities for in-fill consideration as each highlights the become too costly for most. In her developments. Political barriers – housing problems on the ground for key experience, even with the maximum councillors appear to have gone workers in similar but contrasting ways. equity loan, Homebuy is only suitable for about as far as they are prepared the better-off key workers and two- to go in terms of developing a Bath and North East Somerset income households. policy specifically for key workers, BANES was created following the rather than a general policy to demise of Avon as a rural district of Corbishley and Nyamaah could both see promote and support affordable Bristol. The new local authority includes the potential for a limited-equity co-op housing schemes.” both Bath City and the rural northeast model to work in Tower Hamlets. Perhaps region of Somerset. House prices in Bath this would be a good opportunity to Corbishley and Nyamaah felt that in-fill are comparable to many high-cost advance a new agenda. As Corbishley sites would be interesting and in boroughs in London and there is very put it: Corbishley’s view could work well and “do little available building land inside city

Common Ground 32 boundaries. What land is available is is currently developing solutions to larger group of workers. We are typically very steep and hugely expensive housing need with the Royal United. The attempting to target resources at to build on. cost and scarcity of land as well as those in greatest need, although, planning permission are huge barriers to inevitably, there will be a process According to BANES District Council, development. According to Stephen Holt of natural selection because of there are endemic recruitment problems of the Royal United Hospital, a half-acre affordability issues; for example a within the local authority because of the site in parts of Bath can command a worker on a low income, such as rising costs of housing both within Bath price of £2 million a porter, may not be able to raise itself but also in many surrounding rural the appropriate level of areas. According to Jane Shaylor in the Jane Alderman of the Somer Housing mortgage.” District Council Housing Strategy Unit, Group commented that Shared the problem is “grave” and impedes the Ownership is quite limited in Bath and at Creasey observed that, with the recruitment of “social workers, housing present “it is hard to make it work when application of strict definitions of key officers and administrative staff and interest rates are low. A combination of workers under the SHI, they have had many staff can only afford to work in rent and mortgage is too high, so it is not large numbers of enquiries from people Bath by commuting long distances”. an option.” With management charges who fall outside the definition. rolled into the rent element, Shared Sometimes their Shared Ownership One of Bath’s largest employers is the Ownership can work out to be more programme can help, but house price Royal United Hospital with some 3500 costly than full homeownership. rises in the past two years have caused staff. According to Stephen Hutt and According to Alderman, Homebuy or increasing problems in terms of Peter Eley, Round 1 of the Starter Homes similar equity share arrangements are affordability in most parts of the South Initiative (SHI) for BANES and other more viable but “need subsidised land” in West, from South Gloucestershire to North Somerset areas amounted to a order to be affordable. Poole. total of only 50 allocated places on the scheme and was totally inadequate. In Given the chronic need for key-worker Knightstone tries to keep lease any case, as an increasing percentage of housing, Somer is striving to balance this assignment costs as low as possible, nurses needing help are from overseas, need from employers with the needs of which it charges at £15 plus VAT and including from Spain, the Philippines, India people on the Council’s waiting list for solicitors fees. For staircasing, shared and Australia, SHI is of no use to them, social housing. Somer has various owners pay their own valuation fee and as foreign workers have to become pockets of land including over 4,000 solicitors’ costs. Knightstone of course permanent residents and this status garages – many disused. These does the same on its own side. Valuation cannot be applied for until they have particular sites need an innovative figures are generally only valid for three gained a minimum of four years of work approach for redevelopment to help months and, in a rapidly rising house experience in Britain. To find address rising levels of need. market, this can be an issue if the accommodation, many key workers share transaction is not completed in time. The private rented housing and compete with Knightstone Housing Association and required new valuation can be higher, university students for the available stock. Sovereign Housing Association were resulting in additional costs, but allocated funding for the Starter Homes discretion is used to extend the period On its site, the Royal United Hospital has Initiative in Rounds 1 and 2, a total of 51 where delays are not the fault of the 284 units of single room accommodation units being allocated to Knightstone in shared owner. with shared facilities and common areas. both rounds. Knightstone has 11,000 This is available for key workers at rents properties for rent or Shared Ownership Stroud District Council area from £250 to £270 per month – and it developed 51 units under the SHI Stroud was a former mill town, and inclusive of utility charges. Rental in both funding rounds. Knightstone housing was relatively affordable there agreements are for six months and can operates in Bristol, Bath and rural areas until about three years ago, compared be extended up to two years. Because of of the South West. Sue Creasy of with the expensive rural areas the shortage of other affordable Knightstone commented on their Round surrounding it in South Gloucestershire accommodation in BANES, some key 1 experience in trying to help NHS and the nearby Cotswolds. The town has workers have been in this property up to workers in this way: a high percentage of self-employed five or six years and it is hard for the people – particularly in the arts and hospital to move them on. The “Despite a slow start, the crafts fields. In the centre of Stroud, the accommodation is of poor quality and the response from health care first new-build co-housing development hospital is developing a housing workers has picked up. When based on Danish sustainable housing partnership strategy with Somer employers were first approached, ideas has secured planning permission Community Housing Trust. nurses at grades D and E were and is currently under development on a targeted as being those in most steep site in the centre of Stroud. The Somer Housing Group was created by need. We understand that other first units will be completed in mid-2003. stock transfer of 9,500 homes from Bath RSLs did not restrict themselves City Council in March 2000. These to grades D and E and we quickly The development of the prominent Co- included 1,600 sheltered housing units. realised, following enquiries from housing site has sparked interest in Somer Community Housing Trust is the other professions within the NHS, Community Land Trust ideas in both largest company in the group, which also that the level of need was greater Stroud and South Gloucestershire. The includes a direct labour organisation for than originally anticipated. The local development trust, Stroud Common property repairs and maintenance and a Health Authorities were consulted Wealth Ltd, organised a very successful subsidiary for the homeless. Somer and support was given to widen regional conference on Community Land works with two hospitals in BANES and the eligibility to include a much Trusts and co-housing in October 2002. In

33 Common Ground

Co-housing – New Community Based Approach Co-housing as a mutual form of housing development is widespread in Denmark and the Netherlands. In recent years it has slowly begun to develop in Britain. The Housing Corporation has funded work on the legal and financial feasibility of setting up co-housing projects to meet the needs of older women in London (Pickering, et al., 2002). In essence, co-housing is a human scale development of 30 units or so. Each property is a self-contained housing unit but with a shared common house to promote contact between neighbours. The communal aspect of the shared common house works particularly well for older people and for students and potentially also for key workers in some circumstances. For older people it reduces isolation and loneliness and the common house is used for events, for cooking meals together, for sports, keep fit, and just a place to have coffee and a chat. The Housing Corporation research shows how co-housing can be developed around mixed tenure involving full ownership, rental and shared ownership.

The Stroud project has been given good press coverage in the national press for its pioneering work. The initiative was taken forward by a group of local people, inspired by the Danish model, who successfully bid for a plot of land on a steep site near the centre of Stroud. Planning permission was initially refused but following a local campaign it was eventually successful on reapplication. The approach developed is co-operative and all households are both directors and shareholders of the Stroud Co- housing company which leases the land to the members. The development is for 32 households and involves 20 houses, eight flats, four studio units and the common house. Members need to invest £5,000 each as a deposit, and the Co-operative Bank has provided finance on a self-build mortgage basis. Members have worked both with the architects and with the builder to design some features for themselves and to keep the costs down. High ecological standards have been incorporated with assistance of a DTI grant and technical assistance from the Centre for Alternative Technology in Wales. Features include photovoltaic roofs (funded in part by the DTI), triple glazing, very high insulation standards, and a sustainable urban drainage system. Three of the units have been jointly co-funded by the company owners to be affordable in perpetuity for lower income households. The venture has interesting participatory planning and environmental sustainability features of interest to any Community Land Trust.

the year since this event, the affordability Stroud DC housing stock includes only Personnel manager Peter Bowles, problems of housing in Stroud have one per cent in shared ownership. Year explained that commuting distances for become more and more acute. Interest in on year, the Right To Buy continues to key staff grow longer each year and “the CLTs in the Stroud area has grown as a reduce the affordable housing available in travel time and recruitment catchment result and both district and county officers the district. The interview with the District area widens” more and more. Staff spend and the local MP are interested in the Council officers highlighted both new hours travelling from areas of the country outcome of this research. developments and two potential sites where they can afford to live, such as where a new mutual model could be South Wales to the west and Stoke on According to Stroud District Council, tested. First, Stroud DC is working closely Trent to the north. As he explained the house prices rose by an average of 47 with Gloucestershire Housing Association crisis: per cent in 2002 – almost twice the on an affordable housing strategy in national average rate of increase. As a respect to low-income homeownership. “There is limited housing stock in result, many two and three bedroom Second, there may be development the area and a limited range of properties priced per year ago at opportunities at the Standish Hospital site housing. A salary of £25,000 will £75,000 are now being sold for in Stonehouse, near Stroud and on land achieve at most a mortgage of £120,000. According to Barry Wyatt and held by Wynstones School and the St £100,000 and that is not much in Andrew O’Brien of Stroud District Council, Luke’s Medical Centre in Stroud. Wyatt relation to house prices. People this situation has made recruitment very and O’Brien also made reference to the recruited from the North simply difficult indeed and, knowing they cannot recruitment problems of Renishaws – a can’t afford it. Young graduates afford housing locally, people from other large employer of considerable can rent, and they often share, parts of the country “just don’t apply”. importance to the local economy, which but when one of them wants to Against this high level of average house has severe problems attracting and stop work so they can have prices, their research for the District retaining staff. children, they can’t afford it.” Council has highlighted just how low key worker income is in many areas of the Renishaws plc is a multi-national high- One new initiative by Stroud DC to try to rural South West: tech firm at Wootton-under-Edge, near assist is a developing partnership with Stroud. It specialises in machine tools, Gloucestershire Housing Association “We have done our own key laser and calibration equipment, encoder (GHA). They cover all of Gloucestershire worker research. We found that in technology, and other electronic County but have most of their 2,500 rural communities, 43 per cent had engineering products. It employs almost properties in Gloucester City, Stroud and an income of less than £12,000 1,000 staff at its New Mills, head office the Forest of Dean. Just over one in four per year. Access to properties on and at other smaller sites in of their properties are low-cost any basis on those incomes is a Gloucestershire. The company chief homeownership – mainly different types problem, so people just migrate executive, Sir David McMurty explained of shared ownership plus 120 Homebuy away. But these figures need to that his staff simply cannot find housing units on a 25 per cent equity loan basis. be taken cautiously as we had a they can afford locally – both for poor response overall from manufacturing workers earning from Julie Stafford, the GHA Shared traditional key workers such as £12,000 to just over £20,000 to those Ownership manager, explained that teachers and nurses.” with degrees earning considerably more. Homebuy has been on offer for the past

Common Ground 34 three years and commented “It is popular The main problem is ensuring the gives part of its profits to promote, because it is simpler to understand than purchaser knows everything they develop and create other co-operatives. Shared Ownership and it is also popular need to know. We interview them The New Economics Foundation was with lenders.” For Homebuy, GHA can and the marketing officers keep in invited to present ideas on key worker process an approval in three weeks. At touch throughout the process. We housing solutions and the potential for a present, Shared Ownership is primarily give them information about Community Land Trust to preserve the ‘new build’ and the association compiles lenders and, post-completion, site for the benefit of local people in the a list once a new development starts. about improvements, moving and Stroud District Council area. Among all their Shared Ownership units, additional share purchase resale turnover averages about 10 per procedures… A lot of information Helen Bown from the NHS, with cent per year and the association is involved in the lead-up to the responsibility for care services, explained charges a 0.25 per cent administration transaction and this is very that there is growing interest in the fee for handling these. GHA have had successful. It means that we do scope for providing intermediate care few problems with the full repairing not have the aggravation that services on the Standish Hospital site. lease. other housing associations report.” There is a major problem of recruitment, training and retention of key workers in To make Shared Ownership affordable, Stroud – Potential development sites the county. There is a growing interest in Gloucester City Council has provided The four possible development sites of what creative social enterprise solutions GHA with land at 35 per cent of market note in or near Stroud were Standish might offer for a high quality provision of value. With house price escalation in Hospital in Stonehouse, the St. Luke’s intermediate care services to Stroud and elsewhere locally in the past medical centre, Wynstones School, and complement existing provision of year, the Housing Corporation limits on Kolisko Farm. residential care services. low-cost homeownership of £98,600 for a three-bedroom property have made the Standish Hospital is a small rural hospital John McLaughlin, Economic availability of discounted land a pre- developed in 1922 with funds donated Development Manager for the county, requisite. Minimum annual income levels by the Red Cross of Gloucester for endorsed this view and commented that enabling key workers to afford properties tuberculosis patients and veterans of the regionally there was an interest in EU are £14,500. First World War. The main building was models like the successful Italian Social the former ancestral home of the Fabian Co-operatives operating well in the GHA is involved with the Gloucester socialist, Beatrice Webb. The hospital has health and social care fields in northern housing market package for a number of faced closure for the past 10 years and Italy. The County Council has already South Gloucestershire authorities. As with the plans are to close the entire site in a established links with their Italian GHA’s work with Gloucester City Council, phased way between mid-2003 and counterparts in this field. the plan is based on the availability of early 2004. A Save our Standish (SOS) discounted land for the development of campaign has been striving to prevent Since the seminar, an action group has new-build Shared Ownership units. Stroud closure for many years and to retain the raised over £100,000 to conduct a full DC is heavily involved with these strategic beautiful 15-acre site for health and care consultation exercise and feasibility study plans for affordable housing development services for the region. Most of the to develop realistic options for this social over the next 10 years. existing health services will be enterprise approach. Keen interest has transferred to the modern been expressed in the Community Land GHA has resisted tied cottage type Gloucestershire Royal Hospital over the Trust idea presented by New Economics developments for key workers because next twelve months. Foundation – particularly in relation to “most people prefer to live in a mixed key worker housing for health and social community”. They were successful in a bid The land of the Standish Hospital site has services staff. for a site in Tewkesbury but the Housing restrictive covenants on it for use for Corporation made the grant conditional health service purposes. To explore the Stroud Common Wealth, the local under SHI on restriction of the housing to scope for a mutual housing development development trust, organised a smaller nurses. GHA declined the offer but for key workers in the health and care workshop with several local non-profit developed the site anyway with their own services field as a core part of a wider plan organisations to consider the Community and local authority funds, preferring to for retaining the site for regional health Land Trust idea. This event was held on avoid such restrictive subsidies. and social services facilities, local Stroud the site of the St. Luke’s medical practice MP David Drew, convened a seminar on in Stroud. This is an NHS general Stafford has been pleased with the 18 December 2002 at the hospital. practice, which also has on site a care popularity of their new-build Shared home, Whittington House, with links to Ownership package on discounted local Invitations went out to the senior health, Bromford Carinthia Housing Association. authority land. The substantial experience social services and economic Those attending the workshop included of GHA staff has been gained over development managers for both the the manager of the GP practice, the care several years specialising in low-cost district and the county council. Geraint home manager, a manager of Ruskin Mill homeownership projects. Stafford Day, an expert on Foundation Trust (a sheltered workshop for young people commented on some of the secrets of hospitals, was invited along with David with challenging behaviour and their success. Rodgers of CDS Co-operatives and Jo behavioural problems), teachers from a White from Co-operative Futures, a co- local school, a local organic farmer “Shared ownership new-build has operative development body, part of developing a community supported always been very popular. We whose funding comes from the co- agriculture project with the Soil don’t have to market it at all and operative dividend through which the Association and a local architect. the applicants all qualify easily. Oxford, Swindon and Gloucester Co-op

35 Common Ground The workshop began with an explanation consisting of bungalows in very poor and Dartington Trust in Devon, which of the terms of the research by the New condition that use too much land. Andrew received funding from the Co-operative Economics Foundation, followed by a Beard, a local architect, is helping with Wholesale Society to co-develop presentation on the practical experience plans for redevelopment of the site. affordable rural housing. Today, the RSL of Community Land Trusts in the US and Martin and Andrew felt that a Community and South West Foundation, a charitable of the ones that are slowly emerging in Land Trust approach could potentially do trust, operate in partnership on rural Britain (i.e. Scotland in particular to date). three things: housing and rural community project The St. Luke’s medical practice site needs. includes some land that could be 1) Provide affordable housing for redeveloped. teachers at the school and for care The RSL has 400 units of housing – workers and trainers at Ruskin Mill; including 50 in shared ownership. The The care service on the site has recently balance sheet is very strong with £12 attracted Supporting People funding from 2) Provide affordable housing also for million in assets, no debt liability at all Stroud DC. Housing for care staff, health agricultural workers at Kolisko Farm; and £5 million in cash invested – the workers and teachers was raised as an and income from the latter funds the work of issue and the CLT and mutual housing the charitable foundation. Areas in which ideas were appealing to Philip Kerwin, 3) Be a vehicle for acquiring more it provides rural housing are spread manager of the St. Luke’s site. At present agricultural land for organic farming across the South West from Shepton the site has a staff of three GPs, six and CSA developments in the Stroud Mallet to Caan in Wiltshire and to high- health administrators, five part time area. cost areas of Devon, such as Totnes, therapists, and three care service staff. where property prices have increased by Three more care service staff members Discussions on how to develop affordable 100 per cent in some parts of the town are being recruited. housing for the needs of teachers and over the past 18 months. farm workers are ongoing with both Simon Charter, who is developing the Stroud DC and Gloucestershire Housing Jane Emanuel, Chief Executive of the Community Supported Agriculture (CSA) Association. The current plan developed South West Foundation, commented that, project near Stroud with the Soil by Beard is for 25 units of housing on the in the current environment of low interest Association, was similarly supportive. Wynstones School site. Of this number rates, Shared Ownership does not CSA is a mechanism popular in the US, 12 would be sold on the open market operate to provide a path into Canada, and Germany, providing small and 13 maintained for affordable housing. homeownership and is very burdensome. farmers with working capital for growing Of these latter units, seven would be Thus she failed to see the advantage – vegetables and food. The capital is raised rented to teachers and six would be particularly with a full repairing liability – from supporters within the community shared ownership units for longer-term of, say, 60 to 80 per cent equity stakes. who agree to purchase their food in accommodation. Additional discussions advance. They buy CSA shares in the are underway with the Charity “Objectively, Shared Ownership fallow and planting period and are then Commission. These units would greatly does not work. It is ok when repaid during the harvest season with relieve the chronic housing issue for interest rates are high, but when boxes of food from the farmer or a group teachers at the school. Additional housing they are low, payments are not of farmers. In the wake of Foot and is needed to help meet the needs of much less than outright purchase. Mouth Disease, which hit the rural South agricultural workers for the farm. One advantage is that people West badly, the Soil Association is may be eligible for Shared running CSA pilots and Kolisko Farm is The workshop thus identified two sites Ownership when they wouldn’t be one of its national initiatives. for potential application of a mutual given a big enough mortgage for housing model involving a Community outright purchase, but shared The farmland is owned by Wynstones Land Trust. Another old mill at Thrupp, owners are 100 per cent School, a Rudolf Steiner school and which is owned by the County Council, responsible for repairs, which I charitable trust. The farm needs housing had potential for both affordable housing think is onerous.” for two to four farm workers. Teachers at and workspace and Stroud Common the school earn less than comparable Wealth was exploring this with local The South West Foundation is not public sector teachers (i.e. £11,500 to planners as a potential CLT pilot. currently developing new housing but is £17,500 annually) and the school is considering providing it in the future. linked to Ruskin Mill, which provides a Other areas of the rural South West Jane Emanuel expressed interest in a sheltered workshop and craft centre Two rural housing associations were lower-cost model than Shared Ownership funded by Social Services for emotionally interviewed for their views on the model for key workers but also felt that, with disturbed young people from and how they thought it might compare to current house price rises set against very Gloucestershire. The farm also has a Shared Ownership and Homebuy. The two low rural wages in the South West, there training and education service that could RSLs were the South West Foundation “really is a need for people to get out of be developed further. and Hastoe Housing Association. the ownership psychology”. Otherwise she said that we may soon move into a Martin Stott, a teacher at the school, South West Foundation was founded in Japanese style approach where, to be explained that the teaching staff are recent years with funding from Right To affordable, the term of mortgages will getting older and recruiting replacements Buy capital sales receipts realised by the have to be extended to an entire lifetime. is becoming more and more difficult South West Co-operative Society. This is because of rising rents and housing an RSL whose history involved a Hastoe Housing Association has a track costs locally. The school’s land is under- partnership between the Elmhurst family record in the South West of developing used and existing housing is poor quality, schemes of mixed shared ownership and

Common Ground 36 rented units to meet affordable housing Hastoe has recently set up the Rural needs in villages. Schemes typically Housing Resource Unit, which includes in consist of six houses, with up to three of its membership staff from the Housing the units are sold on shared ownership Corporation and the Countryside Agency. leases. Whilst in recent years Hastoe has The purpose of this initiative is to concentrated more on building houses for formulate ambitious strategies for rent, it is now developing more shared tackling the shortfall in provision of ownership schemes because it has affordable housing in rural areas across recognised a significant need among the the country. (Research has shown that middle-income group earning too much to there is an annual need for 10,000 new access subsidised rented housing, but affordable housing units in rural areas, currently priced out of the market for full but even with the recent boost in public home ownership. The RSL’s recent bid for funding the provision is only likely to funding for a development of 25 units of reach around 3,500 per annum.) Evans- key worker housing in Dorchester was Jones was particularly interested in how unsuccessful, as funding support in the a Village Property Trust could provide a region was targeted solely at major areas mechanism for securing permanent of regeneration like Bristol, Bath and affordability solutions – not just for Swindon. housing but for workspace also.

Shirley Evans-Jones, regional manager of “We are currently reviewing our Hastoe’s South West office, commented shared ownership model. We are that one problem with shared ownership also looking at the feasibility of lies in restricting the cost at a time of RSLs acting as developers of rapidly rising house prices. Whereas in mixed use village schemes, which the past, RSLs sold shared ownership could include houses for rent, with reference to the cost of construction, shared ownership, self build and they are currently encouraged to discount outright sale, but could also include on the basis of open market valuations. business, workshop and This ensures that the subsidy is not community facilities. A Village Trust restricted to first sale only. could be created to own the land.”

“We have to sell at open market Evans-Jones could see “an overlap in value rather than cost, and vary terms of objectives” with respect to the the percentage of equity we sell Community Land Trust approach to a according to what we perceive as limited co-operative model and was affordable, bearing in mind that it “keen to see that ideas are pooled”. also has to be financially viable for us. This at least avoids the situation that recently arose in one area locally, where two subsidised houses were sold below market value and then sold on within weeks at a large profit for the initial purchaser.”

Evans-Jones is also concerned about some of the hidden costs of shared ownership like Stamp Duty. Stamp Duty is currently payable on any property costing more than £60,000, even if the share to be purchased comes to less than that amount. For some prospective purchasers it is “the straw the breaks the camel’s back” and prevents them taking on a property. She thought it unjust that a purchaser should have to pay Stamp Duty on the whole of a property when only purchasing, say, a £50,000 equity stake.

Evans-Jones felt that the limited-equity co-op model could be helpful if it could succeed in driving down the costs of purchase, but also commented that keeping the management costs low would be a challenge.

37 Common Ground 5. Fieldwork Interviews with Key Workers and Development Partners

Our initial approach was to ask housing development partners to identify key Teacher in Stroud workers willing to be interviewed and to I have my graduate loan to pay, I need a car to get to work, and my rent is high. I help with the research. A number of take home £830 per month. I can’t tell you how many houses I’ve lived in, I don’t RSLs agreed to forward a letter to even unpack my boxes anymore. I teach in a Waldorf school, so my salary is very applicants for their Shared Ownership or low and I am not eligible for schemes like the Starter Home Initiative. I have joined Homebuy schemes, explaining the nature the school as a Class I teacher, so I am committed to staying as class teacher until of the project and inviting them to be the children finish Class 8. But even if I worked in the state sector I wouldn’t be interviewed. able to afford a house locally. I live with two other women. Leases are always for six months and then we often have to move on. Sometimes I then have to hunt for We asked employers of key workers in new housemates. I wish there were some kind of adaptable space for people’s the health and public transport sectors to needs as their lives change, as they have children, grow old. circulate information to their employees. As the project developed, other development partners emerged, such as several local authorities, whose assistance employment. The diagrams shown as 5.1 5.1 was also sought. In most cases, an and 5.2 below show the spread of Interviews in the South West – interview fee of £10 was offered. occupations in the South West and Main Findings London respectively. This initial approach met with some Household size success; however, while development Sixty per cent of those interviewed were Over half of those interviewed were partners invariably wanted to help, some women. Over 90 per cent were British members of families with children, one- were clearly too busy to follow through. citizens. While the age range was from third were single people, and 14 per cent This was a disappointment, but key 21 to 61, most interviewees were young were couples with no children. Of those workers were themselves helpful, and a and in their twenties and thirties (72 per with children, the average number of word of mouth approach enabled the full cent). children was two. number of interviews eventually to be completed. Of interviewees in both regions, 87 per Tenure pattern cent were white European, and 13 per About half (52 per cent) of those Sixty-one in-depth interviews were cent were members of ethnic minorities. interviewed were living in houses, and conducted with workers in the health, However, all of those interviewed in the half (48 per cent) in flats or a room in education, social services, housing, and South West were white European. In their parents’ house or a hostel. Only two transport sectors. Of those interviewed, London, 20 per cent of interviewees interviewees in the South West were about 10 per cent were in part-time were members of ethnic minorities and living in public sector accommodation. Of work, the remainder being in full-time 80 per cent were white European. those who were renting privately, most were doing so on the basis of six-month assured shortholds. Figure 5.1 Affordable rent assessment No one was receiving any help with their housing costs in the form of benefits (one was about to apply for Housing Benefit). Many also expressed anxiety at the high level of their rent and the fact that it seemed to represent “money down the drain”. Forty per cent were paying over £400 per month. Low rents usually arose where interviewees were still living with their parents.

A comparison of maximum rents that interviewees felt they could afford with their net monthly household income shows the pattern shown in Table 5.1:

Common Ground 38 Table 5.1 Maximum affordable Debt repayment problems rent relative to net monthly Thirty-eight per cent of those interviewed income had no regular debt repayments at all, but 24 per cent were making monthly payments of between £150 and £300, Maximum and 14 per cent had payments of over Net monthly Affordable £300. Most frequently, payments related income (£) monthly rent (£) to or included car payments, but younger interviewees also referred to student or 1,300 350 career development loans, or credit card and overdraft debts incurred while 1,000 285 studying, as a significant outgoing.

1,040 400

1,100 400 Student Debt Problems My partner and I are both pharmacists; I work part-time and he is training as a 830 250 therapist. I was fortunate that, when I was a student, fees had not yet been introduced, and I also had a small grant. It wasn’t enough to live on, though. I was 1,100 400 always very careful with money and I kept my debts reasonably low. The student loans are not enough to live on, so I had to rely on overdrafts and credit cards as 1,000 400 well. I owe almost £5,000. The student loans can wait until my income increases, but instalments for the other debts have to be paid now. 800 200

1,000 250 Present accommodation type 1,290 500 A significant number of interviewees 1,345 450 found that their existing accommodation was inadequate; a particular concern was 2,100 600 the lack of security of tenure. Most had six-month tenancy agreements, and 1,400 400 several were interested by the invitation to attend an interview because, for 840 300 various reasons, they were likely to have to move on in the near future. By far the Averages greatest consensus, however, related to the cost of housing and most 1,153 370 interviewees readily and forcefully agreed with the proposition that the cost of housing was a major problem. The average result is an assessment of maximum affordable rent to be 32 per cent of net household income. Agricultural Labourer in West Dorset My husband is a herdsman and I work full-time in an estate agency in Bridport. My Level of savings salary is £9,000 per year, and my husband earns £21,000. We were living in a tied Over half of those interviewed had no cottage, but we now have a one-year lease on the adjacent property. I have to savings at all, and only about one quarter drive to Bridport to work; my husband wants to change jobs, although not his had over £2,500. The highest level of occupation. We want to live in Bridport, where the children go to school; otherwise savings held by interviewees in rented we will have to have two cars so that we can both get to work. We applied for a accommodation was £10,000; one other Homebuy scheme purchase, but the maximum it would allow was £123,400 and had £7,000. The first had been living with the minimum price we could find for a three-bedroom house (we have a teenage her parents for many years, paying token boy and a girl) cost £130,000. I thought that we were on good money now and we rent and saving steadily. The second had could afford to buy, so we were very disappointed. We have always lived in the received the savings from the proceeds area and want to stay. I worry about our children’s future. Where will they live when of the sale of her former matrimonial they get married? And we don’t have much of a pension. A house offers more home on divorce. Of the two interviewees security. I’m not envisaging an early retirement. who said that they were saving on a regular basis to buy their own home, one was the example just given with savings of £10,000, and the other gave a figure of £150 per month, but had total savings of only £750. In this case, current monthly rent was relatively low at £245, and the net monthly income was £1,100.

39 Common Ground Transport and commuting time Only one in four of those interviewed in All but two interviewees in the South the South West had considered any West owned a car. The great majority other low-cost home ownership schemes. (over 80 per cent) drove, only five per cent used public transport and 14 per When asked how long they would cent walked or cycled. A considerable envisage staying in the scheme, some number (38 per cent) spent between one interviewees felt that there were too 1 and 2 /2 hours-a-day travelling to work. many imponderables to give a Two interviewees said that they spent meaningful answer. However, none felt 1 more that 2 /2 hours-a-day commuting. that they would only want to stay there on a short-term basis; on the other hand, The impact of travel costs on household almost two in three felt that, if everything budgets varied widely. While almost half worked out well, they would like to spent less than £50 per month, 14 per remain there long-term. cent spent over £150 per month and one interviewee gave a figure of £330. Attitudes to co-operative management Two interviewees expressed concern Stress of Commuting about the scheme being taken over by I work in Stroud for the District Council; my salary is quite good. I live in ‘difficult’ people or reservations about the Newport, in South Wales, and I commute every day. I am married and I practical purpose and outcome of such have two young children. My wife is a teacher. We did consider moving to involvement. The remainder however, Stroud at one point, because I have to commute for three hours a day and took a positive view of having a say in I spend £4,000 per year on travel. But when we saw what kind of house decision-making and of building up a we could buy in Stroud, as opposed to Newport, there was no contest. We feeling of community and felt that it have bought a nice house and we now intend to stay in Newport. I won’t would interest or reassure them. One stay in my job in the long term, because of the commuting; I’ll have to find young interviewee (24) commented that something in a local authority in South Wales. involvement in the process might make him feel that he would want to stay on a permanent basis because of the sense of community that might develop. Home ownership aspirations Only one in 10 of those interviewed said Overall, while the interviews showed that they would not wish to own their clearly that almost everyone we spoke to own home. This finding is consistent with in the South West felt that home the national home aspiration survey ownership was their aspiration and results of the ODPM. One of those important for their sense of financial interviewees not aspiring to own property security, most interviewees’ overriding thought that she “probably now didn’t priority was given as somewhere secure, have a choice” because of the need for affordable and pleasant to live, where future security and the high levels of they would feel at home. Another factor rent. Some interviewees had concluded, mentioned by several interviewees was however, that the aspiration to outright that they would like the freedom to alter home ownership was unrealistic. All their accommodation to suit their own interviewees thought that ownership of taste and requirements. But as one an equity stake would be attractive. interviewee put it, “It is a roof over my head I am looking for, not an investment.” Several were keen to be kept informed Right To Buy Assistance and to be considered for any pilot. I was lucky, I took over my mother’s council tenancy and I was able to exercise the Right To Buy. I always wanted my own home. I am separated from my husband now and I have moved house, but that was how I got onto the housing ladder. The most important thing for me is to be able to leave something to my children. They are now teenagers. Where will they live when they grow up and get married?

Ninety per cent of interviewees in the South West responded positively to the limited-equity idea proposed; the remaining 10 per cent expressed some uncertainty and a desire to know more. None of those asked ruled the idea out.

Common Ground 40 5.2 Interviews in London – Main Findings Household size The family composition of key workers interviewed in London was very different from that in the South West. Sixty-nine per cent of interviewees were single, living either with their parents, sharing accommodation with other adults, or living alone. Only 18 per cent were living as a family (both couples and lone parents with children) and only 13 per cent were living as childless couples (sometimes also sharing with other adults).

Nurse – Starter Home Initiative Unaffordable I am a nurse and I have worked in the Health Service in London for 12 years. I intend to stay working in the NHS forever. But the most I could expect to earn in my present job is £26,500 (including London Weighting). I used to live in nursing accommodation next to where I worked. It wasn’t very private and the standard of accommodation was poor. I now live in private rented accommodation, sharing with others. My rent is £450 per month and I spend £105 on other housing costs. In addition I pay £180 for a car loan and I use my car to drive to work. My monthly housing costs are roughly half of my take home pay. I would love to have my own place, but I simply can’t afford it. I have looked at all the other schemes and have registered for Shared Ownership and have been accepted for a Starter Home Initiative key-worker loan, but I can’t use this, because even with my savings of £4,300 I do not have enough for a deposit on a flat. I don’t think any of these schemes are helpful. I would be very interested in any scheme that could help me have a home at a price I could afford and would like to know more about the key-worker co-operative.

Tenure pattern The picture in terms of housing tenure is also quite different. In London, 47 per cent were renting in the private sector, and 35 per cent were living in local authority or registered social landlord accommodation.

Teaching Assistant – Hostel and Temporary Accommodation I am 25 years old and a teaching assistant. My take home pay is £650 per month. I was living in a hostel for the unemployed, but I had to move out, because I was assaulted and had my credit card and possessions stolen by other housemates. I was paying £62.28 per week, because I was working, but if I had stayed unemployed the weekly rent was £188, because of the Housing Benefit system. I am presently staying with my girlfriend on a temporary basis and hoping that a council property will materialise. Haringey has nominated me for re-housing, but I was born, bred and work in Islington. I would like to live near to the school, but Islington has no vacancies. Being a member of a key worker co-operative appeals to me, because I believe it is a fairer way of providing housing.

41 Common Ground

Affordable rent assessment Table 5.2 Maximum affordable Twenty-five per cent of those interviewed rent relative to net monthly income were receiving some form of subsidy for their housing costs in the form of Housing Maximum Benefit or reduced Council Tax. The range Net monthly Affordable of rents paid was wide; while 44 per cent income (£) monthly rent (£) were paying under £250 per month, 23 per cent were paying over £400, and five 1,160 400 of those were paying over £500. 1,485 600 2,800 480 Housing Managers – Two Kids and Overcrowded 2,000 400 Accommodation I work as a housing officer in Brent. I live with my husband and our two 1,430 120 children. We have a housing association flat and we are fair rent tenants, 1,480 400 which means our rent is capped at £330 per month. We have lived there for six years. However, I really don’t like the flat, it’s far too small, it’s in poor 1,200 500 condition and not really suited to my family’s needs, but as a fair rent flat I 960 500 would find it very difficult to afford to move. I would be very interested in key-worker co-operative. We have saved over £15,000 for a deposit, but 2,500 500 the more we save, the faster house prices go up. 1,100 500 2,900 600

A comparison of the maximum monthly 1,125 500 rents that interviewees felt they could 1,150 650 afford with their net monthly household income shows the pattern in Table 5.2. 1,400 250 1,400 100 In London, interviewees accordingly felt on average that they could afford to 1,000 600 spend about 31 per cent of their net 1,000 500 household income on rent. 1,750 200 Level of savings 1,350 400 Over half of interviewees in London had no savings at all; on the other hand, of the 35 1,800 750 per cent with more than £2,500 in savings, 1,200 500 two had between £6,000 and £7,000, one had £10,000, and one had £15,000. Only 1,200 500 43 per cent said that they were saving to 1,200 675 buy their own home, and only 18 per cent were saving a regular monthly amount, 1,200 250 ranging from £30 to £500. 700 400 Debt repayment problems 1,500 500 Almost one-third of those interviewed in 1,300 200 London had no regular expenditure on servicing debts, but, at the other extreme, 1,125 600 15 per cent were making payments in 1,500 600 excess of £300 per month. Of those, two were paying £500 a month, three were 650 280 paying £600 a month, and one was 1,800 500 paying £870 a month. As in the South West, student loan payments of about 2,500 600 £100-150 per month and car loans figured prominently. Averages

1,480 455 Housing Worker – Can’t Move from Family Home I’m a Housing Support officer, taking home £1,150 a month. Although I’m 23 I still live with my parents, and I can’t imagine being able to move out. Helping with household expenses and paying off debts takes almost all my wages. Prices for everything in London are so high it’s impossible to save – I’d love to start a family but I’ll never be able to afford children.

Common Ground 42 Present accommodation restrictions Home ownership aspirations One in four (26 per cent) of those As in the South West, the aspiration to interviewed were living in a bedsit or home ownership was almost universal hostel. Just under one in two (41 per among those interviewed; only five per cent) were sharing accommodation with cent said that they did not want to own other adults (not partners). their own home. Ninety per cent thought that ownership of their home was A major concern expressed by London important to their future financial security interviewees was lack of space (45 per and 92 per cent thought that ownership cent), but, as in the South West, a of a stake would be attractive if it was a substantial majority of interviewees felt more affordable option. that the cost of housing was a major problem (69 per cent). Only one interviewee did not like the idea of the limited-equity model; two others were unable to say whether it would be Foreign Key Worker – London Costs v. Australian Alternative attractive. The vast majority therefore felt I am 44 years old and I came from Australia a few months ago to work as a that it would be an option well worth housing officer. I have three children who I would like to join me. In Australia I lived considering and all said that they would in a Strata Management scheme. This is a low-cost ownership system and includes like to be able to increase their stake as access to communally owned swimming pool and other facilities. I was shocked their circumstances improved. when I discovered the cost of housing in London. I now share a room with my partner in a house with five other people. Our rent is £480 per month. I am Forty-eight per cent of interviewees had presently looking for a home to rent in St Albans, so my children can be with me. I considered other shared ownership like the idea of a key-worker co-op, because I like the idea of having privacy, my schemes. Some commented that they own bathroom, but don’t mind sharing other facilities with others. were too restrictive; others had found them too expensive.

Twenty-seven per cent of those asked Transport and commuting time did not agree that an equity stake Half of those interviewed owned a car or equivalent to outright ownership in a motorbike. One-third lived within walking lower cost area of the country was or cycling distance of work, and 41 per relevant to them – usually the reason cent used public transport. Travel times, given was because they did not want to however remained high, with 59 per cent leave London. 1 spending between one and 2 /2 hours each day commuting. Attitudes to co-operative management The cost of commuting to work reflects the Only one interviewee said that he would relatively large number of people able to not be willing to invest some of his time walk or cycle, and only less than one in 10 on a regular basis in governance of the said that they spend over £150 per month co-operative. Fifty-one per cent said that on travel to work. As in the South West, they would be reassured by the ability to about half spent under £50 per month. participate.

5.3 Neighbourhood Regeneration Worker – Summary of Findings from Commuting from the Essex Coast Key Worker Perspectives I am Neighbourhood Warden Co-ordinator responsible for community safety on housing estates in North West London. I live on the Essex Coast, 55 miles away – The cost of housing was a preoccupation a daily journey of at least one and a half hours each way. I didn’t want to live out in of virtually all those we interviewed. Even Essex, but this was all I could find. I am living with friends, because right now I can’t for those who were not facing high afford to live in London. I would like to own my own home, but I would be very worried accommodation costs at the time of the about getting into debt. I like the idea of owning a stake in a co-op that I could use interview, most expected to be affected for a deposit, if I wanted to move on. I wouldn’t want to stay in London forever. by such rising costs in the future. Many were able to afford their rents because they were sharing, but felt that they were in a temporary situation with no clear way of moving on, except by moving away.

While five people sharing a house can afford market rents, a couple with children reliant on two or less incomes cannot. It was apparent that interviewees were generally unnerved by the escalation in house prices in recent

43 Common Ground months, and many were pessimistic that The London focus group them over six months late. they would ever be in a position to own Six key workers attended the meeting. their own home. There was an informal discussion over c) All agreed that the suggested levels sandwiches at the outset, and a number of management and insurance costs Some interviewees volunteered that they of interesting points emerged about the seemed reasonable and realistic. did not see how they would ever be able participants’ current housing problems. In to afford to start a family. Older particular: d) All viewed participation in interviewees expressed concern about management as positive and the future for their children in terms of a) One nurse explained the problems he reassuring. where they would live and, again, is currently facing in commuting from whether they would ever be able to South Ealing to Walthamstow. As a e) All agreed that a deposit of five per afford to marry and have children. result of closure of the Central Line, cent would be acceptable, but all 1 he said he was spending 1 /2 hours were highly sceptical that their While some key workers interviewed commuting each way. employers could be prevailed upon to were intent on leaving their jobs, most contribute to it. were committed to remaining in their b) The same nurse said that he had occupations for the foreseeable future or been offered an interest-free loan of f) All said that they would consider a “for life”. Those living in London mostly £30,000 towards the purchase of related savings scheme, but that it wanted to stay there; similarly, while accommodation, provided that he would depend on their circumstances almost half of those living in the South found somewhere suitable and at the time and what they could West said that they did not positively feel completed within three months. He afford. part of a community, nevertheless more felt that this was impossible and was than four in five liked where they lived unable to take up the offer. g) There was general discussion about and wanted to stay. what level of equity stake would be c) An education welfare officer said that acceptable and general agreement The concept of ‘key worker’ was almost she had been gazumped three times. that this would depend on how long universally viewed negatively; people felt She had been house hunting for five they intended to stay and what would that it was divisive and those who might years and the furniture she had be needed for a down payment on not qualify as being a key worker felt bought anticipating completion on accommodation in the open market. under-valued and resentful. one of her abortive purchases was in One was worried that they could face storage in her parents’ cellar. a huge mortgage when they moved Overall, the response to the idea of a later on, with less working life to pay limited-equity co-operative was very d) The same welfare officer said that it off. positive indeed and some interviewees she had been offered a mortgage of were keen to know whether and when a £86,000 by a building society on the h) All liked the idea of a regular development might be ready in their area. basis of her salary, but this was far statement showing how much they Many asked if they could have further from sufficient to buy a flat. She had had paid and the value of their stake. information and be kept informed of recently looked at a flat on the third progress. Without doubt, a promotional floor of a tower block, formerly local i) There was general agreement that a leaflet circulated to interviewees would authority accommodation; it was in scheme like this would encourage be read with interest. poor condition (she described it as a them to stay in their job and in “dump”) and it was being offered at London. £130,000 on a take it or leave it 5.4 basis. j) One participant wondered whether Shared-equity Co-operative agency nurses and teachers would Model – Focus Group There was an introductory presentation qualify and all were reassured that Feedback of the general aims and objectives of the they would not be forced to leave the research and of the findings from the scheme if they ceased to be a key All interviewees were asked, in the London interviews. The proposed model worker for any reason. course of their interview, whether they was then presented and there was would be prepared to take part in a focus discussion of each slide in turn. In conclusion, all participants expressed group session to provide feedback on the enthusiasm for the proposed scheme proposed housing model. Most There was general consensus on the and indicated that they would actively interviewees indicated that they would. following points: consider it if it were available.

Two focus group sessions were arranged a) All participants felt that the idea that The Stroud focus group with interviewees, one in London and one those on higher incomes would pay Because interviewees in the South West in Stroud. The London session was held more and build up equity more rapidly were more scattered and fewer in at the offices of London Rebuilding was understandable and acceptable. number, the pool of potential participants Society on 18 March 2003; the focus for the focus group was smaller; in the group in Stroud met at Standish hospital b) All felt that deductions from salary event, six invitees confirmed that they on 19 March 2003. Both sessions took would be acceptable in principle, but would attend but, unfortunately, only place in the evening. one participant pointed out that his three did so. Nevertheless, there was an employer was holding onto union interesting discussion and a number of dues deducted from pay and paying relevant points and observations

Common Ground 44 emerged. Two attendees worked at the i) One person commented that a large hospital itself, a third was a teacher at scheme would alienate local people, Wynstones Rudolf Steiner School. but that a development of 30 to 40 dwellings would be acceptable. The format was broadly the same as for the London focus group. There was a j) All were very keen on a development general introduction, followed by a on the Standish Hospital site and the presentation of the fieldwork findings hospital staff said that there was and then the same slides setting out general and considerable concern the model. among their colleagues, many of whom had worked there for many The participants made the following years, about what would happen to comments: the site and that it should remain in health-related use. a) The assumptions as to salaries were too high; all three were paid k One person was reassured that it considerably less and they all felt that would not be possible for other such salaries were not typical locally members of the co-operative to buy for people who were in need of long- her out and that she would have term housing solutions. security of tenure. b) It was agreed that house prices l) One participant commented that the locally varied enormously according scheme was more realistic than to area, but it would be difficult to outright home ownership for those on find a one-bedroom house in Stroud low pay. She said that she had been for under £95,000 or a two-bedroom paying rent for 17 years and “didn’t house for less than £110,000. Two to own so much as a door knob”, so any three-bedroom former council houses percentage stake would be a positive outside Stroud were selling at development. between £150,000 and £200,000, and they are in fact very good m) All liked the idea of regular houses. statements showing payments made and the value of their equity stake. c) The cost of using agency staff in the hospital was considerable and a n) None felt that their income was serious problem, but agency nurses sufficient for them to participate in were paid much more that the savings schemes and none had any permanent staff. significant existing savings. Again, there was considerable scepticism for d) There was agreement that it would the idea that their employers might be acceptable if those on higher contribute to a deposit on their salaries paid more in return for a behalf. higher equity stake which would accumulate more rapidly. As in London, all participants showed considerable enthusiasm for the e) All felt that involvement in the proposed scheme. All felt that they would management of the scheme would consider it if it were available and that be a positive feature. One the idea of a housing co-operative commented that it would be “lovely to providing a stake in equity and a role in cut through all that red tape” involved management was attractive and workable in dealing with a landlord over repairs in practical terms. and other issues. f) There was no objection to deduction of payments direct from salaries. g) All felt that the ability to carry out improvements and alterations would be an advantage. h) Proposed levels of payment for maintenance and insurance were considered reasonable.

45 Common Ground

6. Creating Pilots and the Shared-equity Co-operative Housing Model in Detail

The study has postulated housing in housing. The EcoHomes designation e) Individual occupiers are members of three locations: Newham as a lower price should also be used: the good standard the co-operative and pay rents, which part of London, Milton Keynes as a is readily achievable if the necessary collectively cover the mortgage cheaper area within range of London, prior investigative, specification and payments. When they leave, they may and Stroud as fairly typical of much of design work is carried out. Some take with them an equity stake equal the South West. These have been common approaches to key worker to their share of the loan repayments selected as representing areas where housing design incorporating local and made from their rental payments plus affordability is an issue to be tackled regional design components could help their share of capital appreciation rather than those areas of inner London to keep costs down and standards high. based on the fixed resale formula. where it is at its most severe. As an aside, Newham includes some f) Individuals are also, as members of Within these areas, prices vary large housing sites and can be seen as the co-operative, responsible for its significantly by property type and area so part of the Thames Gateway where large management and the management that there are no generally accepted numbers of new homes are planned. and maintenance of the buildings. figures for prices by size and type in a There is a great opportunity here for the particular location. The Proviser website use of the shared-equity co-operative In addressing the legal requirements for produces figures at a local authority level model, not just in helping to achieve the scheme, the focus has been on but not split between new homes and affordability in the present, but locking it achieving the core objectives of providing older homes, or by size, or by any more in for the future as well. affordable housing, protecting the public precise location. The Nationwide website subsidy involved from enfranchisement is more general, providing an average and becoming a source of private and an index for each region. An exact 6.1 enrichment, and simultaneously enabling assessment of house prices in each area Legal Structure Requirements residents to participate in the equity is beyond the scope of this study. growth generated by their own The historic review in Section 3 identified (Appendix 5, Annex 2 shows house price contributions. both the Glenkerry House co-operative levels recorded by Nationwide and Shared Ownership model and the Proviser for each location and the costs The scheme is based on innovative Swedish Tenant Ownership Co-operative of housing provision that have been used principles and detailed consideration had as the two most relevant limited-equity in the model are based on these figures). therefore to be given to its operation models from which to draw critical within existing statutory provisions, in lessons. Such models could be updated Appendix 5, Annex 3 shows the particular in relation to welfare benefits and work sustainably, to volume and to estimated construction costs assumed (notably Housing Benefits and Income scale, providing subsidy can be locked in for the three areas. Again, these are not Support) and tax (Stamp Duty, Capital for several generations, underpinned by a based on substantial evidence but are Gains Tax and Income Tax). Discussion of Community Land Trust. Thus the model intended to be of the right order to these issues and the solutions proposed proposed includes the following legal illustrate the model. The land component can be found in Appendix 3 below. features (see Diagram 3.1): of the value has then been calculated by deducting build costs from property a) The Community Land Trust owns the values: in broad terms, land for a two- 6.2 freehold and the spare equity. bedroom home should cost around 50 Investment Finance per cent more than land for a one- Requirements bedroom home. Again, the study is not b) A co-operative society takes a lease aiming for an exact calculation but the on the land, builds the dwellings and The current base rate at the time of conclusions do depend on these figures borrows the finance needed to meet writing is 3.75 per cent. Variable rate being broadly representative of the both build costs and any residual land lending is available to RSLs from various situation in some part of each local costs (or may receive some subsidy institutions at 65-85 points over base, in authority area. from the CLT in return for equity in other words, around 4.5 per cent. The the buildings where subsidy exceeds aim will be to enable the co-operative to land cost). Government and Housing Corporation borrow at similar rates so that the benefit requirements are that key worker homes of collective lending can be passed on to be constructed using techniques which c) Lower cost finance can be secured the occupiers. take on board the Egan agenda, using via the collective mortgage and the on-site or off-site prefabrication as a way use of the guarantee mechanism Conventional RSL mortgage finance of keeping costs down and making costs provided to any housing co-op involves payments that are unchanged by easier to forecast, achieving good approved by the Co-operative inflation (but which change when base environmental standards and providing Housing Finance Society Ltd. interest rates change) over the period of homes that are economic to maintain. the loan, often 25 years. Rents, on the Carefully specified timber-frame d) The lender takes a charge over the other hand, rise with inflation while construction has environmental benefits equity held by the CLT to provide maintenance costs rise with property in terms of the materials used and the additional security but only in the costs, or possibly above inflation because standards of insulation of the finished event of default. of wage increases reflecting growth as

Common Ground 46

well as inflation. Under the conventional A supplementary loan might also be the housing finance was 4 per cent plus an model, rents generate a surplus over route to resolving the problem of paying allowance of 2.5 per cent for inflation to time, which, in a rental model, can be set equity stakes to outgoing key workers. which a 1 per cent tilt was then applied, aside for cyclical maintenance and This is discussed in more detail below. resulting in a rate charged at between 5 renewal or simply used for further and 5.5 per cent (information supplied by schemes. CDS). In the UK at present this should 6.3 equate to a 4.5 per cent rate broken To keep costs to a minimum and deliver Co-operative Housing – Loan down into two per cent real interest and affordability from the outset, the most Guarantee Society Services 2.5 per cent long-term inflation. suitable mortgage profile is provided by Payments are obviously higher than in a index-linked finance, which balances The borrowing needs to be on the full index-linked version but if this meant rental income and loan repayments balance sheet of the co-operative or the finance would be more readily throughout the loan period. Index-linked possibly the CLT, and since they have no available, clearly it would be the better finance has not been on offer recently, prior track record, this would mean model to apply, and it does mean a lower nor have RSLs shown interest in raising relying solely on the security offered by level of risk. it, but Nationwide Building Society did the property. CDS Co-operatives have make such finance available in the developed a national model which 1980s. enables several relatively small co- 6.4 operatives to come together to achieve Other Forms of Finance and Real interest rates are the difference low rates A half per cent charge on the Funds for Financing Equity between inflation and actual interest mortgage debt premium on the mortgage Stakes rates: index-linked loans operate on the paid into a guarantee fund held by the basis of charging the real rate but Co-operative Housing Finance Society Consideration has been given to whether increasing the mortgage payment and Ltd (CHFS), and an annual 0.25 per cent other forms of finance might be raised the outstanding debt each year in line fee enables CHFS, the guarantee society on the scale needed. Interest-only with the Retail Price Index. If rents rise set up by CDS Co-operatives, to provide finance, using withdrawable shares (i.e. by RPI + 0.5 per cent, surpluses will still 12-month interest guarantees to lenders through an Industrial and Provident be generated. backed by the Co-operative Bank. This Society legal structure) and various has enabled low margins to be achieved, forms of ethical low-coupon finance, The longer the period of the loan, the even though there is little spare equity. have been discussed. Time would be more affordable the starting position will An overall rate of 4.85 per cent (3.75 per needed to develop such sources of be, as Table 6.1below shows. However, cent + 0.85 per cent + 0.25 per cent) funding in any volume. However, they finance for more than 30 years is not has therefore been assumed. could well assist where there is a strong readily available. community or local business interest in Canadian Housing Co-operatives have providing affordable homes and these Index-linked finance differs from successfully raised commercial funding options need pursuing further. (See conventional finance in allowing the debt using an index-linked model, which is a Appendix 6 for how a start could be to rise in the early years, which is then variation on this and includes a ‘tilt’ to made in developing such finance through paid off as the rent rises. Conventional reduce reliance on inflation. For example a partner community development finance at 4.85 per cent can be treated with inflation of 2.5 per cent and a tilt set finance institution such as London as a 2.35 per cent index-linked loan, with at one per cent, the payments start off at Rebuilding Society or the Wessex long-term inflation assumed to be 2.5 per a level (roughly) 1.5 per cent below Reinvestment Trust.) cent if an additional unsecured loan is conventional but (roughly) one per cent made available to cover the deferred part. above full index-linked finance. Because The other major issue that will have to be they rise at a rate below inflation though, addressed when raising finance to build there is more allowance for rising For example, an additional loan from an the homes is that of enabling occupiers maintenance costs in future years and employer on a second charge, equal to to take an equity stake with them when less risk if inflation were to take off. The around 12 per cent of the loan, could they leave equivalent to their contribution model is also based on a monthly rather provide bridging finance to enable to repayment of the loan for construction than annual interest calculation, which conventional finance to be treated as if it of the building. There would be sufficient helps to accelerate repayment in later were low-start index-linked. In due equity in the property to secure such a years. Nationwide Building Society has course, rising rentals will enable the top-up loan, but this makes for complex expressed interest in the model in the supplementary loan to be paid off as administration for the funder if the past. well. This route could be explored if loan profile cannot be monitored index-linked finance is not otherwise straightforwardly over the period of available. At the time the loan was made in repayment. Canada, the interest rate available on Alternative approaches might be:

Table 6.1: First year payment on a three per cent index-linked a) A more flexible arrangement for mortgage of £100,000 funding which is not based around a set repayment period, which Years 20 25 30 35 40 therefore allows additional funds to be drawn down whenever needed to Year 1 repayment (£) 6,722 5,743 5,102 4,654 4,366 pay off equity shares.

47 Common Ground

b) To arrange a separate loan for this funded, calculated in accordance with mortgage, the subsidy would have to be purpose as a second charge which is the equity sale formula in their lease greater so that the CLT would own 412 drawn down whenever one occupier (which will include a (say) 10% units: because the loan would be paid off leaves with the equity stake they have deduction to build-up the common faster, the resident would own 240 units built up. In the end this loan would assets of the co-operative). after 10 years but only 436 after 20 grow to a level determined by the years. average length of occupation of the So if they have paid off £1,100 of residents: it would never be paid off. mortgage principal during their tenure For those making higher or lower and the value of their property has payments than the norm in the model Until this is tested with a lender it will be increased by, for example, 10 per cent (based on 32.5 per cent of net salary for uncertain whether the aspirations set for they will take out the following equity someone earning £19,000 or £21,000, this tenure model can be achieved. In the payment: or 35 per cent of net salary for someone US, some limited-equity co-ops earning £23,000), the number of units underpinned by CLTs cap the capital Their initial equity deposit £5,000 purchased after 10 and 20 years is appreciation which accrues to the shown in Table 6.2 (below). The mortgage occupier at 25 per cent of the actual principal repaid £1,100 figure which would mean that much Unitisation could therefore be a way of lower equity stakes are paid out and in The growth in the value of thee helping to explain how the scheme would due course the loan could be repaid or at 70 units of equity funded by their work for different salary levels. least substantially reduced. These deposit and monthly payments options need to be explored further as less 10 per cent contribution to A refinancing mechanism, enabling the the model is worked up with potential common equity) £6,300 resident to cash in their units will be lenders and social investors. needed. If it is only possible to secure a Total end of tenure equity partial refinancing mechanism (for withdrawal £12,400 6.5 example, 90 per cent), the number of units owned after 10 or 20 years in the Under a unitised model, the repayments Making the model easy to table would be reduced correspondingly of principal could be regarded as understand: unitisation (having first excluded the 40 units increasing the number of shares owned purchased at the start which would be outright by the member so that, in the Dividing the property value into a number returned in full, subject to revaluation by example above, the occupier would own of ‘units’ may provide a way of explaining property inflation). the model. six shares outright valued at £1,100 each and would benefit from appreciation in Whether the ‘unit’ description assists in the value of a further 64 shares on which The value of, for example, a £140,000 explaining how ownership of the home is they are paying the mortgage. To enable property would be divided up into divided or, through the more complex this to work smoothly over the course of convenient equity units of say £100, description, how it is changing over the the mortgage, greater unitisation would £500 or £1,000 of value per unit (for the course of time, will need further be required, for example as 1,000 units of sake of simple illustration let us say into discussion and market-testing. 140 x £1,000 units of equity). The units value £140 each. This more complex representing the land value (say unitised approach is illustrated in £70,000) would be taken out and held Appendix 6, Annexes 5b and 5d. In the 6.6 by the CLT. Members would come in index-linked example in Annex 5b, the Reduced Land Value or Other with a deposit (say 5 x £1,000 units = property value would be treated as 1,000 Subsidy Input £5,000) leaving £65,000 to be funded units. The CLT would hold 213 worth as part of the common mortgage loan £29,820. Of the remaining 787, the Tables 6.3 and 6.4 show the subsidy taken out by the co-operative. The cost resident would have to buy 40 units needed to achieve affordability in the of financing the mortgage payments (£5,600) as a deposit, and the remaining three locations chosen. would be met by the member through 747 (£104,580) are held by the co- their monthly lease payments. The operative but subject to a mortgage. As The first table is based on 30-year index- member would therefore be financing 70 the loan is paid off over 30 years, the linked finance, assuming it is available at x £1,000 units of equity. When a member resident would acquire more units, so that 2.35 per cent with inflation at around 2.5 leaves, they would be entitled to after 10 years they would own 230 units per cent. Interest has been calculated withdraw, from the value of the co- and, after 20 years, 505 units, and the annually. (An example can be found at operative’s commonly held property mortgagee would have a reducing share Appendix 5, Annex 5a/b). assets, the amount by which difference in accordingly. In the case of a conventional the value of the 70 units of equity has grown during their tenure, that growth Table 6.2: Number of units purchased on the having two components: basis of resident’s income 1) the mortgage principal on the 65 Net Salary Initial units After 10 years After 20 years units of equity they have been financing out of their monthly member payments; and £19,000 40 193 428 £21,000 40 230 505 2) the growth in the value of the whole of the 70 units of equity they have £23,000 40 309 659

Common Ground 48

Table 6.3: Index linked finance (see Appendix 5, Annex 5a/b)

Newham Milton Keynes Stroud

1-bed 2-bed 1-bed 2-bed 1-bed 2-bed

Values £115,000 £145,000 £95,000 £120,000 £85,000 £105,000

Assumed average £21,000 £21,000 £19,000 £19,000 £17,000 £17,000 salary and range (£17,000 (£17,000 (£15,000 (£15,000 (£13,000 (£13,000 -£25,000) -£25,000) -£23,000) -£23,000) -£21,000) -£21,000)

Subsidy needed £1,899 £30,708 £0 £17,248 £1,715 £20,915

Land component of value £51,520 £72,274 £42,100 £59,395 £29,455 £41,365

Subsidy as % of land value 4% 42% 0% 29 % 6% 51%

Table 6.4: Conventional repayment finance (Appendix 5, Annex 5c/d)

Newham Milton Keynes Stroud

1-bed 2-bed 1-bed 2-bed 1-bed 2-bed

Values £115,000 £145,000 £95,000 £120,000 £85,000 £105,000

Assumed average £21,000 £21,000 £19,000 £19,000 £17,000 £17,000 salary and range (£17,000 (£17,000 (£15,000 (£15,000 (£13,000 (£13,000 -£25,000) -£25,000) -£23,000) -£23,000) -£21,000) -£21,000)

Subsidy needed £30,942 £59,743 £19,468 £43,468 £23,098 £42,293

Land component of value £51,520 £72,274 £42,100 £59,395 £29,455 £41,365

Subsidy as % of land value 60 83 46 73 78 102

Tilted finance on the Canadian model two per cent shortfall in the Stroud two- finance or tilted finance; and 50 per cent requires a higher percentage of land bed case – see Appendix 5, Annex 5c/d.) discounted land would suffice in many value but the subsidy required remains cases if index-linked funding can be less than the land value. (An example Low-cost finance is a requirement for the secured. In higher cost areas it is land can be found in Appendix 5, Annex 6). model but only at levels already generally costs rather than construction costs available to RSLs if the land equity can which are higher and this calculation If the only finance available is be gifted. should still hold true, but the land equity conventional repayment finance, higher to be foregone – or the subsidy if low- subsidy is needed and the land value Low-start finance would mean that the cost land is not available – is alone may not be enough to achieve model will work even where land is correspondingly greater. affordability unless low-start finance is available at around half open-market available. However, Table 6.3 shows, on value rather than at no cost; or where the Some of the routes to reduced land cost the basis of the land and build costs subsidy available is quite low. might be: assumed, that the land value would provide sufficient subsidy in all cases Free land would make affordable housing a) Land available at no cost to provide even with conventional finance (save for viable in all cases for index-linked for the employer’s own workers:

49 Common Ground G Where the employer of the key The initial capital cost will need to allow a 6.9 workers owns land which they are sum of around 0.5 per cent of costs to Community Development prepared to make available to provide for training for the residents in Finance Partnership – Interest house their employees; their management responsibilities and the benefits that can accrue from mutuality. Free Finance Service b) Land below full market value: This has been assumed to be contained As a supplementary objective, the mutual within a 15 per cent on-cost to cover G housing finance system could be as a result of a Section106 fees, interest, insurance and other costs. agreement requiring affordable adapted to encourage tenant owners to housing to be produced as part of save, which would enable them to a development; 6.8 acquire furniture cheaply and to carry out Risks and Sensitivities to internal improvements and repairs. One avenue might be a zero-interest savings G where the employer of the key Economic Changes workers (or a group of and loans mechanism where the charges employers) owns land which they If land values fall, no equity stakes will made for the loan are administrative ones only. The JAK Bank in Sweden operates are prepared to make available be provided.24 For the CLT, the risk is such a system, which is similar to credit below value; that rents will fall in line with values and union savings and loan operations. it will no longer be possible to charge G through exception planning rents at a sufficient level to cover costs. schemes where land will cost However, so long as land has been In Britain, a Community Development something above agricultural value obtained below value, there should Finance Institution partner, such as but much less than housing value. remain a margin with market rent – since London Rebuilding Society or Wessex this is the whole intention of the scheme Reinvestment Trust, could attract social The model provides an effective way of – that will provide a cushion against a fall investors to develop the funds. This JAK taking land value out of the equation and in rents. style co-operative savings system, based could assist planning authorities in on fees instead of interest, could be initially established as a simple facility for providing a consistent Section 106 Where variable rate finance is used and recycling funds. Within an expanding requirement or clear justification for an rates go up as a result of increases in shared-equity co-operative system, this exception approval. inflation, rents will also go up and the system could have enormous potential for intention that charges will rise by RPI + reducing repair and maintenance costs 0.5 per cent means the increase in rents 6.7 for an increasing number of CLT will cover the increase in mortgage developments in a region (see Appendix Tenure Requirements payments. In the short term, this might 6). In due course, there might be scope not happen because the Bank of The proposed basis for occupation would for developing interest-free funds for new England might be applying interest be that the occupier is responsible for construction and development as well. rates at an unusual margin above internal maintenance but occupies under inflation in an attempt to reduce an agreement, which must be passed to inflationary pressures. It is unlikely an incoming occupier so that no void 6.10 that this will continue for more than a period arises. The agreement would Cost Benefit Comparisons limited number of years and contingency specify the payments and how increases sums should generally be sufficient. with Shared Ownership and will be calculated and how the equity However in any event, shared-equity Homebuy payment is calculated when the occupier housing co-operatives must have leaves. It will require the occupier to be a Shared Ownership and a simplified flexibility to increase rents if increases par value shareholder in the Community version of Shared Ownership, Homebuy, in interest rates have an adverse impact Land Trust. are existing schemes that have been on them. devised to make home ownership The agreement will say that the affordable. Like the model described In the event of deflation, an index-linked appointed managing agent may first here, they are aimed largely at people in mortgage would not increase, but it deduct from payments the agreed work who can qualify for a mortgage but would be on a ratchet so it would not fall outgoings for management, maintenance, who cannot secure, or afford to pay, a either, whereas rents would be falling cleaning, future maintenance, mortgage mortgage at the level required to buy a with a falling RPI. To protect against this, repayments, and buildings and contents property in the open market. the CLT could similarly say that rents insurance. It will explain how savings cannot fall even if RPI + 0.5 per cent is made in the costs of cleaning and The Social Housing Grant is available to a negative figure: this would provide routine maintenance through provide Shared Ownership. It enables a short-term protection, but the CLT would management by the CLT itself, or by purchaser to buy, say, 50 per cent of the still get into difficulty if market rent levels keeping costs down, will come back to property equity with a mortgage and pay fall sharply. Deflation has not yet residents on an annual basis. Particular rent on the remaining 50 per cent (with a happened for significant periods except areas of savings and economies in co- service charge in addition where the in Japan, so the risk is low. operative housing (in contrast with RSL property has common areas to be housing) are secured by self- maintained). The problem has been that management input in respect of lettings competition between RSLs (to show that and repairs management, although co- they can produce affordable homes with operative members may elect to pay for the least possible Social Housing Grant) professional management if they so wish. has led to higher rents and management

Common Ground 50 costs and hence diminishing advantages be argued that it is better to leave them Against these advantages, it is legally in comparison with the cost of outright to decide. On the other hand, for those and financially more complex. For purchase. on low incomes, housing benefit is fixed example it works less transparently in with reference to salary alone, and a relation to the purchase of extra, or Homebuy simplifies the model by counter-argument is that, where public fewer, shares. But this should be providing an interest-free loan, with no subsidy (or free land as a community overcome by tenant ownership and co- rent charged on the element of equity benefit) is involved, there has to be a operative education. As the Focus Group not purchased and no continuing consistent and fair approach relating findings in Section 5 show, potential management involvement from the RSL. payments to salary through a formula. residents have not found the shared- The attraction of Homebuy is also that equity co-operative model hard to the average amount of subsidy has been Shared Ownership provides for understand. Most importantly, the lower – frequently only 25 per cent. staircasing so that further shares can be increases in affordability and long-term purchased if salary rises or sustainability of the model, deal with The model described here achieves circumstances change – or for major criticisms that have been levelled affordability by proposing that finance is staircasing down to a lower share if against Shared Ownership and Homebuy. raised by the co-operative and not salary falls. Some consideration has been through individual mortgages. This means given to basing payments in this model that repayment can be spread over a on a percentage of salary with deduction longer period – 30 years rather than the at source by the employer, so that 25 typical of an individual mortgage. The payments could rise or fall. However, for assumption has also been made that simplicity, it is proposed that the payment index-linked or other low-start finance should be fixed when the lease is signed will be used. Low initial payments based on current salary. The model does increase with inflation, not quite keeping allow, however, for further optional pace with rising rents if a deferred payments to secure a larger equity stake interest mortgage is used (which rise by if the resident wishes; subject to cash RPI + 0.5 per cent). flow, the co-op could have a discretion to agree to allow payments to be reduced, The effect of both of these is that equity with a corresponding reduction in the created through repayment of the loan resident’s share of the co-op’s equity. builds up very slowly in the initial years compared with Shared Ownership or The other negative consequence of Homebuy (or may even go into reverse if staircasing is that it means the tenure property prices do not rise). But as Table has only a limited life. Shared owners 6.4 shows, the tenure is affordable to quite often choose to make back-to-back people on lower salaries for the same transactions: obtaining a resale valuation, input of subsidy. (It has generally been buying the remaining equity at this price proposed here that the land value should and seeking to sell on the basis of 100 be taken out of the equation using a per cent ownership at a marginally higher Community Land Trust but a capital price, especially in recent market subsidy has an equivalent effect.) The cost conditions where valuations rapidly of services has also been assumed to be become out of date. Homebuy also around 25 per cent less as a result of generally ends on the first resale. The tenant management. The main economies shared-equity co-operative model here are feasible because a) individual uniquely maintains each unit as residents carry out routine repairs and b) permanently affordable for future there is far less management time generations: any subsidy is retained and involved in repairs or lettings. used over and over again.

The model is more flexible than Shared In theory, staircasing releases equity to Ownership or Homebuy in allowing enable a low-cost home to be provided differential payments for an equivalent again, but there are other demands on property and in relating payments to this RSL income, such as winning salary rather than offering only limited- competitive bids for Social Housing equity share options such as 25 or 50 Grant elsewhere. In any case, it may per cent. (Some RSLs sought to make eliminate affordable homes in the original Shared Ownership more flexible but have high cost area where an intermediate been discouraged from doing so because form of tenure was needed. of the costs involved in purchases of small tranches). The model also differs in The shared-equity co-operative model making a direct connection between described here thus compares very salary levels and payments. In Shared favourably with the Shared Ownership or Ownership and Homebuy, it is left up to Homebuy options in terms of the purchaser to calculate what they can affordability. It compares extremely well afford. As each person’s lifestyle places in its ability to lock in the value for future different demands on their salary, it can generations.

51 Common Ground Table 6.5 Comparison with Shared Ownership and Homebuy

Individual mortgage rate 5% RSL borrowing rate 4.85%

Years for mortgage 25 Years for RSL loan 30

Model Shared Ownership Homebuy

Normal At model Normal At model subsidy level subsidy level £££££

Value of property 115,000 115,000 115,000 115,000 115,000 Subsidy 29,354 34,500 29,354 28,750 29,354 Individual mortgage1 46,000 46,000 86,250 85,423 Net cost to Co-op/RSL 85,646 34,500 39,646 0 223

Payment by resident Services etc 328 410 410 410 410 Management 146 182 182 Rent 2,206 2,535 Mortgage or equivalent2 5,476 3,264 3,264 6,120 6,061 Total initial payments 5,950 6,061 6,390 6,529 6,470

Salary level for affordability* 22,660 24,469 25,801 26,301 26,064

1 mortgage at 3.5 times salary plus non-mortgage costs 32.5% additional salary 2 based on 100% mortgage for comparison purposes: model proposes a 4% deposit

Notes: The advantages of the model over Shared Ownership might be cited as: G slightly lower payments as a result of longer mortgage period and marginally lower rate G reduced management costs G no requirement to have both an individual mortgage and pay rent/services G greater share of equity appreciation G equity locked permanently into CLT G more flexible affordability calculation

The advantages of the model over Homebuy might be cited as: G lower payments as a result of longer mortgage period and lower rate G equity locked permanently into CLT G more flexible affordability calculation

Common Ground 52

7. Conclusions and Next Steps

In 2002, as the stock market continued Midlands, and the London-Stansted- to address the housing supply problem. to fall, the national housing market Cambridge corridor. In his London Plan, The first two were to increase supply in a increased in value by over 25 per cent. As Ken Livingstone is seeking to secure strategic way in areas where it is needed, a consequence, housing prices in London housing development of 23,000 per year and to modernise and regionalise the even for small flats in most boroughs over the next 15 years. In 2001, only planning system in ways proven to work jumped in value by more than the level of 1,200 low-income homeownership better and more efficiently in other the average wage for key workers. This properties were constructed in London European Union countries. But thirdly, the market increase is clearly unsustainable against applicant demand of 41,000. The report called for the Community Land and, since February 2003, house prices in challenge is enormous. Trust model to be applied to secure long- London and the South East have begun term affordability in order to meet housing to fall. According to some experts, this is The Government’s Sustainable needs. The Greater London Authority has likely to lead to a repeat of the negative Communities Plan sets out a bold new highlighted the potential for mutual equity crisis of the early 1990s. In any vision for more inclusive, mixed housing solutions to be developed more event, most experts agree that we have communities with better amenities, cost effectively in order to deliver housing seen the end of the huge explosion in improved local public transport and solutions for key workers. house prices. However, in London, the health facilities. The objective over the South East, and the East of England next three years has shifted from In its Sustainable Communities Report, the there is now a serious mismatch between Labour’s initial focus of tackling a huge Government has implemented the first two housing supply and housing demand. backlog of council housing disrepair to a of the Joseph Rowntree Foundation new agenda of affordable housing recommendations, but not the third. This The size of the deficit in housing supply is development, with lower cost report has researched and tested the controversial. The Joseph Rowntree construction methods and high market feasibility for a new mutual Foundation estimates it to be at least ecological standards. Over the next three housing solution, a shared-equity housing 100,000 units per year. The Government years, £5 billion will be spent on this new co-operative. Using the CLT structure to has recognised the gap as about 60,000. housing strategy and £1 billion on key underpin this form of mutual housing Part of the gap can be addressed by worker housing. The Government would provides a permanent means of locking in releasing some of the more than 700,000 like to secure two units of key worker any required subsidy in the form of free or empty properties for housing. But many of housing for the same subsidy as one unit discounted land (or an equivalent sum in these are in areas of low housing demand. of social housing, and John Prescott’s grant aid) in ways that other low-cost Homeownership Task Force has been homeownership schemes do not. As far as the supply of new housing is charged with developing a sound concerned, the pattern is mixed. In the implementation strategy. In addition to the CLT mechanism, this North of England, supply has outstripped new model draws on effective elements of demand in many areas and the This research has sought to explore the the tenant ownership co-operative model, Government has concluded that potential for reintroducing the forgotten which has been successful in Scandinavia clearance will be needed in some places limited-equity co-operative model, since the 1920s in providing housing for to balance this. In the West Midlands, popular in Britain before the First World between 20 and 25 per cent of all supply and demand are closer to War in the form of tenant co-partnership households. The research concludes that equilibrium. In the South West, population and co-ownership in the 1960s and the shared-equity housing co-operative growth is twice as fast in rural areas as 1970s. It was a model that was lost can operate in Britain as a sustainable in urban centres, and the location of because, as a tenure form, it was low-cost form of key worker housing. housing supply is a problem. Here, more unstable, poorly adapted from Sweden creative intervention is needed in coastal and had no design features preventing Moreover, the research team has tested and market towns and in villages to demutualisation. the specific elements of the shared- increase supply sensitively in order to equity co-operative model in focus group tackle the lack of affordable housing. The limited-equity housing co-op model discussions with key workers in both operates extensively in other countries – London and the South West. The model To compound problems for key workers including Sweden, Norway, Denmark, and has proved to be highly attractive to in the South West, while house prices are the US. Land price inflation in them. It also appealed to the housing similar to London and the South East, Scandinavia has led to unaffordability for professionals we consulted, from co-op average wages are 10 per cent below the low- and moderate-income practitioners to RSL developers, local the national average despite very low households it was designed for. In both authorities and key worker employers. levels of unemployment. There is only the US and Canada, Community Land limited and patchy provision of Starter Trust mechanisms have been developed In the Sustainable Communities Plan, the Homes Initiative funds for key workers – to maintain the permanent affordability of Government has announced that it is mainly in the northern areas of the region limited-equity and par value rental co- considering widening the delivery of low- surrounding Bristol and Bath. ops. To date, this mechanism has been cost home ownership schemes to non- limited in application, but it demonstrates housing association bodies. As an The Government has decided to that a sustainable solution can be found. experiment to test this potential, it is concentrate its efforts on London and in recommended that a pilot project be funded four growth areas in the South East The Joseph Rowntree Foundation Land to test the shared-equity co-operative model including the Thames Gateway, Ashford Inquiry report recommended that the on at least three sites in London, Milton in Kent, Milton Keynes, and the South Government adopt three main measures Keynes and the rural South West.

53 Common Ground Endnotes

1 The symbiotic nature and scope of these 8 At the end of the Second World War, ownership and control of communities practical reforms along with some of this 156,000 prefabricated houses were and to avoid overpaying investors. It is correspondence is reproduced in erected to deal with the acute housing by capturing over-payments to investors Chapter 11, ‘Comparison of Community shortage (Hetherington, 2002a). These that CLBs provide a more efficient and Land Trusts and Co-operative Land were of poor quality, designed to last equitable tenure system, which in turn Banks’ in Building Sustainable only 15 years and only about 500 avoids the need for continuous subsidy Communities: Tools and Concepts for remain today. Modern day equivalents to provide low-cost housing. Dynamic Self-Reliant Economic Change, a book are of much higher quality and will last tenure also provides a formal framework edited by Ward Morehouse based on far longer. Moreover, construction time to legitimise squatter settlements and contributions by Bob Swann, Shann on site can be cut by up to two thirds – provide a systemic improvement in land Turnbull and C. George Benello. only six weeks, compared to tenure. CLBs accordingly are more conventional site building time of 16-18 ambitious than CLTs and the precise 2 This research builds upon recent studies weeks. At present only about one per difference between both forms of land funded by the Housing Corporation cent of housing construction is modular stewardship is set out in a sequence of Innovation and Good Practice and factory built – but major house papers by Turnbull (1977, 1983, and Programme into the design and builders like Westbury and Barratts have 1986) listed in the Reference section. implementation of Community Land set up factories to expand operations Trust solutions for affordable housing dramatically in the years ahead. 13 The generalisations made here draw on needs, which in turn were led and co- Registered Social Landlords in the substantial research undertaken in 1984 ordinated by Robert Paterson at the South East have been encouraged by J Birchall for his PhD. This consisted Centre for Community Finance Solutions under the Government’s new Challenge of qualitative interviews with active at the University of Salford. Many of Fund to use modern, off-site methods members of four co-ownership societies, those involved with these earlier studies, for new provision. Increased demand by a quantitative interview survey of all including Robert Paterson himself, have developers and Registered Social members of one society, interviews with been involved in the fieldwork for this Landlords should lead to further key informants such as Harold Campbell project, particularly in the South West. investment in production facilities. As and Housing Corporation officials, and well as quality control improvements, documentary analysis of Corporation 3 The financial terms here are explained in modern methods of provision easily documents and the archive of the detail in the Glossary. meet the Egan agenda to rethink Council of Co-ownership Housing construction, and will help with the Societies. various aspects of sustainable 4 See Section 6. development. 14 Its magazine the Co-owner and minutes 5 This could be applied to limited or of its meetings are a valuable source of 9 The Greater London Authority was restricted equity housing if established information. interested in limited-equity or shared- through new social enterprise delivery equity models beyond conventional agencies as suggested by the Joseph 15 In the sense of an autonomous group of Shared Ownership and including lessons Rowntree Foundation Land Inquiry people who identified with it and wanted from limited-equity co-operative models report. However, extension of such tax to make it work. overseas. credits would require a shift in Treasury policy. Social enterprise investments 16 Figures supplied by the Housing qualify for tax credits but housing 10 See Glossary for explanations of par Corporation. investments are currently excluded. value (non-equity) co-operatives and commonhold in respect to Leasehold 17 At first the Greater London Council was Enfranchisement. 6 This represents more than a six-fold the relevant local authority, then the increase in 20 years; in 1982, the London Borough of Tower Hamlets. average house price in London was 11 According to the Institute for Community Economics (the American national £38,500. Average prices vary widely 18 Amortised means the gradual reduction association body for CLTs), “This is from the five main tracking bodies, which of the outstanding balance of a loan. include HM Land Registry, Halifax, regarded as fair by CLT owner occupiers, who are educated, as Nationwide, RICS and Hometrack. 19 See Glossary. Consequently the ODPM will be members, to understand the social introducing in autumn 2003 an official purpose of housing.” 20 The actual percentage will need to be Government index to be compiled by the tested and developed in piloting work Treasury and the Bank of England 12 CLBs mitigate the problems of shared- and through experience in projects (Collinson and Stewart, 2003). equity co-operatives discussed above by combining a number of innovations, gained through working with financiers. Oswald has forecast that up to half a including the principles of modern US 21 Rent paid by co-operative members million homeowners are now in danger of Real Estate Investment Trusts (REITs), includes maintenance of the fabric of losing their properties. Martin Ellis, chief duplex tenure, dynamic tenure and self- the building, hence the assumption that economist, for both Halifax and the Royal governance control architecture. Duplex the element of payments applied to Bank of Scotland, has said “There is no tenure is fundamental to a CLT and is repaying borrowings for construction doubt there will be pockets of negative delivered by the resale formula, which and acquiring units equates to a value equity in the capital and the South East allows the value of improvements on with no depreciation factors. In other over the next year”. (Hill, 2003). land to be separated from the value of the site so that these values can be words, the depreciation element is equitably allocated on a sustainable covered as part of the service charge. 7 The prevalence of a widespread diversity basis. Dynamic tenure allows ownership of leases with varying clauses in each to transfer from non-users to users at 22 However, there is a danger with this leads to higher legal costs and to the depreciation rate of capital; this method that building costs can rise frequently low standards for occupiers in feature serves to eliminate alien either much faster or much slower than terms of legal rights.

Common Ground 54 market valued generally. As a result of on his ceasing to be a member and periodic shortages in skilled labour, subject to any condition stated in either inflation in building costs above a long- agreement to a sum calculated by term average is common and there are reference directly or indirectly to the also significant regional variations in value of the dwelling.” building costs from time to time. 27 To ensure that either Housing Benefit or 23 Coventry Churches Housing Association Income Support is available, the scheme developed a mutual mortgage scheme should be cleared with HM Treasury and for housing for retired people in 1980s. the Department of Work and Pensions. Mortgage Interest Relief up to £30,000 was then available and this was used as 28 The scheme needs to be cleared with part of the incentive package for a the Inland Revenue to ensure that it typical 12-unit development. The accepts that it should be treated in the scheme was called the Sundowner Plan same way as Shared Ownership. and co-owner members paid a £1 member share and took responsibility 29 If the lease is assignable at a nil price, for their share of the group mortgage the 1% payment would only be payable which was based on a fixed charge plus once; it is important that assignments be an additional payment to hedge against completed through the co-op, however, an increase in interest rates. The which would contract to assign the Housing Association developer retained tenancy on its existing terms, to avoid five per cent of any increase in market informal ‘deals’. Thus a provision for value and Sundowner members could assignment at a nil price adds secure 95 per cent. However the complexity for relatively small gain. scheme became problematic when negative equity emerged in the early 30 Again, the scheme should be cleared 1990s and the properties could not be with the Inland Revenue. sold. Sundowner is still in operation and now part of Touchstone Housing Association. 31 It was the Great Depression in the 1930s and the mortgage foreclosures by banks and evictions of poor farmers 24 Such as the Co-operative Housing in Denmark that stimulated creative Finance Society Ltd, the loan guarantee action to avoid this calamity in the future society established by CDS Co- from reoccurring. operatives. The principle is that the co- op has to borrow to maintain its mutual advantage; the CHFS can provide a loan 32 This was crucial in Scandinavia as, guarantee at low cost. It would take a unlike in Britain and Ireland, where credit second charge over the asset (the land) union loans are for small sums to and provide a 12 month interest service basic consumer needs, most guarantee to offer the main lender JAK loans in Denmark and Sweden are continuity of payment in the event that a for housing finance. Thus today, JAK co-operative project becomes insolvent. banking in practice more closely This has the effect of reducing interest resembles the financing action of small rates and making more funds available. to medium-size building societies. If, on the other hand, the CHFS could act as a wholesale lender and advance, say, 15% of the amount borrowed, there would be no need for a guarantee and the loan could be even cheaper. This would be contingent on CHFS becoming a Community Development Finance Institution. At present, Treasury rules focus on community finance for enterprise and tax credits for housing finance are not yet available.

25 As income from members’ monthly payments rises over time, tracking open market rents, the co-op’s ability to borrow will also rise and it will be in a position to borrow additional sums at a level which takes into account increases in expenses over the same period.

26 This is defined as “a scheme under which the dwelling is let by a housing association and the tenant or his personal representative will under the terms of the tenancy agreement or of the agreement under which he became a member of the Association, be entitled

55 Common Ground

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57 Common Ground ODPM (2003) Sustainable communities in Svensson, K (1995) ‘Not the middle way but Walker, D (2002) ‘Livingstone unveils blueprint London – Building for the future. both ways: co-operative housing in Sweden’, in for subsidised housing’, The Guardian, 27 Heskin and Leavitt op cit. February 2002. ODPM (2003) Sustainable communities in the South West – Building for the future. Swann, R (1972) The Community Land Trust: Walker, R (2001) New Deals for Leaseholder, a Guide to a New Model for Land Tenure in London: Mutuo, March 2001. Oswald, A (2003) ‘Your boom is nigh: the America, Center for Community Economic great housing catastrophe’, The Times, 3 Development, Massachusetts. Watson, G (1997) The Wisdom That Builds January 2003. Community, Seventeenth Annual Lecture of Touchstone Homefinder, All about the the E F Schumacher Society, Williams College, Papworth, J (2003) ‘First time buyers priced Touchstone Sundowner plan, information Williamstown, Massachusetts, October 1997, out of the market’ and ‘Who will help you into leaflet, Touchstone Housing Association. E F Schumacher Society, 1999. a starter home’, The Guardian, 9 August 2003. Turnbull, S (1975) Democratising the wealth of Weatheralls (2002) Innovation & Good Paterson, L (2003) ‘UK property boom rolls nations from new money sources and profit Practice – Affordable Rented Housing for Key on’, The Times, 8 August 2003. motives, Sydney: The Company Directors Workers, report for the Housing Corporation, Association of Australia. May 2002. Pickering, P, Parry, E, Jenkins, K and Joliffe, A, CoHousing for Older Women, Blue Star Turnbull, S (1976) Land Leases without Weaver, M (2002) ‘Fears over cash for House, Autumn 2002. Landlords, presented at the United Nations affordable homes – Key stroke’, The Guardian, Habitat Forum, 8 June 1976, Vancouver, 18 September 2002. Reicher, A (Oct 2002) personal Canada. . Weaver, M (2003) ‘Streets ahead’, The Guardian, 12 February 2003. Richman N (1995) ‘From worker co-operatives Turnbull, S (1977) ‘A Peaceful Path to Real to social housing; the transformation of the Reform: Self-financing suburbs’, Royal White, K (1994) Managing the Money Side: third sector in Denmark’, in Heskin and Leavitt Australian Planning Institute Journal, 15:3, pp. Financial Management for Community-Based op cit. 81-84, August 1977, Sydney. Housing Organizations, Institute for Community Economics, Springfield, Ridley, M., Origins of Virtue. Turnbull, S (1983) ‘Co-operative Land Banks Massachusetts. for Low Income Housing’, contribution to: Land for Housing the Poor, pp. 81-84, Angel, Rodgers, D (1999) The New Mutualism: the Wintour, P (2002) ‘“New Ken” looks to City for Archer, Tanphiphat, and Weggelin Eds., Select Third Estate, London: Co-operative Party. London success’, The Guardian, 22 June Book: Singapore. 2002. Rohe, W and Stegman, M (1995) ‘Converting Turnbull, S (1986) ‘Co-operative Land Banks’, public housing to co-operatives: lessons from Wimbourne L and Hare L (2001), Through the contribution to: The Living Economy: a New Nashville, in Heskin and Leavitt, op cit. Keyhole, London Housing Federation report Economics in the Making, Paul Ekins (editor), on Key Worker housing needs in London. Routledge & Kegan Paul: London. Royal Commission on Housing in Scotland (1917). Witt S and Swann R (1995) Land: Challenge Turnbull, S (1986) ‘Community Land Bank: the and Opportunity, E F Schumacher Society, Way Forward’, Town & Country Planning May 1995. Salman, S (2002) ‘Looking abroad for the Journal, September 1986, 55: 9, p. 237 and solution’, The Guardian, 20 February 2002. editorial comment, Ideas from Down-under, Yerbury, J (1913) The Story of Co-operative p. 236, Town & Country Planning Association: Housing, London: Tenant Co-operators Ltd. Scott, K (2003) ‘Mark in the soil’, The London. Guardian, 13 August 2003. Tyrell, E (2002) ‘Critics ask: what has Senior Cooperative Foundation, www.seniorco- happened to common decency?’, The opnet.org. Guardian, 2 March 2002.

Shelter and Joseph Rowntree Foundation Tyrell, E (2003) ‘In search of common sense’, Commission on the Private Rented Sector The Guardian, 1 February 2003. (2002) Private renting: a new settlement Shelter. Urban Homesteading Assistance Board (1984) Where You Stand – a Shareholders Slavin, T (2002), ‘From zero to green hero’, Guide to Co-operative Ownership, UHAB and The Observer, 4 August 2002. Department of Housing Preservation and Development, City of New York. Spackman, A (2002) ‘Trading places 1: buyers force prices up by 30%’, The Times, 9 Urban Homesteading Assistance Board November 2002. (1996) Homesteaders Handbook Volume 1 – A Guide to Organisation and Governance, Stewart, H (2002) ‘House boom, economic UHAB and the Department of Housing bust’, The Guardian, 20 November 2002. Preservation and Development, City of New York. Stewart, H (2003) ‘Property cash-in soars as income growth slows’, The Guardian, 5 July Urban Land Fill Institute (2001) Urban Infill 2003. Housing – Myth and Fact, Urban Land Fill Institute: Washington, DC.

Common Ground 58 Glossary of terminology

Community Interest Company sold, and the amount repaid in these Innovation and Good Practice Grant This new company form is still subject to cases is 25 per cent of the value of the A revenue programme managed by the consultation. It is intended to be an property on resale. If the purchaser dies, Housing Corporation; its aim is to help appropriate vehicle for social enterprises the arrangement may be transferred to a housing associations, tenants and others that aim to use their profits and assets family member/partner, who then takes develop new ways of managing housing for the public good. They should be easy over the payments and repays the and related issues and disseminate to form and flexible, but have certain element owned by the RSL when they information among social housing special characteristics designed to eventually sell. providers. ensure they operate for community benefit. CICs will report to an Housing Association Intermediate and sub-market housing independent regulator, and be Housing associations are non-profit Housing whose cost falls between open accountable for how they benefit the organisations that build, regenerate and market and social housing levels either in community and for the involvement of manage social housing. They are usually the rented sector or the area of low-cost their stakeholders in their activities. A key registered with the Housing Corporation home ownership feature is an asset lock. and aim to house people on low incomes and those who are homeless or living in Islamic Finance (Unit Trust Funds) Community Land Trust poor conditions. Many housing The main objective of an Islamic Unit Trust for holding land for community associations rent most of their housing to Trust is to invest in a portfolio of ‘halal’ benefit; distinguished from conservation families and people nominated by local stock that complies with the Islamic land trust or environmental land trust authorities; most will therefore not accept principles of the Shariah. Such ‘halal’ because its purpose is the development applications direct from single homeless stocks will exclude companies involved in of the land for social or community people. Some also manage hostels and activities, products or services related to purposes, as opposed to the preservation housing projects and lease buildings to conventional banking, insurance and of its environmental integrity. voluntary organisations providing financial services, gambling, alcoholic accommodation, care and support to beverages and non-halal food products. Egan construction homeless people and other groups. The returns of the Islamic Unit Trust will Principles developed in response to the also avoid the incidence of ‘riba’ or usury 1998 report Rethinking Construction by Housing Corporation interest through the process of cleaning Sir John Egan’s Construction Taskforce. A government body operating under the or purification by the removal of such Principles included targets relating to Office of the Deputy Prime Minister, amounts representing the interest productivity, profits, defects and reduced responsible for public investment in element which has unavoidably accrued. accidents and it aimed to encourage housing associations. Such proceeds are normally donated to RSLs (see below) to take opportunities charities. For a brief description of the for standardisation, pre-fabrication and Index-linked mortgage application of this principle to the modularisation into account. Both the annual mortgage payment, and purchase of housing through an Islamic the outstanding debt at the year end, are Property Unit Trust as set out in Equity-linked mortgages increased annually by the rate of Section 4.1. Similar to Shared Ownership, but the inflation. The interest rate charged should lender takes a stake in the equity of the normally be the interest rate on a Land pooling property directly rather than the RSL and conventional mortgage less the rate of A process in which landowners of lends less than the full amount required inflation (e.g. if the conventional fragmented parcels of land collaborate to to buy the home. Interest is only charged mortgage rate is 4.5 per cent and pool land for major development or re- on the amount of the loan and not on the inflation is two per cent an index-linked development schemes. Landowners may full value of the property. When the mortgage would be at an interest rate of retain a stake in the land ownership. A property is sold, the lender receives 2.5 per cent). Where this formula is used, plan sets out the procedure for land payment in proportion to the amount of an index-linked mortgage repays a debt assembly, servicing and disposal, and equity that they own, and therefore also over the same period as a conventional may involve some form of compulsion. benefits from any increase in the price of mortgage. Payments start at a much the property. lower level than the fixed payments of a Leasehold enfranchisement conventional mortgage but increase Under certain circumstances, Homebuy throughout the term and will be leaseholders of a house or flat have the A government-backed scheme, funded considerably in excess of the annual right to purchase an extension to the by the Housing Corporation and conventional mortgage payment by the existing lease or to purchase the freehold operated by Registered Social Landlords final year. Index-linked mortgages are a from the existing freeholder. (RSLs). It is available only to existing form of low-start mortgage and provide a Leaseholders of flats can exercise the RSL tenants and those on local authority way in this model of matching loan right to enfranchise by purchasing the waiting lists for housing. The buyer repayments to rental income throughout freehold collectively. The right was contributes 75 per cent of the price of the period of repayment. A conventional introduced by the Leasehold Reform Act the housing through personal savings mortgage by contrast will result in 1967 and originally applied to houses and a mortgage, and the RSL lends the surplus income as rents rise with inflation only. It was then extended to remainder. There are no repayments on but needs higher initial rents to cover the leaseholders of flats by the Leasehold the 25 per cent typically funded by the cash flow. Reform Housing and Urban Development RSL; it is repaid when the property is Act 1993, and then further extended

59 Common Ground under the The Commonhold and Real Estate Investment Trusts grant of planning permission. Planning Leasehold Reform Act 2002. Primarily a US phenomenon, although obligations tend to apply to major they do exist in other countries. They are development schemes. They should Low-start mortgage regulated under general US corporate represent a benefit for the land and/or Similar to a repayment mortgage but with law. Unlike banks, they do not offer any the locality; they are registered as Local an interest-only or discounted special protections. They function in Land Charges and are normally introductory payment period. Repayments much the same way as a mutual fund or enforceable against the people entering of capital and interest are then unit trust for real estate, in that investors into the obligation and any subsequent introduced and sometimes phased in. obtain a diversified portfolio under owner of the site. The total amount of interest and professional management. Its shares are repayments over the life of the mortgage freely traded, usually on a major stock Section 236 funding are higher than with a normal repayment exchange. It has special status under the US legislation enacted in 1968 (Housing mortgage, but payments during the initial US tax code, allowing it to pay no and Urban Development Act). It provides low-start period are reduced. corporate income tax provided its a subsidy to housing projects to reduce activities meet certain statutory mortgage interest payments. The Mother-daughter co-operative requirements, including requirements as maximum subsidy was set at the structure to number of shareholders, restrictions difference between the monthly payment A system of co-operative development on its business to certain commercial real for principal, interest, and mortgage especially strong in the field of mutual estate activities and certain other insurance premium on the outstanding housing where a secondary co-operative, ownership limitations. REITs must mortgage at the market rate of interest or ‘mother society’ in a geographic region distribute 90 per cent of net income. and the monthly payment, which would provides development expertise for new Most American states also exempt REITs be required under a mortgage bearing an housing and helps arrange finance as from state income tax. Shareholders pay interest rate of one per cent. well for founding new primary housing tax on the income they receive. co-operatives, or ‘daughter societies’. The Shared Ownership mother society also provides training for Registered Social Landlord (RSLs) Shared Ownership schemes are new members and arranges or directly Registered Social Landlords (RSLs) are administered by Housing Associations. provides other core services at low cost independent housing organisations They provide for the purchase of part of on behalf of all daughter societies. registered with the Housing Corporation the value of housing (conventionally 50 Accountability is to the daughter under the Housing Act 1996. Most are per cent) by the prospective resident, societies as each daughter society housing associations, but they also with the option to ‘staircase’ up to a member democratically elects the board include trusts, co-operatives and higher percentage of ownership in the of the mother society. companies. future; the registered social landlord (RSL) retains ownership of the remainder Par-value co-operative Rental purchase of the equity, for which it then charges Members take out a nominal share which The resident has a lease of the dwelling the leaseholder rent. The rent charge is is returned ‘at par’, or for the same cost, and pays rent for a specific term, at the set as a percentage of the affordable when they leave. May also be referred to end of which ownership is transferred to rent the RSL would charge for a similar as a ‘non-equity’ or, in the US, a ‘zero- him or her. Used in the past to avoid Fair rented property; the percentage equity’ co-operative. Rent provisions under the Rent Acts (no reflecting the percentage of the equity longer in force), but now applied in retained by the RSL. Planning Policy Guidance Note 3: Islamic finance instruments to enable Housing home purchase over time without Social Housing Grant Sets out government policies for application of interest. Rent is acceptable A capital grant provided by the Housing planning in relation to housing. as a payment for a real benefit and takes Corporation to fund housing associations the place of interest, which is prohibited and develop social housing. Regional Planning Guidance under Islamic law as usurious. Sets out government regional planning Starter Home Initiative policy. Re-sale formula The Starter Home Initiative (SHI) is a Formula for calculation of the price to be Housing Corporation scheme to help key Property Unit Trust paid to homeowner residents or limited- workers, primarily teachers, health Property unit trusts invest in real property equity co-op leaseholders on departure workers and the police, to buy a home in through a pool of funds with exposure to from a community land trust. areas where high house prices are the property market. Returns are undermining recruitment and retention. generated from the rental income, plus Section 106 Agreement The scheme is available in London, the any capital appreciation over the period Section 106 Agreements are a type of South East and housing hot spots in the units are held. Most property units are ‘Planning Obligation’ authorised by Eastern and South Western England. listed on a stock exchange to ensure that Section 106 of the Town and Country the fund manager has sufficient funds Planning Act 1990. A planning obligation Tilting mortgage finance over the life of the Trust to maintain a is a legal agreement between the A tilting index-linked mortgage works in sufficient level of investment without the planning authority and the the same way as an index-linked need to maintain a pool of liquidity to applicant/developer, any successive mortgage, but applies a lower annual handle redemptions/sales of units. owners and any others who may have an increase to both loan repayments and interest in the land. It either requires the the outstanding debt. Where inflation is developer to do something or restricts 2.5 per cent and a one per cent ‘tilt’ is what can be done with land following the applied, the mortgage profile will be

Common Ground 60 similar to that for an index-linked mortgage based on inflation of 1.5 per cent. The tilt means that where the income to pay the mortgage comes from rents, which rise annually with inflation, a surplus will arise which is smaller than for a conventional mortgage but larger than for an index-linked mortgage. In the case of an index-linked mortgage, the surplus is eliminated in favour of the lowest possible starting payment.

Unitary Development Plan Contains the planning policies governing development in an area and controls development in unitary authorities such as London boroughs at both strategic and local level.

61 Common Ground Appendix 1: Research Terms of Reference with the Housing Corporation

1. Research Title: Mutual Solutions to 3. Project Objectives: Meet Housing Need for Key Workers in London and other Higher Cost The research will seek to develop Regions of England – Market innovative funding mechanisms that Feasibility Study create an attractive way of enabling key workers on low to middle 2. Project Purpose: To research the incomes of investing in their homes feasibility of developing an without some of the costs intermediate sub-market form of attributable to other forms of low- limited-equity housing co-operative cost home ownership with subsidy for key workers who are currently levels that are attractive to priced out of the market in high government; housing cost areas and to market test the model to assess the likely The model developed will be market demand. tested with key worker focus groups to test likely demand and to verify that the limited-equity model is an attractive sub-market form;

Exit routes from the investment will also be considered and tested;

A report will be produced detailing the research methodology, the model devised and the results of the market research to test likely viability and likely demand;

A key desired outcome from the project is to create a viable model that can be subsequently be piloted, with local authority support, in London and the South West.

Common Ground 62

Appendix 2: List of Third Party Interviewees

London 19. Augustina Nyamaah, 36. Jane Alderman Tower Hamlets Borough Council Somer Housing Group 1. Rachel Power Richard House Children’s Hospice 20. Alex Gipson 37. Barry Wyatt Royal Bank of Scotland/NatWest Head of Development Services, 2. Jakki Moxham Stroud District Council Springboard Housing Association The South-West 38. Andrew O’Brien 3. Cllr Alec Kellaway 21. Martin Large Head of Planning, Stroud District Cabinet Member, London Borough of Stroud Common Wealth Ltd Council Newham 22. Max Comfort 39. Sue Creasy 4. Redhika Bynon Stroud Cohousing Ltd Knightstone Housing Association, London Borough of Newham, Weston-super-Mare Education Department 23. Andrew Beard Architect 40. Shirley Evans-Jones 5. Bridgette Osakuni Hastoe Housing Association London Borough of Newham, 24. Gabrielle Kaye Housing Partnerships Wynstones School 6. Peter Elia 25. Philip Kerwin West Ham and Plaistow New Deal St. Luke’s Medical Centre for Communities 26. Simon Charter 7. Mike Youkee Kolisko Farm Ltd NOAH Ltd. 27. Sir David McMurtry 8. Sher Khan Renishaw plc Noah’s Ark Ltd 28. Peter Bowles 9. Peter Corbishley Renishaw plc (Personnel Manager) Bromley Street Housing Co-operative 29. Jane Emanuel 10. Steve Inkpen South-West Foundation London Borough of Tower Hamlets, Housing Department 30. Julie Stafford Gloucestershire Housing Association 11. Christine Czechowski Coin Street Community Builders 31. Stephen Holt Royal United Hospital, Bath (Director 12. Fiona Austin of Facilities) Coin Street Community Builders 32. Peter Eley 13. Gwyneth Allen Royal United Hospital, Bath (Human Kensington Housing Trust Resources Manager) 14. Stephen Hill 33. Kathrin Luddecke Capital Action Oxford Swindon and Gloucester Co-operative Society Ltd 15. John Prewer Peabody Housing Trust 34. Jane Shayler Strategic Housing Department, Bath 16. Jenny Goodwin and North-East Somerset District The Housing Corporation Council 17. Adrian Tomms 35. Lizzie Cox Boleyn & Forest Housing Association Bath and North-East Somerset District Council 18. Kate Eldridge Hackney Borough Council

63 Common Ground

Appendix 3: Legal Advice Summary of Key Issues

1. Legal structure obligations of mutuality to that end. This lease, so that responsibility for would help address the possibility of a maintenance of the internal parts could The two core objectives of the scheme nil/nominal valuation of the freehold in rest with the occupiers and so that they are the protection of the element of the context of enfranchisement (the could jointly raise mortgage finance public subsidy (the commons) for future valuation being a multiple of the rent, through the co-op. generations and the opportunity for which would probably be nil or very low). occupiers to participate in equity growth. The lease would be drawn up on a quasi- The central mechanisms for this are a A further possible solution would be a shared ownership basis, and allow Community Land Trust, to protect subsidy notional full rent relating to the subsidy occupiers to ‘staircase’ their equity in the form of land, and a co-operative as element, which would not be payable participation up and down within certain a vehicle for providing occupation rights while the asset was being applied to its defined limits. and equity participation. intended purpose. It would be calculated as a percentage of the value of the land 1.3 The Occupiers – Equity 1.1 Community Land Trust at the relevant time, and would therefore participation and “Deposit” The CLT owns the freehold of the land, fall due on enfranchisement. The sum “Deposit” – may be affordable initially of which it grants a lease to the co-op. payable on enfranchisement would be a from occupiers’ savings/unsecured The value of the land is used to assist multiple of the rent, and the financial borrowings but, if their stake is based on the co-op to provide security for advantage would be lost. In this scenario, a percentage of the open market value borrowings to fund construction in the the CLT would still grant the lease to of the properties, there is a risk that the same way as a shared ownership lease; itself and the co-op jointly. amount would rise steeply as a with the chargee retaining the right to proportion of average public sector sell the whole if the project fails. There Otherwise there would be nothing earnings, and affordability may become a would also be scope for a potential particularly unusual about the lease. problem for future occupiers without the second charge to a guarantee society25 possibility of raising a secured loan. The (relevant in the context of a guarantee To ease administration, a power of level of deposit would initially be set at mechanism for the purposes of reducing attorney could be granted by the CLT to 5%, but should be kept under review by the cost of borrowing). the co-op on closely defined terms. the co-op. For fully developed schemes, this percentage may be reduced in later Issues arising 1.2 The Co-operative years in order to maintain its affordability Prevention of leasehold enfranchisement The co-op would be fully mutual; in relation to earnings. and protection of subsidy (in the form of occupiers would be members, each with the land) one vote. The co-op would raise Equity release mechanism – equity mortgage finance collectively, and withdrawal should be related to the Membership and governance of the CLT; therefore cheaply, and the co-op would capacity of the co-op to borrow who will be the stakeholder members? In benefit from tax advantages available to additional funds based on a transparent this context, a separate area of concern fully mutual co-ops. These relate to the formula agreed at the outset. It should be is control of the subsidy held by the CLT. tax status of repayment of the principal swift and flexible in releasing small Likely stakeholders would be: debt. While payments of interest are capital sums to occupiers as the need treated as expenditure for tax purposes arises, and not confined to restricted G The local authority in the case of conventional landlords, purposes such as a deposit on another repayment of the principal is not allowed property on exit. G Key worker employers as an expense and is therefore taxed. However, if the co-op is fully mutual, Mutual mortgage contribution scheme G The occupiers/leaseholders. repayment of the principal is treated in – set at a percentage of current open the same way as it would be in the case market rent (possibly one-third on the Proposed solution to enfranchisement of an individual homeowner, the co-op basis of the one-third rule of thumb in concern being the expression of its members’ relation to land, construction and profit The model will always be at risk of identity, and is not subject to tax. Thus, costs), or the co-op’s ability to meet its statutory measures, which is to some there is a saving of 30 per cent on debts, whichever is the greater (to cover extent therefore a political issue. As the capital repayments. the risk that the proportion would find law stands at present, the land would be itself out of step with open market rents protected if the CLT were to grant a The function of the co-op would be to in a volatile market). Thus, payments by lease to itself and the co-op on the basis raise finance on a wholesale basis, members would principally support the of a joint tenancy, so that it could veto manage the mutual home ownership construction costs (as well as major any application against itself for mortgage scheme and control the terms repairs, maintenance and administration). enfranchisement. under which rights of occupation could The co-op’s capacity to borrow26 would be transferred. rise in line with the rise in monthly The recitals should make explicit that the receipts in the form of member payments land is intended to be preserved as an The CLT and the co-op would grant an and it could use the borrowings to buy asset to maintain the availability of under-lease to the CLT, the co-op and out departing occupiers and release affordable housing in the future and that the occupier jointly (again, to prevent equity to occupiers (see above). the intention of the lease is to create enfranchisement). It would be a long

Common Ground 64

Income – within that aggregate 2.3 Capital Gains Tax Exemption framework, mortgage contributions would The current annual taxable threshold is be set for individual occupiers on the £7,700. An ‘interest in’ a dwelling house basis of a percentage of their income at benefits from the “only or main residence the time of entry. It would not then vary exemption”, which appears to be taken as up and down as their income changed a legal or equitable interest. Occupiers subsequently, but they would have the under the proposed scheme should, opportunity to ‘staircase’ up or down. therefore, benefit from the exemption.31

2.4 Income Tax 2. Significant ancillary issues Accommodation provided at a discount by 2.1 Housing Benefit virtue of the occupier’s employment is Under current legislation, Housing subject to income tax on the difference Benefit may be excluded by operation of between the discounted price and the the 1987 Housing Benefit Regulations, market rate. This would therefore be a para 2(1), because the scheme may be problem for, say, health workers entitled held anomalously to fall within the to live in the scheme because of their definition of co-ownership.27 work. Further, the co-op would be liable to pay National Insurance on the same sum. In the event of unemployment or long- term illness, occupiers as mutual It is therefore essential to ensure that the homeowners would therefore have to rely purpose of the housing is expressed to on Income Support and claim a payment be to provide housing to people unable to cover mortgage interest, service to afford to purchase in the open market, charges and Council Tax rebate. Under and that members are chosen by the co- existing regulations, benefits to cover op, and not by an employer. If a local mortgage interest would not be available employer wished to have nomination until after a period of six months’ rights, this would be expensive as they unemployment, so consideration should would have to underwrite the costs be given to a collective insurance involved. scheme arranged by the co-op for its members to cover payments for that However, indirect arrangements are period. The equity release provision (see possible. For example, if occupation of above) will also be available to cover the property is determined through a short-term member payment problems of Section 106 planning consent, the value this nature.28 of the accommodation is itself limited by the planning restriction and this also 2.2 Stamp Duty avoids the problem. Another solution may Stamp Duty is payable by the co-op on be for, say, a health workers’ club to form the lease granted by the CLT. If it were a the co-op and then to develop the building lease at a nil premium and a nil scheme. rent containing an obligation for the co- op to construct the dwellings and let them, no stamp duty would be payable. However, the value of the building could be treated as consideration for the grant of the lease, giving rise to stamp duty on the cost of construction.

Stamp Duty is payable on a weekly tenancy at a rent of more than £5,000 per year. It is also payable on surrender or assignment on capital value only, currently if the value of the transaction is more than £60,000. In Shared Ownership schemes, it is possible to elect to be treated as having bought the property in its entirety at the outset, so that Stamp Duty is payable on the full purchase price at a rate of one per cent but not the lease. As Stamp Duty is 12 per cent of annual rent, this election is likely to be more advantageous.29 This will require careful drafting of the lease/equity participation agreement.30

65 Common Ground

Appendix 4: Shared-equity Co-operative Model – Core Elements

Financial and Leasehold Structure: Reason

1. Land asset value (and/or other subsidy provided) not to to lock in subsidy in robust ways which prevents be owned by individual co-op members or through limited- demutualisation through privatisation and thus retains equity shares but retained as a permanent social asset for housing as a permanently affordable social asset for future ‘Community Benefit’ in a tax exempt Community Land generations Trust, with the co-op holding a 99-year minimum head lease.

2. Development to be undertaken by the co-op and the CLT; to enable the lender to have access to the security the CLT to grant a charge over its land to the co-op’s provided by the CLT equity mortgage; completed homes to be leased to the co-op.

3. Mortgage finance for individual equity stakes to be to achieve more competitive rates, avoid mortgage set-up collective, not individual, and to be raised on either a low- costs for mutual homeowners and to keep outgoings within start basis over 25 years, where repayments rise according 30-35 per cent of net salary levels to a formula (e.g. index-linked or Canadian Tilting mortgage for co-ops) based on inflation or else as conventional repayment finance with a supplementary facility allowing deferment in the early years.

4. Equity stakes to start with an initial payment of five per cent to provide a reserve to limit negative equity problems for the of the mortgage finance required. In future as housing co-op and to demonstrate commitment to the model projects developed mature, this deposit might be lowered at the discretion of the co-op.

5. Equity stakes to be unitised through a Property Unit Trust to enable close gearing of asset acquisition to income and type system to provide highly flexible tenure, permitting thus allowing lower income key workers to become incremental staircasing – down as well as up when members necessary.

6. Rights of occupation are governed: (i) by a shared (i) to permit limited-equity interest to be assigned under ownership lease structured to provide maximum security Landlord and Tenant law rather than sold – thus saving on of tenure and rights to income support and (ii) by the legal and other transactional costs of buying and selling membership shareholding in the co-op property and (ii) to provide a share in accumulated equity through a mutual mortgage scheme

7. All routine internal servicing and repairs to be the to encourage care for property and reduce collective repair responsibility of occupying members costs

8. Units acquired by outgoing members to be purchased at a to minimise valuation fees and legal costs price based on an agreed resale formula, based on either an agreed index of local property market values or possibly an index of building costs.

9. Co-op to have a charge or lien over members’ equity to avoid mortgage payment arrears and losses from non- stakes payment

10. When members leave, they will assign their lease to the a) to ensure that units are traded at their proper value and incoming member through the co-op not at a premium, b) to enable the co-op to re-distribute some of the equity units to other resident members, to allow them to increase their investment and to permit a person on a lower salary than the outgoing member to move in and c) to enable the co-op to ensure that incoming members meet the ‘key worker’ criteria imposed through the lease granted by the CLT.

Common Ground 66 Governance Structure Reason

11. Community Land Trust to be a non-profit Industrial and to ensure a board which represents a balance of local and Provident Society for Community Benefit or similar community interests, levers expertise from professionals Community Interest Company with a three part directorate pro bono, and can maintain the mission of permanent involving one-third leaseholders (ie. members of the co- affordability in the local areas served by the CLT in the operative who occupy units in buildings located on CLT urban area or rural region land), one-third local authority and the local community interest, one-third key worker employers and volunteer professionals (e.g. lawyers, surveyors and finance experts).

12. Co-ops to be established as fully mutual housing to preclude the granting or assignment of occupation associations under the law, with membership restricted to rights to persons other than members residents or prospective residents of the association.

13. Operation of housing co-ops in accordance with the seven to ensure that co-op is bona-fide co-op to ensure full Co-operative Principles (to be written into the accountability to all members organisation’s rules) and management committee elected by members.

14. Effective control of day-to-day decisions about the to ensure genuine ownership of the co-op, decisions and running of the housing co-op to vest with members with a management issues, by members and to ensure that budget for training and educating mutual homeowners. members control the assets in which they are investing

Member Social Investment – Secondary Financing Features

15. Second mortgage finance to be made available through a because existing lending institutions will be persuaded to regional CDFI partner and with either key worker provide finance on the terms proposed in the model with a employer or Government ‘social investment’ of five per secondary finance provider sharing any sensitivity risk cent (i.e. matching the key worker down payment) in order to enable a conventional mortgage to be treated as index- linked (if index-linked finance is unavailable) and to enable equity stakes to be paid as residents leave and the loan debt needs to be increased.

16. Members can also assist the co-op to reduce its debt level to provide a savings account facility to members that at by purchasing co-op IPS shares (beyond an agreed the same time accelerates debt repayment and also builds minimum entry level up to the legal maximum of £20,000) additional reserve funds for refinancing exit of members at a low and variable dividend/interest rate of say one to two per cent which enables the co-op to swap this fund for the debt balance on the properties.

67 Common Ground Appendix 5 Annex 1: Affordability of property compared to housing costs

Common Ground 68 Appendix 5 Annex 1: Affordability of property compared to housing costs (contd)

69 Common Ground

Appendix 5 Annex 1: Affordability of property compared to housing costs (contd)

Common Ground 70

Appendix 5 Annex 2: House price levels recorded by Nationwide and Proviser for each location

Proviser, Q3 Newham £ Milton Keynes £ Stroud £

All 147,594 130,970 169,911 Flat 135,300 69,366 95,926 Maisonette 153,667 100,079 116,737 Detached 193,800 207,064 253,718

Nationwide, Q4 Outer Metropolitan Outer Southeast Southwest

Average 189,738 150,505 136,698 First time buyer 144,843 117,850 106,260

East Anglia 125,645 99,488

Assumptions for model

1-bed 115,000 95,000 85,000 2-bed 145,000 120,000 105,000

Annex 3: Estimated construction costs for the three areas

Cost/m2 Cost/m2 Cost/m2 Size Newham Milton Keynes Stroud m2 £ £ £

Cost/m2: 1,200 1,000 1,050 1-bedroom 46 55,200 46,000 48,300 On costs 15% 63,480 52,900 55,545 Cost/m2: 1,020 850 893

2-bedroom 62 63,240 52,700 55,335 On costs 15% 72,726 60,605 63,635

71 Common Ground Appendix 5 Annex 4: Assumptions made in the model

Rate Type Period (years)

Base rate 3.75% % over base 1.10% Borrowing rate 4.85% variable 20 Inflation (assumed long term forecast) 2.50% Index-linked rate 2.35% fixed 30

Capital costs Newham Milton Keynes Stroud 1-bed 2-bed 1-bed 2-bed 1-bed 2-bed

Assumed values £115,000 £145,000 £95,000 £120,000 £85,000 £105,000

Cost reduction options Build cost only £63,480 £72,726 £52,900 £60,605 £55,545 £63,635 Assumed land value £51,520 £72,274 £42,100 £59,395 £29,455 £41,365 Sweat equity potential £12,696 £14,545 £10,580 £12,121 £11,109 £12,727 Kitchen and decorations potential £3,000 £4,000 £3,000 £4,000 £3,000 £4,000

Potential for sweat equity in self-build 20% 20%

Finance options (based on £1,000) Year 1 Year 20 Year 30

Normal 20 yr repayment mortgage £79.23 £79.23 Indexlinked (20 year repayment) £63.24 £103.63 Indexlinked (30 year repayment) £46.83 £76.73 £98.22 Interest only (conventional), no repayment £48.50 £48.50 £48.50 Interest only (ethical), no repayment £37.50 £37.50 £37.50

Revenue Costs - based on cooperative shared ownership Per week Per annum

Management £2.80 £146 Planned maintenance inc external painting £1.10 £57 Buildings insurance £1.20 £62 Routine maintenance £2.20 £114 Services £1.80 £94

TOTAL £9.10 £473

Salaries 15,000 17,000 19,000 21,000 23,000 25,000 Net income available after tax

30% 3,758 4,214 32.50% 5,060 5,554 35% 6,513 7,045

Net income available for housing costs after payment of management and maintenance

30% 3,285 3,741 32.50% 4,586 5,080 35% 6,040 6,572

Common Ground 72

Appendix 5 Annex 5 Examples of the model with different financing options Annex 5a

Indexlinked finance over 30 years; 2-bedroom flat in Newham

Full cost/value 145,000 Income 21,000 Subsidy 30,708 Payment 32.5% Deposit (4% value) 5,800 Debt 108,492 Affordable payments 5,554 % to equity stake 0% Finance rate 4.85% Real interest rate 2.35% Years 30 Mortgage 5,080 Mortgage indexation 2.50% Above RPI by

Inflation 2.50% Property inflation (from year 3) 1.00% 3.50% Increase in rent per annum 0.50% 3.00% Increase in charges 1.00% 3.50%

Property inflationassumes 1% growth in economy on top of inflation: this increase however occurs erratically in practice. Because of recent rises in house prices an assumption has been made of no property value inflation for 2 years, indeed the possibility exists of a fall in values.

Property Property Starting Index- Final Net CLT Surplus/ Reserve value value debt Interest Payment ation debt Rent Charges income deficit balance Year inflation £ £ £ £ £ £ £ £ £ £ £

1 0.0% 145,000 108,492 2,550 5,080 2,649 108,610 5,554 473 5,081 0 0 2 0.0% 145,000 108,610 2,552 5,207 2,649 108,604 5,721 490 5,231 23 24 3 3.5% 145,000 108,604 2,552 5,338 2,645 108,464 5,892 507 5,385 48 72 4 3.5% 150,075 108,464 2,549 5,471 2,639 108,181 6,069 525 5,544 73 145 5 3.5% 155,328 108,181 2,542 5,608 2,628 107,743 6,251 543 5,708 100 245 10 3.5% 184,480 104,220 2,449 6,345 2,508 102,833 7,247 645 6,602 257 1,202 15 3.5% 219,105 94,818 2,228 7,178 2,247 92,114 8,401 766 7,635 457 3,067 20 3.5% 260,228 77,927 1,831 8,122 1,791 73,427 9,739 910 8,829 707 6,080 25 3.5% 309,069 50,869 1,195 9,189 1,072 43,947 11,290 1,080 10,210 1,021 10,529 30 3.5% 367,077 10,158 239 10,397 0 0 13,088 1,283 11,805 1,409 16,764

Examples of equity stakes at handover

Tenant leaves at the end of year: 5 7 10 15 20 25 30 Value of property at leaving date 160,764 172,215 190,937 226,774 269,336 319,887 379,925 Original debt as % of value 74.8% 74.8% 74.8% 74.8% 74.8% 74.8% 74.8% Debt at leaving date 107,743 106,360 102,833 92,114 73,427 43,947 Repaid equity at leaving date 12,544 22,494 40,031 77,562 128,096 195,398 284,268

73 Common Ground

Appendix 5 Annex 5a (contd) 9 8 0 5 0 0 9 0 8 63 95 93 82 00 7 94 7 0 61 8 4 6 7 7 7 7 3 7 6 8 ,16 ,341 ,814 7 6,03 6,8 0, 7 5,3 7 0,59 0 00 6 8 0, 8,0 8,9 95,8 7 7 7 32,4 93,120 ,95 7 -63 £ 8 4 Reserve 4,9 2,9 4,132 1,433 -2,245 3,8 -7 -13,241 -3 -4 -65,235 -82,211 -9 -158,13 -13 -117 -181,0 -205, -232,285 -26 -291,224 -323,84 -358,6 -3 -435,561 -4 -522, -5 -621,3 -6 -7 -925,326 -7 -85 7 6 6 7 5 6 9 6 8 7 84 6 94 8 6 7 65 8 92 8 6 7 7 7 11 ,4 ,33 ,16 ,202 4 ,9 6 ,810 ,194 9 9,28 7 0,4 9,6 0,626 7 7 7 7 6 deficit 28 £ 8 4 Surplus/ 2,00 955 1,4 -7 -6,113 -264 -5, -5,285 -17 -17 -17 -16,9 -16, -18,192 -19,6 -21,27 -22,937 -24,6 -26,524 -28,455 -3 -32,615 -34,853 -37 -3 -42,253 -44,9 -4 -50, -53,918 -5 -6 -6 -64,221 9 8 6 6 0 6 7 7 7 7 0 3 4 8 7 8 9 6 0 7 7 7 91 82 0 ent 7 7 7 ,532 , ,204 ,151 ,585 al 9,28 9,944 8,323 6,614 8,34 6,102 7 7 1,527 7 7 6,585 2,9 ot net r 28 £ 101,616 104,617 T 114,161 10 110,8 117 124,5 121,002 128,251 132,03 135,932 13 144,0 14 152,6 15 161,84 16 17 17 181, 18 192,6 19 204,193 210,211 216,4 222, 229,34 23 243,05 250,216 25 281,015 265,17 27 6 0 8 0 8 1 7 7 7 9 9 9 0 61 9 8 8 0 0 81 25 9 0 7 0 64 7 0 82 8 ,5 ,629 ,529 3,228 0,9 9,283 6,826 6,17 6,55 7 2,204 2,0 7 7 9,16 2,3 1,119 6,851 al 05,0 00,3 6 7 7 8,04 7 7 ot final debt 0 £ 2,17 T 2,17 2,217 2,16 2,20 2,163,612 2,28 2,3 2,263,0 2,435,6 2,4 2,359,527 2,312, 2,259,592 2,58 2,537 2,4 2,411,521 2,334,015 2,245,944 2,14 2,035,059 1,910,6 1, 1,619,219 1,264,6 1,450,33 1,0 83 594, 329, 41,64 -27 -1,37 -610,0 -9 0 9 8 0 8 8 8 9 9 1 7 8 9 6 0 1 8 92 8 81 0 8 9 8 64 0 7 7 7 7 7 7 65 7 al 7 7 7 ,627 ,154 ,818 , 0,8 0,010 0,28 0,4 6,258 7 7 7 7 ot indexation 0 £ 52,9 T 52,9 52,558 52,9 55,43 52, 5 55,17 5 56,5 6 6 58,9 5 56,4 64,6 63,441 61,9 6 58,350 56,14 53,6 50,8 4 44,3 4 3 31,615 26,523 20,951 14,8 8,244 1,041 -6, -24,421 -15,252 6 8 6 6 6 8 6 0 9 6 1 2 6 9 8 8 8 65 63 0 0 62 00 64 0 9 7 51 7 9 8 7 7 7 ,320 ,19 ,281 ,8 ,413 al 6, 9,420 0,6 9,4 8,315 0,9 9,04 9,001 7 5,3 7 7 4,311 04,134 ot Payment 0 £ T 101,6 104,14 112,156 10 118,3 10 121,26 13 133,9 137 153,421 15 161,24 165,3 16 17 194,4 181,535 18 201,27 20 215,6 223,152 23 24 23 256,0 265,035 283,912 27 293,84 3 314, 325, 337 34 0 9 9 9 9 9 0 9 9 7 7 1 7 8 0 8 1 est 0 91 6 0 9 83 94 7 7 7 18 25 8 al 7 7 7 50 9 ,23 ,824 0,8 8,052 7 7 7 7 ot , Inter 0 £ T 50,9 51,04 50,845 51,044 52,113 50,9 51,8 54,16 53, 53,183 5 56,4 55,44 54,34 53,100 6 56,6 59,634 58,26 54,84 52, 50,444 4 44,8 3 41,64 34,0 29, 24,931 19,6 13,9 7 9 -6,37 -14,337 -22,956 6 0 0 8 0 8 1 7 7 7 9 9 9 0 61 9 8 8 0 0 81 25 9 0 7 0 y shares 64 7 0 82 8 ,5 ,629 ,529 3,228 0,9 9,84 9,283 6,826 6,17 6,55 7 2,204 2,0 7 7 9,16 2,3 1,119 6,851 al 05,0 00,3 6 7 7 8,04 7 arting 7 ot st -1,37 debt 2,16 T 2,17 2,163,612 2,17 2,217 2,16 2,20 2,3 2,28 2,263,0 2,435,6 2,4 2,359,527 2,312, 2,259,592 2,58 2,411,521 2,4 2,537 2,334,015 2,245,944 2,14 2,035,059 1,910,6 1, 1,619,219 1,450,33 1,264,6 1,0 83 594, 329, 41,64 -27 -610,0 -9 8 8 7 0 00 82 21 ,54 al 7 9,3 1,26 7 3,03 4,4 6 63,856 20,554 ot extra debt £ T 62,416 62, 17 17 17 3 3 35 350,292 342,04 7 6 8 0 8 7 62 9 5 7 ation £ 1,56 Index- 1,56 4,3 4,326 4,282 9,233 9,0 8,93 8, 8,551 6 9 6 63 9 7 0 0 residents leaving with equit payment £ 3,34 Extra 3,432 10,163 9,9 10,426 23,355 23,9 24,58 25,233 25,8 est 6 8 7 9 4 6 6 02 7 7 £ Inter 1,4 1,4 4,0 4,100 4,025 8,6 8,551 8,4 8,232 8,03 1 7 21 ,812 7 7 8 £ debt Extra 62, 112,4 200,153 3 £ leaving Number 5 5 5 5 0 0 1 7 7 6 7 01 01 6 7 81 7 83 83 9 44 84 7 ,20 ,3 ,00 ,827 6,358 8,542 9,9 9,84 9,283 0,443 7 7 2,204 2,0 84,4 8 9 6 6 14, 81,8 6,8 8,94 arting 7 7 91,852 7 29,010 £ debt St 2,16 2,17 2,154,858 2,17 2,163,612 2,142,8 2,16 2,10 2,127 2,0 2,056,653 2,024,291 1,9 1,944,4 1,8 1,842,28 1,64 1, 1, 1,558,533 1,4 1,3 1,262,295 1,144,9 1,017 8 7 56 3 203,156 0 0 0 0 0 0 0 6 20 Debt for whole scheme as a result of original 2 Homes: 1 2 6 3 5 7 4 9 8 10 11 12 13 14 15 16 19 17 18 20 21 22 23 24 25 26 27 28 29 3 31 32 33 34 35 3

Common Ground 74

Appendix 5 Annex 5b Indexlinked finance over 30 years; 2-bedroom flat in Newham – unitised model

Full cost/value 145,000 Income 21,000 Units Subsidy30,885 Payment 32.5% Number Value £ Deposit (5%) 5,800 Debt 108,315 145,000 Affordable payments 5,554 1,000 145 % to equity stake 0% CLT 213 213 Finance rate 4.85% Occupier 40 40 Real interest rate 2.35% Mortgagee 747 747 Years 30 1,000 Mortgage 5,072 Mortgage indexation 2.50% Above RPI by Inflation 2.50% Property inflation (from year 3) 1.00% 3.50% Increase in rent per annum 0.50% 3.00% Increase in charges 1.00% 3.50%

Property inflationassumes 1% growth in economy on top of inflation: this increase however occurs erratically in practice. Because of recent rises in house prices an assumption has been made of no property value inflation for 2 years, indeed the possibility exists of a fall in values.

Property Property Starting Pay- Index- Final Rent Charges Net CLT Surplus/ Reserve value value debt Interest ment ation debt income deficit balance Year inflation £ £ £ £ £ £ £ £ £ £ £

1 0.0% 145,000 108,315 2,545 5,072 2,645 108,433 5,554 473 5,081 9 9 2 0.0% 145,000 108,433 2,548 5,199 2,645 108,427 5,721 490 5,231 32 41 3 3.5% 145,000 108,427 2,548 5,329 2,641 108,287 5,892 507 5,385 56 97 4 3.5% 150,075 108,287 2,545 5,462 2,634 108,004 6,069 525 5,544 82 179 5 3.5% 155,328 108,004 2,538 5,599 2,624 107,567 6,251 543 5,708 109 289 10 3.5% 184,480 104,050 2,445 6,334 2,504 102,665 7,247 645 6,602 267 1,295 15 3.5% 219,105 94,663 2,225 7,167 2,243 91,964 8,401 766 7,635 468 3,215 20 3.5% 260,228 77,800 1,828 8,108 1,788 73,307 9,739 910 8,829 721 6,291 25 3.5% 309,069 50,786 1,193 9,174 1,070 43,876 11,290 1,080 10,210 1,036 10,812 30 3.5% 367,077 10,141 238 10,380 0 0 13,088 1,283 11,805 1,426 17,128

Examples of equity stakes at handover

Tenant leaves at the end of year: 5 10 15 20 25 30 Value of property at leaving date 160,764 190,937 226,774 269,336 319,887 379,925 Original debt as % of value 74.7% 74.7% 74.7% 74.7% 74.7% 74.7% Debt at leaving date 107,567 102,665 91,964 73,307 43,876 0 Repaid equity at leaving date 12,524 39,965 77,436 127,887 195,080 283,804

Unitised equity stake

0 5 10 15 20 25 30 Value of unit 145.00 155.33 184.48 219.10 260.23 309.07 367.08 Initial units 40 Total units - mortgagee 747 693 557 420 282 142 0 Total units - CLT 213 213 213 213 213 213 213 New units purchased 54 136 137 138 140 142 Total units purchased 0 54 190 327 465 605 747 Total units owned - occupier 40 94 230 367 505 645 787 1,000 1,000 1,000 1,000 1,000 1,000 1,000

75 Common Ground

Appendix 5 Annex 5c

Conventional finance over 30 years; 2-bedroom flat in Newham

Full cost/value 145,000 Income 21,000 Subsidy 59,743 Payment 32.5% Deposit (4% value) 5,800 Debt 79,457 Affordable payments 5,554 % to equity stake 0% Finance rate 4.85% Real interest rate 4.85% Years 30 Mortgage 5,081 Mortgage indexation 2.50%

Above RPI by Inflation 2.50% Property inflation (from year 3) 1.00% 3.50% Increase in rent per annum 0.50% 3.00% Increase in charges 1.00% 3.50%

Property inflationassumes 1% growth in economy on top of inflation: this increase however occurs erratically in practice. Because of recent rises in house prices an assumption has been made of no property value inflation for 2 years, indeed the possibility exists of a fall in values

Property Property Starting Pay- Index- Final Rent Charges Net CLT Surplus/ Reserve value value debt Interest ment ation debt income deficit balance Year inflation £ £ £ £ £ £ £ £ £ £ £

1 0.0% 145,000 79,457 3,854 5,081 1,956 80,186 5,554 473 5,081 0 0 2 0.0% 145,000 80,186 3,889 5,208 1,972 80,839 5,721 490 5,231 23 23 3 3.5% 145,000 80,839 3,921 5,338 1,986 81,407 5,892 507 5,385 47 71 4 3.5% 150,075 81,407 3,948 5,471 1,997 81,881 6,069 525 5,544 73 143 5 3.5% 155,328 81,881 3,971 5,608 2,006 82,250 6,251 543 5,708 100 243 10 3.5% 184,480 82,437 3,998 6,345 2,002 82,092 7,247 645 6,602 257 1,198 15 3.5% 219,105 78,641 3,814 7,179 1,882 77,158 8,401 766 7,635 456 3,060 20 3.5% 260,228 68,002 3,298 8,122 1,579 64,757 9,739 910 8,829 707 6,070 25 3.5% 309,069 46,869 2,273 9,190 999 40,951 11,290 1,080 10,210 1,020 10,517 30 3.5% 367,077 9,916 481 10,397 0 0 13,088 1,283 11,805 1,408 16,747

Examples of equity stakes at handover

Tenant leaves at the end of year: 5 7 10 15 20 25 30 Value of property at leaving date 160,764 172,215 190,937 226,774 269,336 319,887 379,925 Original debt as % of value 54.8% 54.8% 54.8% 54.8% 54.8% 54.8% 54.8% Debt at leaving date 82,250 82,627 82,092 77,158 64,757 40,951 0 Repaid equity at leaving date 5,846 11,743 22,537 47,109 82,833 134,340 208,191

Common Ground 76

Appendix 5 Annex 5c (contd) 1 6 9 7 8 8 7 7 7 9 9 0 7 0 -7 7 9 8 0 6 93 61 02 93 95 15 61 4 6 8 9 7 7 7 7 ,0 ,8 ,520 ,6 7 7 6, 6, 3, 1,410 6,452 1,635 6,354 8,835 0,855 8,637 4,8 0,3 9,44 2,8 5,3 -92,25 8 6 -37 -6 -7 -55,95 -19,6 -10,027 -28,9 -4 Reserve £ -10 -25 -427 -28 -612, -205,3 -323,428 -514,112 -561,820 -318,327 -352,234 -123,4 -141,29 -16 -182,16 -23 -3 -4 1 7 7 7 0 7 4 0 7 7 6 2 4 8 9 7 7 7 7 7 9 9 0 6 62 65 94 03 05 05 95 02 8 0 7 94 7 521 4 , ,8 ,127 7 9,28 1,9 1,459 9,025 1,0 6,4 -9,6 -2,655 -2,162 -1,642 -9,295 -8,4 -8,8 -9,6 -4 -12,0 -17 -41, -27 -29,27 -44,6 -23,14 -33,9 -10,020 -13,415 -16,322 -19,556 -31,533 -10,8 -14,83 -21,3 -50,8 -3 -25,0 -3 Surplus/ deficit £ 28 7 7 7 4 6 3 9 0 8 7 6 0 8 6 7 7 7 7 0 8 91 82 9 6 0 ent 7 7 7 , al ,532 ,204 ,151 ,585 7 7 7 7 2,9 9,28 8,34 9,944 8,323 6,614 1,527 6,585 6,102 ot T net r £ 10 15 18 25 124,5 27 117 181, 222, 144,0 17 265,17 17 243,05 28 110,8 19 101,616 104,617 114,161 121,002 128,251 135,932 204,193 210,211 281,015 250,216 132,03 13 14 16 161,84 229,34 23 152,6 192,6 216,4 0 1 6 9 5 9 8 0 7 7 6 9 9 7 7 8 8 13 94 84 62 42 61 9 8 0 7 7 7 ,614 ,505 ,9 7 8,0 5,6 4,224 8,101 9,503 0,26 8,4 2,44 9,23 9,34 8,9 9,4 8,6 al 63, 7 03, 7 7 84,6 7 7 42,545 41,120 04,118 32,534 05,544 43,3 8 9 8 9 6 -64,504 7 7 7 7 8 6 7 ot 7 455,341 20 -7 T final debt £ -3 1, 1, 1,04 1, 1,9 1, 1,637 1,6 1,616, 1,837 1, 1,6 1, 1,9 1,935,432 1,853,634 1,654,828 1,564,233 1,459,552 1,202,643 1,628,13 1,84 1,823,4 1,8 1,6 1,33 1,8 -1,0 -1,4 0 7 7 8 5 6 1 6 9 7 8 6 9 7 8 11 94 62 92 84 8 8 8 6 7 ,4 ,63 al 7 9, 9,115 9,433 9,942 0,122 6,203 9,617 6,341 5,234 9,0 9,10 8,3 6,4 0,0 4 -9,215 -1,613 ot 3 42,00 45,58 41,37 33,4 41,856 43,564 43,585 43,528 45,103 45,950 43,313 21,811 3 3 3 4 4 4 4 44,9 26,18 16,8 11,3 44,4 4 3 4 3 3 -17 T indexation £ -26,952 0 8 8 6 7 7 8 0 7 6 8 9 0 7 7 8 0 59 64 6 8 7 ,011 ,228 ,218 ,34 al 7 6, 0,8 es 8,6 6,8 9,428 0,413 9,614 2,645 8,114 9,842 9,459 0,00 9,3 9,24 0 ot 15 117 127 227 10 133,6 17 26 17 27 T Payment £ 235,29 27 101,615 104,155 112,164 119,937 145,952 184,941 191,414 212,225 219,652 243,533 252,056 331,910 16 10 13 14 161,16 19 205,04 153,3 3 320,6 29 28 3 0 0 8 6 8 7 8 8 1 7 est 7 7 7 65 93 01 65 65 04 84 8 0 6 8 al 7 7 7 ,0 , ,8 ,500 ,225 7 7 7 7 0, ot 6,25 8,413 9,424 9,142 9,633 0,259 8,9 8,43 9,9 5,8 6,3 7 7 -3,128 8 8 T Inter £ 7 32, 7 7 7 9 7 81,200 84,513 84,555 84,444 92,101 95,241 84,028 58,328 42,313 10,153 81,4 8 8 8 64,9 50,8 22,0 8 93,8 8 8 -17 -52,28 -34,219 6 0 1 6 9 9 5 8 9 0 7 7 9 7 7 8 8 13 94 84 62 42 61 9 8 0 7 7 7 ,614 ,505 ,9 7 5,6 8,0 4,224 8,101 9,503 9,23 9,14 0,26 8,4 2,44 9,34 8,9 9,4 8,6 63, al 7 03, 7 7 84,6 7 7 42,545 41,120 04,118 32,534 05,544 43,3 8 8 9 9 6 -64,504 arting 7 7 7 7 8 6 7 7 455,341 20 ot -7 -3 1, 1, 1,04 1, 1,9 1, 1,637 1,6 1,616, 1,837 1, T st debt 1,6 1, 1,9 1,935,432 1,853,634 1,654,828 1,564,233 1,459,552 1,202,643 1,628,13 1,8 1,84 1,823,4 1,58 1,6 1,33 1,8 -1,0 -1,4 7 8 9 7 6 9 0 7 ,6 al 7 8,10 8,143 8,017 9,250 ot 8 29,228 29,333 8 8 T extra debt £ 19 424, 192,650 195,426 19 200,3 esidents leaving with equity shar 6 0 31 33 81 8 7 7 Index- ation £ 2,203 2,204 2,200 5,010 4,816 4,9 4,94 4,8 0 5 7 6 7 0 6 7 7 0 95 05 7 7 ,14 ,58 6, 2,043 6,44 2,0 6,6 Extra payment £ 16, 17 17 15,8 16,28 3 5 9 8 est 7 19 64 7 9, 9,4 4,27 4,27 1,418 1,423 9,584 9,344 4,26 9,6 Inter £ esult of original 20 r 6 13 8 7 Extra debt £ 58, 29,228 235,544 112,6 heme as a r 5 5 5 5 Number leaving £ 0 1 6 7 8 6 9 8 7 9 9 8 6 2 9 0 0 0 0 0 0 7 9 9 13 43 85 arting 7 7 7 ,37 ,614 ,615 ,0 ,54 ,10 8, debt St £ 7 7 7 2,828 0,044 0,519 8,029 8,327 9,14 8 03, 7 65,633 6 937 6 37 819,017 54 19 1,50 1,64 1,59 1,637 1,616, 1,137 1,5 1,6 1,644,9 1,616,3 1,650,056 1,221,241 1,043,224 1,628,13 1,652,54 1,652,20 1,641,84 1,631,18 1,543,16 1,4 1,416,64 1,295,14 1,58 1,3 6 0 20 Debt for whole sc Homes 1 2 3 4 5 6 8 7 9 10 11 12 13 14 15 16 17 20 18 19 21 22 23 24 25 26 27 28 35 29 3 3 34 31 32 33

77 Common Ground

Appendix 5 Annex 5d Conventional finance over 30 years; 2-bedroom flat in Newham – unitised model

Full cost/value 145,000 Income 21,000 Units Subsidy 59,740 Payment 32.5% Number Value £ Deposit (5%) 5,800 Debt 79,460 145,000 Affordable payments 5,554 1,000 145 % to equity stake 0% CLT 412 412 Finance rate 4.85% Occupier 40 40 Real interest rate 4.85% Mortgagee 548 548 Years 30 1,000 Mortgage 5,081 Mortgage indexation 0.00% Above RPI by Inflation 2.50% Property inflation (from year 3) 1.00% 3.50% Increase in rent per annum 0.50% 3.00% Increase in charges 1.00% 3.50%

Property inflation assumes 1% growth in economy on top of inflation: this increase however occurs erratically in practice. Because of recent rises in house prices an assumption has been made of no property value inflation for 2 years, indeed the possibility exists of a fall in values.

Property Property Starting Index- Final Rent Charges Net CLT Surplus/ Reserve value value debt Interest Payment ation debt income deficit balance Year inflation £ £ £ £ £ £ £ £ £ £ £

1 0.0% 145,000 79,460 3,854 5,081 0 78,233 5,554 473 5,080 -1 -1 2 0.0% 145,000 78,233 3,794 5,081 0 76,946 5,720 490 5,230 150 149 3 3.5% 145,000 76,946 3,732 5,081 0 75,597 5,892 507 5,385 304 453 4 3.5% 150,075 75,597 3,666 5,081 0 74,183 6,069 525 5,544 463 916 5 3.5% 155,328 74,183 3,598 5,081 0 72,700 6,251 543 5,708 627 1,543 10 3.5% 184,480 66,012 3,202 5,081 0 64,133 7,246 645 6,601 1,520 7,305 15 3.5% 219,105 55,659 2,699 5,081 0 53,277 8,400 766 7,634 2,553 17,946 20 3.5% 260,228 42,539 2,063 5,081 0 39,521 9,738 910 8,829 3,748 34,227 25 3.5% 309,069 25,913 1,257 5,081 0 22,089 11,289 1,080 10,209 5,128 57,026 30 3.5% 367,077 4,846 235 5,081 0 0 13,087 1,283 11,804 6,723 87,359

Examples of equity stakes at handover

Tenant leaves at the end of year: 5 10 15 20 25 30 Value of property at leaving date 160,764 190,937 226,774 269,336 319,887 379,925 Original debt as % of value 54.8% 54.8% 54.8% 54.8% 54.8% 54.8% Debt at leaving date 72,700 64,133 53,277 39,521 22,089 0 Repaid equity at leaving date 15,399 40,501 70,995 108,075 153,209 208,199

Unitised equity stake

0 5 10 15 20 25 30 Value of unit 145.00 155.33 184.48 219.10 260.23 309.07 367.08 Initial units 40 New units purchased 80 120 105 91 81 71 Total units purchased 80 200 305 396 477 548 Total units owned - occupier 120 240 345 436 517 588 Total units - CLT 412 412 412 412 412 412 468 348 243 152 71 0

Common Ground 78

Appendix 5 Annex 6

Canadian model, "tilted" indexlinked finance over 30 years; 1-bedroom flat in Newham

Full cost/value 115,000 Income 21,000 Normal borrowing rate 4.85% Subsidy 29,354 Payment 30% Monthly interest rate 0.40014% Debt 85,646 Affordable payments 5,554 True annual rate 4.90881% % to equity stake 0% Within-year discount factor 95.32% Interest 2.35% Annual equity payment 0 Value of £1/month 11.69 Years 25 Annual cost payment 5,554 Loan period discount factor with tilt 96.75% Mortgage 5,112 Present value of £1/month over N years 202.30 Mortgage indexation 2.50% Monthly payment per £1 0.0049432 Tilt 1.00% Annual payment per £1 0.0593 Inflation 2.50% Annual payment per £1,000 59.32 Prop. inflation (from yr 3) 3.00%

Property inflationassumes 1% growth in economy on top of inflation: this increase however occurs erratically in practice. Because of recent rises in house prices an assumption has been made of no property value inflation for 2 years, indeed the possibility exists of a fall in values.

Property Property Starting Pay- Index- Final Net CLT Surplus/ Reserve value value debt Interest ment ation debt Rent Charges income deficit balance Year inflation £ £ £ £ £ £ £ £ £ £ £

1 0.0% 115,000 85,646 4,112 5,080 0 84,678 5,554 473 5,080 0 0 2 0.0% 115,000 84,678 4,041 5,157 0 83,562 5,720 487 5,233 76 76 3 3.0% 115,000 83,562 3,984 5,234 0 82,312 5,892 502 5,390 156 232 4 3.0% 118,450 82,312 3,921 5,312 0 80,921 6,069 517 5,551 239 471 5 3.0% 122,004 80,921 3,851 5,392 0 79,380 6,251 533 5,718 326 797 6 3.0% 125,664 79,380 3,773 5,473 0 77,680 6,438 549 5,890 417 1,213 7 3.0% 129,434 77,680 3,688 5,555 0 75,813 6,631 565 6,066 511 1,725 8 3.0% 133,317 75,813 3,595 5,638 0 73,769 6,830 582 6,248 610 2,334 9 3.0% 137,316 73,769 3,492 5,723 0 71,539 7,035 599 6,436 713 3,047 10 3.0% 141,435 71,539 3,381 5,809 0 69,111 7,246 617 6,629 820 3,867 15 3.0% 163,963 57,199 2,667 6,258 0 53,608 8,400 716 7,685 1,427 9,738 20 3.0% 190,077 36,371 1,634 6,741 0 31,264 9,738 830 8,909 2,167 19,035 25 3.0% 220,352 7,099 185 7,262 0 22 11,289 962 10,327 3,065 32,495 30 3.0% 255,448 -33,122 -1,801 7,824 0 -42,747 13,087 1,115 11,972 4,149 50,990 13,480 1,149 12,331 12,331 63,322 13,884 1,183 12,701 12,701 76,023 14,301 1,219 13,082 13,082 89,106 14,730 1,255 13,475 13,475 102,581 15,172 1,293 13,879 13,879 116,460 15,627 1,332 14,296 14,296 130,755 16,096 1,371 14,724 14,724 145,480 16,579 1,413 15,166 15,166 160,646 17,076 1,455 15,621 15,621 176,267 17,588 1,499 16,090 16,090 192,357

Examples of equity stakes at handover

Tenant leaves at the end of year: 5 7 10 15 Value of property at leaving date 125,664 133,317 145,679 168,881 Original debt as % of value 74.5% 74.5% 74.5% 74.5% Debt at leaving date 79,380 75,813 69,111 53,608 Repaid equity at leaving date 14,208 23,474 39,383 72,166

79 Common Ground

Appendix 5 Annex 6 (contd) 0 6 8 0 0 8 6 0 6 8 7 81 8 9 9 8 4 7 ,627 ,916 ,833 ,3 7 9,0 4 18, 27 17 37 19,37 £ Reserve 18,29 35,222 24,413 23,843 25,458 24,132 23,545 24,951 23,237 22,921 22,595 21,914 21,558 21,191 20,814 20,425 20,024 19,611 26,33 25,20 22,26 19,18 41,4 32,4 24,6 3 321,156 8 6 6 0 7 8 3 9 4 8 7 7 6 6 7 8 9 8 7 0 6 00 01 65 6 8 8 -27 -37 -25 -3 -281 -250 -265 -316 -326 -356 -413 -425 -451 -3 -28 -29 -34 -33 -4 -43 -4 -3 4,10 2,159 9,94 6,14 6,9 8,8 -4,5 -2,458 -8,53 -6,6 03,323 Surplus/ £ deficit 3 5 9 0 9 8 2 6 9 8 8 7 7 92 65 14 91 81 02 91 45 01 6 9 8 7 7 7 7 , ent ,943 ,583 7 7 8,17 6,553 9,021 9,215 6,629 0,64 2,9 6,54 9,44 9,4 al 03,323 117 212, 27 16 ot 17 225, 128, 232,4 132,5 17 121,325 183,515 163,051 200,532 219,127 254,028 285,911 3 124,9 13 153,6 18 14 158,3 194,6 24 261,64 14 144,8 20 23 294,4 26 T £ net r 0 6 4 9 9 7 8 0 7 5 16 55 04 84 81 25 0 0 7 7 7 7 , ,8 7 2,0 7 0,935 8,501 9,500 9,810 8,415 8,8 5,63 6,4 0,64 5 7 64, al 85, 7 7 93,819 42,003 63,182 6 6 85,9 9 34,34 04,8 6 7 7 4 7 7 832,956 28 9 6 ot -6 -151,256 -951,426 1, -3 1,37 1, 1,624, T £ final debt 1, 1,4 1,5 1,658,631 1,613,021 1,254,815 1,126,355 1,624,501 1,6 1,54 1,6 1,6 1,4 -2, -1,259,632 -1,945,816 -2,326,550 -1,59 0 0 6 8 0 0 0 0 6 6 7 02 13 91 62 81 91 6 3 6 8 6 7 7 7 7 7 ,245 al 7 8, 6,9 6, 9, 0,618 0,326 0,613 1,945 8,645 9,3 -3, -9,9 3 3 3 31,37 42,620 41,523 43,944 42,345 28,159 43,550 24,650 20,824 12,143 4 4 34,3 4 41,58 16,6 41,4 3 ot -23, -3 -16,619 -58,164 -31,4 -4 £ T indexation 0 9 9 7 9 8 9 9 8 7 8 4 0 3 8 7 7 7 7 05 62 62 6 6 8 9 0 8 7 ,843 ,018 6,8 7 7 9,18 8,20 0,413 8,451 9,319 3,254 9,824 9,924 8,021 6,3 al 10 24 20 116,0 153, 219,4 17 17 27 226,05 ot 14 16 114,359 126,555 158,552 254,429 294,953 13 156,14 18 183,8 200,84 232,83 23 262,0 26 128,4 151,4 194,9 163,3 213,0 28 £ T Payment 0 8 6 7 8 6 9 4 1 0 4 es 7 7 7 0 est 63 52 05 85 62 63 01 27 0 8 6 8 7 7 al ,018 ,028 ,9 ,3 7 8,9 8,17 8,181 9,032 6,413 0,937 6,811 1,829 0,0 9,8 9,0 ot -3,555 -9,3 7 19,5 37 37 34, 3 3 23,17 41,3 34,510 32,244 11,415 3 3 3 4 15,6 4 29,4 3 26,4 3 £ T Inter -54,6 -45, -37 -15,622 -22,359 -29,6 0 6 4 9 9 7 8 7 5 16 55 04 84 81 25 0 0 7 7 7 7 ove) , ,8 7 2,0 7 0,935 9,500 8,501 9,810 8,415 8,8 5,63 6,4 0,64 5 7 64, 85, al 7 7 93,819 42,003 63,182 34,34 6 6 85,9 9 04,8 6 7 arting 7 4 7 7 832,956 28 9 6 -6 ot -151,256 -951,426 1, -3 1,37 1, 1,624, 1, 1,4 1,5 debt T st (as ab 1,618,415 1,658,631 1,613,021 1,254,815 1,624,501 1,126,355 1,6 1,54 1,6 1,6 1,4 -2, -1,259,632 -1,945,816 -2,326,550 -1,59 8 8 93 85 ,4 7 al 1,041 0,562 5,311 8,343 9,58 6,4 7 05,245 6 6 ot 64 17 185,358 353,002 18 322,44 3 33 3 £ T extra debt 6 0 7 83 61 4 7 7 ,631 £ Index- ation 1, 1, 7 esidents leaving with equity shar 4,634 4,514 9,162 8,459 8,825 4,3 8,0 8 6 6 8 6 9 7 7 04 95 9 8 7 7 4,9 4,8 31, 13, 14,235 32,843 14,00 31,26 32,3 33,3 £ Extra payment 9 8 6 3 est 7 6 ,5 ,17 ,951 7 7 7 1,635 4,356 4,243 4,120 8,613 8,29 1,6 £ Inter esult of original 20 r 1 ,37 £ Extra debt 1,041 6,915 0,831 7 6 117 19 3 5 5 5 heme as a r £ Number leaving 0 8 0 2 6 8 1 7 9 9 9 2 0 0 0 0 0 0 7 7 84 35 00 9 9 9 7 7 432 ,422 ,59 7 7 4, 2,37 2,15 1,241 6,244 arting 5,3 9,34 0, 27 7 7 7 93,561 82,217 81,202 62,444 12,920 94,8 9 27 7 £ St debt 141,9 625,27 7 822,850 516,041 911,9 9 3 -150,284 -310,659 -4 -6 1,58 1,0 1,27 1,143,9 1, 1,6 1,4 1,618,415 1,210,622 1,64 1,6 1,553,59 1,516,26 1,3 1,329,4 1,43 Debt for whole sc Homes 20

Common Ground 80

Appendix 5 Annex 7 Examples of equity stakes (non-unitised 30 year index-linked finance)

Initial property value: £145,000

£21,000 salary; gross annual payments of £5,554

Occupier leaves at the end of year: 5 7 10 15 Value of property at leaving date 160,764 172,215 190,937 226,774 Original debt as % of value 75% 75% 75% 75% Debt at leaving date 107,743 106,360 102,833 92,114 Equity stake at leaving date 12,544 22,494 40,031 77,562

£17,000 salary, gross annual payments of £4,214

Occupier leaves at the end of year: 5 7 10 15 Value of property at leaving date 160,764 172,215 190,937 226,774 Original debt as % of value 48% 48% 48% 48% Debt at leaving date 66,924 64,657 59,94847,787 Equity stake at leaving date 10,819 18,622 32,386 61,877

£25,000 salary; gross annual payments of £6,513

Occupier leaves at the end of year: 5 7 10 15 Value of property at leaving date 160,764 172,215 190,937 226,774 Original debt as % of value 78% 78% 78% 78% Debt at leaving date 108,053 104,394 96,791 77,155 Equity stake at leaving date 17,468 30,067 52,289 99,905

81 Common Ground Appendix 5 Annex 8 Comparison of the model with Shared Ownership and Homebuy

Individual mortgage rate 5% RSL borrowing rate 4.85% Years for mortgage 25 Years for RSL loan 30

Model Shared Ownership Homebuy

Normal At model Normal At model subsidy level subsidy level £££££

Value of property 115,000 115,000 115,000 115,000 115,000 Subsidy 29,354 34,500 29,354 28,750 29,354 Individual mortgage1 46,000 46,000 86,250 85,423 Net cost to Coop/RSL 85,646 34,500 39,646 0 223

Payment by resident Services etc 328 410 410 410 410 Management 146 182 182 Rent 2,206 2,535 Mortgage or equivalent2 5,476 3,264 3,264 6,120 6,061 Total initial payments 5,950 6,061 6,390 6,529 6,470

Salary level for affordability* 22,660 24,469 25,801 26,301 26,064

1 mortgage at 3.5 times salary plus non-mortgage costs 32.5% additional salary 2 based on 100% mortgage for comparison purposes: model proposes a 4% deposit

Notes: The advantages of the model over Shared Ownership might be cited as: G slightly lower payments as a result of longer mortgage period and marginally lower rate G reduced management costs G no requirement to have both an individual mortgage and pay rent/services G greater share of equity appreciation G equity locked permanently into CLT G more flexible affordability calculation

The advantages of the model over Homebuy might be cited as: G lower payments as a result of longer mortgage period and lower rate G equity locked permanently into CLT G more flexible affordability calculation

Common Ground 82

Appendix 6: Interest-free Home Loans – JAK Co-operative Lending System

In Sweden, the Tenant Ownership Co- Christiansen.32 Christiansen’s co- capital, but only for the administrative operative System has been developed operative lending system developed well work involved in the loan and the extensively for decades through links in Denmark until the 1970s, when the estimated proportion of risk taken. Thus, between regional secondary housing co- original co-operative bank was taken a loan-fee payment for administration operatives (referred to as ‘mother over by a traditional bank. Since then the and risk can be charged in the form of societies’), which provide development JAK system has revived again in fund management charges in a similar support to enable new local housing co- Denmark and has also become way to a managed collective investment operatives (referred to as ‘daughter successful in Sweden. fund (i.e. a unit trust or investment trust), societies’) to become established. Further and an average marginal loss of principal support has been provided by specialist In Sweden, initial capital was provided by predicted in respect to bad debt losses. finance mechanisms. a handful of co-operative savers aided by Based on the size of the loan, typical fee a wealthy philanthropist who provided charges in Sweden by the JAK Bank are With the steady growth of Community both helpful start-up capital and matched a 3.5 per cent set up fee and an annual Development Finance Institutions funds to incentivise savings efforts. The management fee of one per cent. (CDFIs) in the past 10 years, there is initial legal structure in Sweden was a now scope for development of such co-operative loan fund similar to No interest is paid on saving specialist finance to help support and Community Development Finance accounts: instead, the saver receives a sustain the development of mutual Institutions (CDFIs) such as London saving points total, whose cumulative homeownership projects in the UK. In Rebuilding Society or the Wessex purpose is to spread the specific savings some English regions, there are also a Reinvestment Trust in the rural South among individual member contributions small number of secondary housing co- West. The first loan was made in 1970. which balances loans drawn down by operatives that can act as ‘mother Today JAK in Sweden has over 25,000 individual borrowers on a medium to long- societies’. members with savings of 660 million term basis. Six per cent of the size of any Swedish kroner (£47 million) and loans loan taken out is required as an equity outstanding of 560 million Swedish deposit in JAK share capital. This is Secondary finance – a role for kroner (£40 million). JAK secured withdrawable once the loan is fully repaid; Community Development regulatory authorisation and graduated to Finance Institutions a co-operative bank in 1998. A publicised set of operational rules is agreed by the members and In the US, from where British CDFIs have periodically reviewed and updated. These gained inspiration and guidance, low- JAK Saving-Point Based provide an equitable means for allocating income equity housing co-ops are Interest Free Lending Systems loans and are needed to ensure supported by Community Development – Operational Description sufficient liquidity by encouraging and Loan Funds in many New England states. mobilising collective savings to keep Additionally, the Institute of Community JAK, like other co-operatively based savings and investment funds in balance. Economics (ICE) is an accredited CDFI lending systems, uses a save and borrow and operates a national revolving loan methodology similar to those traditionally Prudent lending practices are followed in fund to assist Community Land Trusts practiced by credit unions. Like the early relation to security for credit provided secure primary bank finance for new Raiffeisen credit unions in nineteenth and in assessing an applicant’s projects. In New York City, Community century Germany, and as is still practiced repayment abilities. In this respect, Development Credit Unions such as the in Britain and Ireland today, members ‘interest-free’ finance is precisely the Lower East Side Peoples’ Federal Credit must save regularly to build up the co- same as interest-based lending by Union and the Homesteaders Federal operative lending funds from which conventional mortgage lenders. The main Credit Union specialise in providing members can then borrow. In Sweden, difference lies in the calculation of the secondary sources of finance for limited- support from an ethical investment lending costs, risks and charges. equity housing co-op members to meet philanthropist assisted fund development needs such as deposits, furniture and in the 1970s and, as a result, a greater Savings points are issued by JAK in internal repairs. multiple of savings was allowed for loans proportion to the savings time and the from the very beginning than is normally savings amount. A multiplier (i.e. a Saving During the course of this research, available from credit unions.33 factor ranging from 0 to 1) may be consideration was given to the scope for added to reflect how usable the savings development of innovative, low-cost JAK’s savings point-based interest free are for the system. As a result, current ‘interest-free’ loans to co-op members to systems differs significantly from ordinary accounts in JAK banks generate few support mutual homeownership. Such a bank, building society, credit union or points by comparison to long-term, loan system has been developed by the CDFI lending. There are three main interest-free savings accounts. Thus, JAK Bank in Sweden since 1965 to differences: current accounts are rated near to zero, meet housing finance needs. as they are hard to use for on lending No net interest is paid by the because of instant access requirements. The JAK system was pioneered by the borrower: Accordingly, the provider of Danish Christian Socialist and co- the credit does not charge the borrower The savings factor in the JAK system operative farmer, Christian anything for comparable earnings on may also differ over a period of time. This

83 Common Ground can be calculated to reflect time- daughter co-ops in the mutual housing the expected loan in advance of the dependent fluctuations of the lending system). In principle, the same need for borrowing. During the next six months system’s capital requirements: planning in relation to internal repairs five of the tenants borrow on average (and household furnishings) applies £500 with repayments set at 24 months. Savings points = Savings time x equally to the co-op members During the subsequent six months five Savings amount x Savings factor themselves. To acquire this access to more tenants borrow on average £750 credit, individual members and the with repayments set at 24 months. Savings points are exchangeable for an daughter co-operative need to be During the following six months five interest free loan on an equal 1:1 point prepared to engage in a specified period other tenants borrow on average £1,000 basis. For example, 10,000 savings of interest-free saving. with repayments set at 24 months. The points derived from the multiple of ‘£ x costs involve an up-front fee of 3.5 per months’ can be traded against a loan of This need for repair finance is readily cent of each loan and an annual fee of £10,000 for a one month term or tackled in through standard JAK loans, one percent of the amount borrowed. A £5,000 for two months. A shortage of and numbers and figures can easily be six per cent share purchase is taken on matching savings points at a specific added to provide quantitative information the value of the loan. After the loans are borrowing time can be compensated for about how much the individual or repaid it is assumed that each tenant by the flexible JAK loan-saving contract. corporate member will have to save, and takes a new loan of double the value of This unique two-way contract stipulates for how long, in order to secure periodic their initial loan with the repayments set not only the interest-free repayment of access to regular interest-free loans to at 48 months. The co-operative pump the loan, but also future mandatory tackle both cyclical, emergency and other starts the project by saving for regular savings agreed in the contract to periodic repairs to the properties in the (three-yearly) two to three years, which is replenish the fund (known as ‘after- future. A JAK system can deliver this available to cash flow the earlier loans. savings’). These are used in due course finance very flexibly indeed as and when to cancel out any shortfall in savings it is required for both minor and major points prior to drawdown of the loan and repairs and for modernising and repayment of the sums borrowed. This renewing the properties internally and solidarity savings to replenish the mutual externally, from bathrooms and kitchens lending fund is crucial as, without the to common areas and additions. contributions in the form of after-savings, the interest-free system could operate The crucial issue for the individual for a certain period, depending on loan members and daughter co-ops is for demand and lending criteria, but would of members to make decisions mutually in course in due course malfunction as a advance as to how to deal most cost- result of unpaid IOUs. effectively with the global dynamics of the repairs and maintenance system that This is the fundamental fund has been devised and agreed. From an management technique that must be individual member’s point of view, an mastered by any CDFI provider of such agreed model giving accurate guidance loans. Credit unions in Britain for for loan-saving sums is vital, so that example normally start with a advance planning about the necessary requirement of three months pre-savings savings amount is established, enabling in order to qualify for a first loan of no the funds required in the future to be more than double the amount of savings. made available for anticipated capital JAK works on similar principles but requirements. Clearly, for these future because of the after-savings feature, can sums to be available interest-free, there in fact lend on higher multiples then with is a need in general for the system to be credit unions – 5 to 10 times savings not able effectively to match credit sums being uncommon. needed against the pre-agreed savings amounts for the purposes of cash flow forecasting on a monthly basis. These Interest–free lending for monthly sums should be indicated to repairs and maintenance – members when joining the mutual repairs a JAK system lending service.

Given the predictability of the future The following example is indicative of a need, it would be relatively simple to Mutual Aid Fund for interest-free repairs establish an interest-free repairs fund for that both the London Rebuilding Society housing co-op members to cover periodic and the Wessex Reinvestment Trust internal and external repairs. The could operate for CLT members across a standard JAK loan model readily region. addresses this need. Where a member of the system intends to take an interest We assume that there are 30 residents free loan in the future (clearly, this in a given co-operative development. Half forward planning for repairing and of them opt to participate in the ‘interest- maintaining property is prudent and free’ lending scheme. It is assumed that essential for development of the all participants will have saved 10% of

Common Ground 84

Availability of co-operative funds for individual property improvements

No. of tenants Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

“Landlord” sinking fund £ 2,500 £ 2,500 £ 2,500 £ 2,500 £ 2,500 £ 2,500

Shares purchased £ 150 £ 525 £ 750 £ 1,050 £ – – – £ 450 Fees on new loans £ 88 £ 306 £ 438 £ 613 £ – – – £ 263 Fees on existing loans £ 25 £ 113 £ 213 £ 300 £ 300 £ 250

First tenant group savings 5 £ 500 £ 1,000 £ 1,000 £ 1,000 £ 1,000 £ 1,000 – First group 1st loans repaid £ 625 £ 1,250 £ 625 – First group 2nd loans repaid £ 625 £ 1,250 £ 1,250 £ 1,250

Second tenant group savings 5 £ 375 £ 1,500 £ 1,500 £ 1,500 £ 1,500 £ 1,500 – Second group 1st loans repaid £ 1,875 £ 1,875 – Second group 2nd loans repaid £ 1,875 £ 1,875 £ 1,875

Third tenant group savings 5 £ 1,000 £ 2,000 £ 2,000 £ 2,000 £ 2,000 – Third group 1st loans repaid £ 1,250 £ 2,500 £ 1,250 – Third group 2nd loans repaid £ 1,250 £ 2,500 £ 2,500

Total inflows £ 4,263 £ 11,319 £ 14,025 £ 14,588 £ 12,925 £ 13,588

Fund application

“Landlord” property expenses £ 7,500 £ 7,500 First tenant group borrows 5 £ 2,500 £ 5,000 Second tenant group borrows 5 £ 3,750 £ 7,500 Third tenant group borrows 5 £ 5,000 £ 10,000 Overhead

Total outflows £ 2,500 £ 8,750 £ 12,500 £ 17,500 £ – – – £ 7,500

Fund balance £ 1,763 £ 4,331 £ 5,856 £ 2,944 £ 15,869 £ 21,956

85 Common Ground