Common Ground – for Mutual Home Ownership

Community land trusts and shared-equity co-operatives to secure permanently affordable homes for key workersWritten by the New Economics Foundation and CDS Co-operativesPat Conaty, Johnston Birchall, Steve Bendle, and Rosemary Foggitt

The mutual state in action 3

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Current priorites are climate change,ecological debt and local sustainability

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About the authors

Acknowledgements 1

Preface 2

Foreword 3

Executive Summary 4

1 Introduction 7

1.1 Housing Crisis – the Property Market Bubble and Negative Equity Threat 8

1.2 London’s Housing Shortage and the Intermediate Market Problem 9

1.3 Tackling the Housing Supply Shortage 101.4 Key Worker Housing: Current Approaches

and Emerging Solutions 111.5 London Housing Commission and the Plan for London 111.6 Starter Homes Initiative and Low-cost Home Ownership

Programmes 121.7 Increasing Housing Supply –

Sustainable Communities Plan 13

2 Mutual Solutions for the Intermediate Market 15

2.1 Community Land Trusts – Securing Permanent Long TermAffordability 15

2.2 Early British Housing Co-ops – Tenant Co-partnerships 172.3 Co-ownership Housing – Key Worker Housing

in the Post War Period 192.4 Shared Ownership Co-operatives 212.5 Comparative Analysis of Co-operative

Tenures Internationally 212.6 Evaluation and Key Lessons for a

New Tenure Model in the UK 24

3 Community Land Trusts and the New Shared Equity Co-operative Model 26

3.1 Co-operative Homeownership Model – Core Principles and Options Rejected 26

3.2 Shared-equity Co-operatives – Proposed Model and Key Assumptions 27

4 Key Worker Housing Initiatives in Two English Regions: 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

5 Fieldwork Interviews with Key Workers and Focus Group Findings 38

5.1 Interviews in the South West – Main Findings 385.2 Interviews in London – Main Findings 415.3 Summary of Findings from Key Worker Perspectives 435.4 Shared-equity Co-operative Model –

Focus Group Feedback 44

6 Creating Pilots and the Shared Equity Co-operative Housing Model in Detail 46

6.1 Legal Structure Requirements 466.2 Investment Finance Requirements 466.3 Co-operative Housing –

Loan Guarantee Society Services 476.4 Other Forms of Finance and

Funds for Financing Equity Stakes 476.5 Making the Model Easy to Understand: Unitisation 486.6 Reduced Land Value or Other Subsidy Input 486.7 Tenure Requirements 506.8 Risks and Sensitivities to Economic Changes 506.9 Community Development Finance Partnership –

Interest Free Finance Service 506.10 Cost Benefit Comparisons with Shared Ownership

and Homebuy 50

7 Conclusions and Next Steps 53

Endnotes 54

References 56

Glossary 59

Appendix 1: Research Terms of Reference 62

Appendix 2: List of Third Party Interviewees 63

Appendix 3: Legal Advice Summary of Key Issues 64

Appendix 4: Shared-equity Co-operative Model – Core Elements 66

Appendix 5: Financial Model(s) – Annexes 1–6 68

Appendix 6: Interest-free Home Loans – JAK Co-operative Lending System 83

Contents

Pat Conaty is a Senior Associate of theNew Economics Foundation and anHonorary Research Fellow at theUniversity of Birmingham. He led thedevelopment in 1997 of the AstonReinvestment Trust – the first mutuallyowned, local Community DevelopmentFinance Institution in Britain. He is also aregular trainer for the CommunityDevelopment Finance Association.Recent projects include productdevelopment work for London RebuildingSociety on housing finance, CommunityDevelopment Credit Union work on billpayment systems and work over the pastthree years on Community Land Trustsfor affordable housing and workspaceprojects with Community FinanceSolutions at the University of Salford.

Johnston Birchall is a Senior Lecturer inSocial Policy at Stirling University andSenior Associate of the New EconomicsFoundation. He has a researchprogramme developing a ‘mutualincentives’ theory of what motivatespeople to participate. Since writingBuilding Communities: the Co-operativeWay (Routledge, 1988) he has publishedextensively on co-operatives and mutuals,including: Co-op: the People’s Business(Manchester University Press, 1994), TheInternational Co-operative Movement(Manchester UP, 1997) The NewMutualism in Public Policy (edited, 2001,Routledge), and Rediscovering the Co-operative Advantage: Poverty reductionthrough self-help (ILO, 2003). He alsowrote the second report in the NewEconomics Foundation’s ‘Mutual State inAction’ series: How to run rail and waterin the public interest (2002).

Steve Bendle is Chief Officer of EnvolvePartnerships for Sustainability and aDirector of, and consultant to, WessexReinvestment Trust: the organisations arecommitted respectively to supporting thetransition to sustainable lifestyles andproviding the financial framework neededfor local rural economies to work.Previously he worked for five years as anindependent consultant, focusing onhousing, community and environmentalissues and from 1980-1993 wasManaging Director of the HorizonHousing Group (at that time SouthLondon Family Housing). He has playeda part with others in seeking to initiateand implement a broad range of socialinitiatives, among them ‘People forAction’, where empowerment and holisticthinking are built-in rather than bolted on.

Rosemary Foggitt is a solicitor and adirector of Common Futures Ltd, aspecialist social enterprise research anddevelopment consultancy. She worksboth as a translator and researcher andhas been involved in a number of majorEuropean Union funded projects in thearea of financial services, consumerrights, financial literacy and financialexclusion. Most recently, she has beenengaged in research fieldwork forCommunity Finance Solutions at theUniversity of Salford, looking intoworkspace, housing and finance issues inthe rural South West. This research led tothe establishment in late 2002 of theWessex Reinvestment Trust, the first ruralCommunity Development FinanceInstitution in the UK.

Common Ground

About the Authors

This research is one of a series ofreports funded by the HousingCorporation in the last few years on theuse of Community Land Trusts (CLTs) tosecure affordable housing solutions.Aston Reinvestment Trust in Birminghamproduced the first report in June 2000. Itlooked at how American-style CLTs mightbe used to assist with equity release tohelp low-income homeowners repair theirproperties where servicing a loan wasnot realistic. Further reports in theresearch series have looked in particularat rural regeneration and how the CLTcould be used to provide both affordablehousing and village workspace (Centrefor Community Finance Solutions, 2001and 2002)

This report was prompted by the key-worker crisis in London and initiated byCDS Co-operatives, the largest specialistco-operative housing service agency inLondon and the South of England. CDSCo-operatives’ Board had the foresight tocommission this research after itsExecutive Director, David Rodgers, hadset out his innovative thinking at a NewEconomics Foundation seminar inSeptember 2001 on how a permanentlimited-equity housing co-operative forkey workers might be structured. Theresearch builds on the previous work oftwo of the authors. We are alsoenormously grateful to the Innovationand Good Practice Programme of theHousing Corporation for funding for theseries, and in particular, for matchfunding CDS Co-operatives’ investmentin the research and this latest report.

To date, CLTs have been established inthe Highlands and Islands of Scotland.We hope that this latest report will enableCLT development to start in England.

The authors would like to thank all thosewho agreed to be interviewed and whogave their views as key workers in eitherLondon or the rural South West or whoshared their professional housingdevelopment experience with the fieldworkteam (the latter are acknowledged inAppendix 2). Special thanks are due tomembers of our Advisory Group for theirinvaluable expert guidance in overcomingdiverse legal, regulatory and financingchallenges. Without their wisdom andhelpful suggestions, the project could nothave been completed. The members of thisgroup included:

Angela Ayton, The Housing CorporationKen Bartlett, Joseph RowntreeFoundationNic Bliss, Confederation of Co-operativeHousingStephen Hill, Capital ActionNaomi Kingsley, London RebuildingSocietyEd Mayo, National Consumer CouncilAdrian Moran, The Housing CorporationMatthew Pike, The Scarman Trust Dame Sally Powell, London Borough ofHammersmith & FulhamDavid Rodgers, CDS Co-operativesAnne-Marie Rafferty, University of CentralLondon, Centre for Policy in Nursing

The authors have striven to summariseand give clear expression to a widerange of fieldwork methods whichinvolved: international and historicalenquiries; one-to-one interviews; focusgroups; consultation work; and legalinvestigations across a broad range ofsubject matter. For this we wish to citespecifically the patient interview work ofWarren Garrett and Toby Lloyd of LondonRebuilding Society, and of MatthewPorter and Peter Watherston of First Fruitin Newham. We would also like to thankBob Paterson of the University of Salfordfor his specialist housing expertise andassistance with work in the rural SouthWest. We are deeply indebted to JerkerNordlund of JAK Bank in Sweden, forpractical ideas on the operation ofSwedish Tenant Ownership Co-operatives and on the use of interest-free finance services in supportingmutual housing mechanisms (seeAppendix 7). For additional work oninterest-free lending for housingmaintenance, we are grateful to AnthonySalt of the Wessex Reinvestment Trust.

In tackling the legal issues presented bymutual housing and CLTs, we have beenguided by Malcolm Niekirk of LesterAldridge Solicitors in Southampton. Weare also very grateful for additional legalguidance on leases, tax, social securityand Commonhold issues from KeithJenkins, of Jenkins and Hand Solicitorsin London. Guidance from JennyGoodwin of the Housing Corporation onCo-ownership model rules anddocuments is most appreciated. Duringthe course of the fieldwork we identifiedfascinating parallels between CLTs andIslamic Finance solutions, and we wouldlike to thank Sher Khan of the Noah’sArk Fund for his superb insights on waysto ‘unitise’ a housing development

portfolio and replace interest with moreaffordable fee payments.

Les Haswell, of CDS Co-operatives, hasprovided additional help on housingmanagement issues and costings whileJane Cameron of CDS Co-operativesand Steve Wraith of the New EconomicsFoundation (nef) have helped withadministration. Final editing benefitedfrom the expertise and eagle eyes ofAndrea Westall and Mary Murphy of nef.We are grateful to the contributions of arange of national and local authorityexperts on our Advisory Council forvetting the final draft. They include:

Peter Baker, The Co-operative BankNeale Coleman, Greater LondonAuthorityProfessor Janet Ford, University of YorkMike Franks, Regeneration TrustClerkenwellPippa Gough, The Kings FundWilliam Grosvenor, London Borough ofNewham, Housing & RegenerationMeg Hillier, Greater London AuthorityTheresa McDonagh, Joseph RowntreeFoundationProfessor Henrietta Moore, LondonSchool of EconomicsAndrew Robinson, RBS NatWestIainTuckett, Coin Street CommunityBuildersPeter Williams, Council of MortgageLenders

Finally we would like to thank the USCommunity Land Trust movement –including Julie Orvis of the Institute forCommunity Economics in Massachusetts,Susan Witt of the EF SchumacherSociety and John Emmeus Davis ofBurlington Associates in CommunityDevelopment LLC – for input onCommunity Land Trusts practice andlegal issues. Sadly, during the course ofthis research, Bob Swann of the EFSchumacher Society, founder of theInstitute for Community Economics andpioneer of CLTs in the United States,died on 13 January 2003. We dedicatethis report to his ingenious work andenduring co-operative spirit.

In Memory of Robert Swann –Community Land Trust Pioneer

1 Common Ground

Acknowledgements

The Joseph Rowntree Foundation’s LandInquiry (2002) documented the problemsfacing people employed on low-to-medium incomes in high-value areas infinding affordable homes. The Inquirycalled for fresh thinking on new forms oftenure between the twin poles of rentingand ownership, noting that permanentrenting failed to meet the aspirations ofmost people, while ownership in manyareas was out of their reach.

Against this background, the CommonGround proposals are timely andsignificant. They are based on a structurethat captures increasing land value forthe benefit of local communities, so thatinitial investment creates affordablehousing opportunities for successivegenerations. It aims to do this in a waywhich avoids both the originaldisadvantage of council housing – aninability to move on to ownership – butalso the penalty inherent in the right tobuy, which confers advantage on the firstbuyer at the expense of futuregenerations. The ownership of the landremains permanently in trust, whileoccupiers gain access to homes, whichare affordable now, and equity shareslater connect them to the wider housingmarket.

Joseph Rowntree, in setting up theFoundation that bears his name, foresawthat the land question would continue tobe critical. He referred particularly to theneed to consider “the appropriation ofthe unearned increment”, a telling phrasefor a society where people in some areasare enriched not by their work, but byincreasing land values, to the detrimentof those who are not yet owners.

This proposal addresses that keyquestion. By doing so it offers the mosteconomical and best-value-for-moneyway of using public or private investmentto meet housing needs. It provides forthe needs of successive generations in away that acknowledges the ownershipaspirations of most people in this country,and the need to bridge the gulf betweenrenting and owning.

Ken BartletAdviser, Joseph Rowntree Foundation

2Common Ground

Preface

The origins of the Community Land Trust(CLT) model are simple. Robert Swannconceived the CLT as a method ofholding land in public trust rather thantreating it as a commodity. This is not asocialist concept, for Bob supported andencouraged private ownership ofbuildings and other improvements on theland. While he accepted the analysis ofMarx and Henry George, which explainedthe persistence of poverty despiteeconomic progress, he did not seek theirsolutions in terms of the elimination ofownership or taxing ownership. Hestrongly believed that land, water,minerals, and other natural resourcesshould be treated differently in aneconomic system from items producedby human labour applied to land. Ratherthan overthrow capitalism, Bob sought toimprove it and to do this by examplerather than with words. CLTs are only oneway in which he made a contribution tomaking the world a better place.

Collaboration on the land problembetween us began by correspondence in1976 through a network orchestrated byJohn Turner, a World Bank self-helphousing expert. The correspondencerevealed not only a shared interest inreforming the nature of the ownershipand control of land, housing andenterprise, but also the need forcommunity-controlled banking throughthe development of local currencies.1 Itwas in 1979 that we met for the firsttime after one of us (Shann) hadattended a conference that Bob hadbeen invited to in India to consider howto put into practice the Trusteeshipconcepts of Gandhi for owning andcontrolling land, housing and enterprise.

For most of his life, Bob worked as acarpenter who also designed homes.Deeply committed to issues of socialand economic justice, he would describehis experience of trying to buildaffordable homes. No matter howinnovatively he worked to reduceconstruction costs, the final price of hishomes continued to rise. This forcedhim to realise that it was the sharpinflation in land costs, not building costs,that was the dominant factor inmounting home prices. Those whoowned and controlled access to landwere benefiting from the need of agrowing population for land to live,conduct business, raise families, growfood, and play. Landowners gained an“unearned increment” from their land

holdings, thereby creating inequity in theeconomic system.

Bob studied various communities formedto experiment with land reform methods.In most cases the land was held co-operatively by those who built theirhomes and shared their lives on the land.However, after several generations, thedescendents of the founders wouldsimply change the company rules of theco-operative and sell land and homes tothe highest bidder, pocketing the profits.What was an effort for the good of allturned out to be a benefit for a few.

To avoid this problem Bob conceived of athree-part board to a Community LandTrust. A CLT is a regionally based non-profit corporation with membership opento any resident of the area for a nominalyearly fee. The CLT acquires land by giftor purchase, creates a land use planmeeting social and ecologicalconsiderations for each piece and thenleases the land on 99-year leases forpurposes outlined in the plan. Allleaseholders must be members of theCLT and they then elect one-third of itsboard, ensuring a strong voice forresidents, but not a controlling vote.

The non-leasing members then electone-third of the board. This group keepsthe organisation dynamic, seeking newland so that more people can haveaffordable access. The elected membersof the board then appoint another thirdof the board from the professionalcommunity, bringing needed skills suchas land-use planning, financing, legal, ordevelopment skills.

Through a one-time purchase or gift tothe CLT, land is taken permanently offthe speculative market. Sale of homes onCLT land is limited to the currentreplacement cost adjusted fordeterioration of the buildings and otherimprovements. The land value is notincluded in the transfer. In this way theCLT is an important tool in the creationof affordable housing. Families maypurchase and finance the homes on landtrust land, but not the land itself.

While the short term benefits of acommunity investing in the creation of aCommunity Land Trust was visible in thenewly developed homes for workingfamilies, Bob Swann was also concernedwith the long-term benefits. He did notbelieve that only the poor should not

speculate in land. Rather he looked to theday when a Community Land Trust wouldhold most of the land in a region. Moniesnow tied up in land speculation would befreed for re-investment in the localeconomy, creating new jobs and products.Bob shared his friend Fritz Schumacher’sadvocacy for sustainable regionaleconomies in which the goods consumedin an area would be largely produced inthe area. By forming a system in whichaccess to land was via social contractwith a locally governed, democraticallybased institution rather than via marketforces, then a great injustice andhindrance to new productive activity in theeconomic system would be addressed.

Rosemary Foggitt and Pat Conaty, twoauthors of this report, visited Bob duringthe last year of his life. Their visit was athorough delight. He saw members of ayounger generation committed to amodel he had worked hard to fosterthrough the years. They clearly had thecapability of turning their vision intoreality. This report would have moved him,telling as it does the story of the growingapplication of the CLT model in Scotland,England, and Wales.

But Bob would have been embarrassedby the dedication to him alone. He wouldwant to recognise his mentors: HenryGeorge, Leo Tolstoy, Mahatma Gandhi,Vinoba Bhave, Arthur Morgan, RalphBorsodi, and Martin Luther King. And hewould credit you as well, reading thisreport, for working to shape a moreequitable future by forming CommunityLand Trusts in your own neighbourhoods.It will take such common vision andcommon work to free land from thebondage of a market system, so that it isagain recognised in the culture andtreated in social practices as commonground for community life and renewal.

Susan Witt11 September 2003E F Schumacher Society Great Barrington, Massachusetts, USA

www.smallisbeautiful.org

Shann Turnbull Ph.D.Principal, International Institute for Self-governance, P.O. Box 266Woollahra, Sydney, Australia,

http://members.optusnet.com.au/~sturnbull/index.html

Papers:http://ssrn.com/author=26239

3 Common Ground

Foreword

In most areas of southern England fromLondon to Exeter, 2002 was the firstyear where houses earned more than theaverage annual pay of people working inpublic services. Soaring mortgage costsfor first-time buyers have beenexacerbated in the South of England bya disproportionate gap between housingsupply and housing demand in bothhomeowner and rented sectors. Thoseworst affected are workers on averageincomes of between £15,000 and£25,000 per year, who are neither poorenough to rent from a social landlord norrich enough to rent or buy in the openmarket.

This so-called ‘intermediate market’problem will almost certainly continue oreven worsen for some time ahead,because new housing construction is at itslowest level for over 50 years. Accordingto the Joseph Rowntree Foundation LandInquiry, there is a national shortfall ofaffordable housing construction of100,000 properties per year.

The high cost of housing in both Londonand the South West is having a heavyimpact on staff recruitment and retentionin essential public sector services such asschools, hospitals, social services, andtransport. London Transport has over1,300 vacant posts for bus drivers andNewham Council has a 23 per cent annualturnover of teaching staff, almost half ofwhom leave because of housing problems.Increasing numbers of young teachers,social workers, nurses, and doctors leaveLondon after five years or so in order toestablish a family, because they simplycannot afford adequate housing locally.

In both London and the South West,health-sector and local-authoritymanagers are dependant on agencies tofill vacant posts, often doubling the costto the taxpayer. This problem has beencompounded by tumbling stock marketsin the past three years, leading investorsto shift their attention to the propertymarket and further fuelling the spiral inhouse prices.

In 2000, the impact of rising houseprices on key workers in London and theSouth East of England began to berecognised, and in September 2001, theStarter Home Initiative was launched asa response. Since then, the problem hasbecome a crisis; small flats in innerLondon and small terraces in the EastEnd increased in value by between

£20,000 and £30,000 in the year toDecember 2002.

A number of schemes have sought, andcontinue to seek, to make homeownership accessible and affordable forpeople on moderate incomes. SharedOwnership and Homebuy are two majorschemes operated by registered sociallandlords. Shared Ownership provides forthe purchase of part of the value ofhousing (conventionally 50 per cent) bythe prospective resident, with the optionto ‘staircase’ up to a higher percentageof ownership in the future; the registeredsocial landlord (RSL) retains theownership of the remainder of the equity,for which it then charges the leaseholderrent. The rent charge is set as apercentage of the affordable rent theRSL would charge for a similar rentedproperty; the percentage reflecting thepercentage of the equity retained by theRSL. In Homebuy, the buyer contributes75 per cent of the price of the housingthrough personal savings and amortgage, and the registered sociallandlord lends the remainder. There areno repayments on the 25 per centtypically funded by the RSL; it is repaidwhen the property is sold.

As housing prices have continued to rise,both schemes have been heavily over-subscribed and, despite this, have eitherstruggled or been unable to meet theaffordability crisis faced by key workersin Starter Home Initiative areas. Manywould-be purchasers have simply beenunable to raise a sufficient mortgageunless the share held by the registeredsocial landlord is increased from 50 to75 per cent. Thus, while the StarterHome Initiative has functioned as astopgap measure, it has been overtakenby the sheer force of housing marketpressures and has proven inadequate tobridge this widening gap.

The aim of this report is to examine thescope for a radical approach to securinga permanently affordable solution to thisdilemma for key workers (and alsopotentially for others on similar incomelevels) in high-cost housing areas. Corecriteria are the need to protect any publicsubsidy while addressing the centralissue of escalating prices caused by botha chronic shortage of housing supply inthe South of England and a shortage ofdevelopment land. The focus of theresearch has been on the housing needsof key workers in two contrasting, high-

cost English regions, urban London andthe rural South West.

The housing model proposed by thereport has two main aspects: aCommunity Land Trust, designed toextract the land from the market andretain it as a public asset, so thataffordability is preserved on a long-termbasis, and a co-operative form of tenure.As land costs in many outer areas ofLondon can range from 40-60 per centof the house purchase price, thepermanent removal of the land into aCommunity Land Trust can massivelyreduce the cost of homeownership tomeet future local housing needs forgeneration after generation.

Taking an international perspective,limited-equity co-operative housing(where returns on equity shares on saleare restricted) is popular in Scandinavia,Canada, and the US where it providesaffordable solutions. About one in fourhousing units in Sweden is co-operativelyowned. The research shows that thisform of limited-equity mutual housing hasbeen popular in Britain in the past, priorto the First World War and in the 1960sand 1970s when it was developed forwhat were then key workers. However,this history has been long forgotten, evenby housing professionals, as most of thisstock has been lost, primarily throughprivatisation.

As in these earlier periods and in othercountries today, the advantage of limited-or shared-equity co-operative housing isessentially practical. Uniquely co-operative forms of housing benefit fromseveral intrinsic cost savings:

a) In the cheapest limited equity forms,borrowing is corporate, not individual,which can reduce interest onborrowing costs for new housingacquisition.

b) Tenant participation in managementcan save on some overheads andexert continuous disciplinary pressurefor “best value” in professionalmanagement fees.

c) Tenure can be kept simple; arepairing lease (where it is thetenant’s responsibility in this case tocarry out interior repairs) can beassigned, and equity shares can alsobe assigned through a transparentresale formula.

4Common Ground

Executive Summary

Shared-equity co-operative housing hasthe further advantage that it can supportpeople in gradually building up ownershipof buildings (as opposed to the land),while simultaneously dealing withdepreciation through a service paymentcovering repairs and maintenance.Residents can therefore acquire aninterest in their home, which they can sellwhen they leave, through a local mutualorganisation in which they activelyparticipate through their voting rights.With studies showing that nine in 10households aspire to homeownership, co-operative housing with equity earningstakes provides a cost-effective way forkey workers to access low-costhomeownership and move from high-costrent to a secure form of affordablemutual shared ownership.

Key Worker Circumstances and Needs

Sixty-one in-depth interviews wereconducted (40 in London and 21 in therural South West) which revealed thefollowing housing needs and problemsfor key workers:

Current housing: Tenures are typicallyinsecure, too small, and very expensive. InLondon, one in four key workers have toresort to bedsits and hostels and 48 percent were living in overcrowdedconditions. In the South West,circumstances are generally similar andtenancies are typically only for sixmonths. In both regions, many keyworkers are unable to move out of theirparents’ home.

Commuting costs and time: In theSouth West, many key workers have tofind accommodation they can afford bycommuting from lower-cost areas. One intwo interviewed has a long journey towork, while one in 10 spends over 2.5hours a day commuting. In Londonproblems are similar, with 69 per centhaving long journeys to work.

Levels of savings and debt burdens:One in three key workers in London andone in four key workers in the SouthWest have savings of over £2,500 butthe majority have no savings or arestruggling with financial commitments.Younger key workers in particular haveadditional outgoings in terms of studentloans and in some cases, careerdevelopment loans. One in four keyworkers in the South West makeunsecured loan or credit repayments ofbetween £150 and £300 per month.

Fourteen per cent have to service loanpayments of over £300 per month. Thepattern is similar in London with 16 percent making debt payments in excess of£300 per month.

Affordable housing costs: In bothregions, the interviewees reported similarlevels of payments they could afford foran attractive and secure property. In theSouth West the average net affordableincome contribution for housing was 32per cent compared to 31 per cent inLondon.

In addition to the key-worker interviews,40 interviews were conducted withhousing professionals, local authorities,registered social landlords, co-oppractitioners and key-worker employersacross both regions. Current low-costaffordable homeownership solutions areproblematic. In the present low-interestenvironment, Shared Ownership hasbecome unaffordable for most keyworkers in both regions. To make SharedOwnership work in Gloucestershire, forexample, needs heavily discounted land(or the equivalent in subsidy of 65 percent of market value).

Homebuy is popular but, at the standard25 per cent equity loan rate, is in mostcircumstances only a realistic option forhouseholds with two salaries. In theLondon Borough of Hackney, the rateneeds increasing to the maximum 40 percent to be viable. For that reason, therewas much interest from the housingprofessionals consulted in the idea of aninnovative mutual approach with lowertransaction costs and other inherentsavings.

The Proposed Model

The shared-equity co-operative modelthe report proposes has the followingkey features that we consider “Canonsfor Mutual Homeownership Success”:

l Community Land Trust (CLT): aform of non-profit company or charityestablished for ‘community benefit’and well developed in the US whichacquires and holds parcels of land,scattered throughout a specifiedgeographic area in order to ensurethe permanent affordability of anyhousing (or other developments) thatis located upon that land.

l Co-operatives: leasing land from theCLT under a 99-year ground lease,any number of separate co-operative

housing societies will partner with theCLT to develop, own and managemulti-unit residential buildings. Eachco-operative will have a membershipmade up of people who occupy theco-op’s units and own shares in thesociety.

l Rights of occupation: to begoverned by both membership in theco-op and by a contractual full-repairing lease which allows both forassignment of equity and forentitlement to Housing Benefit orIncome Support in circumstances ofunemployment or long-term ill health.

l Corporate mortgage finance: forconstructing new housing andnegotiated on the basis of low-costrates comparable to the interestlevels negotiated by registered sociallandlords (RSLs) and preferably on alow-start basis with paymentsweighted so that they are lower inthe early stages and higher towardsthe end.

l Equity units: units of equity acquiredincrementally through a structuresimilar to a Property Unit Trust, inwhich an element of the monthlypayments made is applied to theacquisition of units which representan interest in ownership of the builtenvironment on a mutual, sharedownership basis.

l Affordable and equitable housingpayments: Shared ownershippayments in the model are based onan affordable proportion of salary.Thus, a teacher with a salary of£23,000 per year who pays 30 percent of net salary for housing coststo the co-operative will pay more permonth but, on the other hand, willearn equity stakes at a faster rate;their relative share of mortgage debtis repaid faster compared with ahealth service worker paying 30 percent of a lower salary of £18,000.

l Resale formula: a clear andtransparent means of valuing equitystakes when a member wishes to selland leave the co-op.

l Deposit: members would pay aninitial deposit set in the first instanceat five per cent of housing unit costs,but subject to review in later years inorder to maintain affordability inrelation to earnings.

5 Common Ground

The key workers interviewed in bothregions were strongly attracted to thisshared-equity co-operative housingmodel, which would enable them, as oneinterviewee put it, “to stop pouring rentmoney down the drain”. Ninety per centof those in the South West, and 92 percent of those in London supported themutual model explained to them. Nine in 10 interviewees in both regions were attracted to the idea ofparticipation in the management of theco-operative. Most were reassured by theidea of self-management and local,democratic control.

In general, the response to the mutualhousing model was very positive indeed,although the ‘key worker’ concept wasalmost universally viewed negatively.Because the Starter Homes Initiative hasfocused on particular groups of publicservice workers to the exclusion of others,it has been seen as unfair and divisive.This is an issue that will need seriousreview and consideration in any futurehousing policy or in specific initiatives.

The model was further discussed infocus groups in both regions. Thefindings were highly supportive of themodel. Participants understood thedifferential shared ownership paymentsand endorsed them as fair and sensible.They also found the five per cent downpayment acceptable. They viewedparticipation and shared responsibility ingoverning the co-op positively and foundthese features reassuring. They agreedthat a realistic level of additional costsfor a managing agent and insurancecosts were affordable and necessary, inorder to collectively fund upkeep ofthe grounds, common areas, and external repairs.

Potential Sites and Next Steps

In the Sustainable Communities Plan, thenew national policy for affordable housingprovision and area regeneration inEngland, the Government has announcedthe allocation of £1 billion of funding overthe next three years for key-workerhousing. It has also indicated a willingnessto consider non-registered social landlordproviders of key-worker housing. In thisHousing Corporation funded project, themodel developed is robust. It is alsoinnovative in including a Community LandTrust structure which can deliver ‘bestvalue’ by ‘capturing the value’ of anysubsidy in perpetuity. Thus the CLT aspectensures that, unlike other previous lowincome shared ownership models,

permanent affordability can be guaranteedfor generation after generation of low tomoderate income households.

We propose that, as a clear way oftesting the Joseph Rowntree LandInquiry recommendation for CLTs to bedeveloped in England, the mutual shared-equity co-operative/Community LandTrust model proposed should be pilotedin two urban and two rural areas, withChallenge Funding support under theSustainable Communities Plan. Based onlocal authority interest stimulated by thisresearch, the four initial pilot areasproposed are North Devon, Stroud, EastLondon and Milton Keynes. Severalpotential sites have been identifiedduring the course of the fieldwork. Thusdevelopment work on the pilots couldcommence in early 2004.

We believe that a dynamic, democraticand fully mutual form of key-workerhousing is not only achievable but closeto becoming a reality. It simply needs thesame innovative support from the Officeof the Deputy Prime Minister that CLT-based affordable housing solutions havereceived in the past 10 years from theAmerican Government. It should be notedthat in the UK, the funding fromHighlands and Islands Enterprise for CLTdevelopments in rural areas of Scotlandis already going from strength tostrength with new legislation this year tosupport it. CLT action in England shouldnow quickly follow suit robustly and cost-effectively to begin to tackle the key-worker housing crisis.

6Common Ground

In the past few years, house price risesall over Britain have led to a crisis ofaffordability. Small flats in inner Londonand terraced houses in the East Endrose in value in 2002 by between£20,000 and £30,000 – more than theaverage income of the capital’s keyworkers. The bizarre nature of the currentover-heated property markets is evident,in that for the first time houses areearning more than people. SinceFebruary 2003, the market has beguncooling off in London but prices in otherregions are still on the rise.

The affordability crisis is particularly acutein Greater London, the South East and theSouth West, where the fastest price riseshave occurred. In many ways the crisis isunprecedented and, some would argue,demonstrates that the housing market hasbecome dysfunctional. There are anumber of contributory factors. Notsurprisingly, investor funds have fled theStock Market, which has lost half its valuein the past three years, to safergovernment gilts and property. Buying torent has become popular, and aspiringsmall landlords have snapped up so manyproperties in popular areas that demandfor accommodation has outstripped supply.

As a result, in many parts of the South ofEngland today only the rich or the poorcan gain access to housing – the richbecause they have the income to do soand the poor (where the queue is not toolong) through the provision of socialhousing. Across a broad range ofemployment fields, both public andprivate, the thresholds have become toohigh for those on average income whoare not on the ownership ladder already.The alternative, of acceptable housing torent, is also in too short a supply and tooexpensive to be considered.

This report explores the scope for mutualsolutions involving limited or restrictedequity co-operative forms of tenure. Suchforms have worked in the past in Britainprior to the First World War and in the1960s and 1970s. But, since the 1980s,most of the stock has been privatiseddue, on the one hand, to the lack ofprotection against demutualisation and,on the other, to the incentive of the RightTo Buy. Such affordable co-operativehousing is a hybrid between renting andowning with some resemblance to SharedOwnership. Its popularity and success inScandinavian countries and the US

indicate that it has the potential to helpaddress the present housing crisis for keyworkers, potentially on a large scale.

However, it is vital that we are absolutelyclear about the problems encountered byearlier British attempts at such a hybridform of tenure, particularly to thestructural weaknesses of earlier forms oflimited-equity co-operative housing andthe inadequate ways such tenure formswere promoted by Government in the1960s and 1970s. Such lessons areessential to take on board if we are toavoid the recurrence of similar problemsin a third attempt to provide such mutualsolutions in the present housingcircumstances. It is also important thatsuch new housing should be built to highstandards (in other words, Egancompliance – see Glossary for details ofthis and other technical terms) and issustainable from an ecological and socialperspective within the funding constraints.

This research has been commissioned toidentify the lessons to be learned fromthe weaknesses in previous Britishlimited-equity co-operative housingmodels, and to gather information on thesuccessful elements of the model as it isoperated abroad. In addition, the researchhas been funded to investigate thepotential demand for such housing fromkey workers in two contrasting high-costregions in England – London and therural South West. Fieldwork with keyworkers and potential development

partners for a pilot was carried out fromJune to December 2002 in both Londonand the rural South West. The full Termsof Reference for this research are set outin Appendix 1.2

The ambition of the project is to seek todevelop a robust form of limited-equitymutual housing that could be piloted inboth regions from 2004, subject to apositive outcome in terms of bothdemand and feasibility. There is growingevidence in most London boroughs thatShared Ownership is not affordable forlower income key workers. The reasonfor this is that the minimum equityproportion for the mortgage element isnormally 50 per cent and is notaffordable. To seek to overcome thisgrowing limitation, the research haslooked at various design elements thatcould be synthesised through a robustnew tenure model, including:

a) Legal structuring of the mutualtenure form to reduce transactioncosts and management overheads;

b) Institutional ways of locking in anypublic or private subsidy on a longterm basis through separation ofownership of the land and ownershipof the buildings through a CommunityLand Trust;

c) Innovative finance solutions3 such as:

l Index-based forms of borrowing

7 Common Ground

What is a Key Worker?Defining a key worker has become highly contentious. The strict definition is drawnfrom the Starter Home Initiative (SHI) of the Government, which, since late 2001,has assisted 10,000 public sector workers to become homeowners (ODPM,2003). Priority key worker categories reflect the priority attached by theGovernment to tackling recruitment and retention problems in key public services.Under the SHI these services are defined as teachers, police, nurses and otheressential health staff. The latter category excludes administrative staff and lowerskilled health service workers but includes in some cases therapists. Key workersin a lower priority category include social workers, fire fighters and transportworkers and they have also been assisted under the SHI. Additionally, teachersmust work in publicly funded schools to qualify and key workers also must have apermanent leave to remain in the UK. This SHI requirement has meant that therising numbers of nurses from abroad have not been able to qualify for assistanceand ‘permanent leave’ requires a minimum work period in the UK of four years.However, the bidding guidance for SHI allows local authorities to approve supportfor other groups of key workers in “local areas where recruitment and retentionproblems are being experienced”. Thus, in theory, the definition can be made moreflexible. Most recently the Registered Social Landlord, Threshold Housing andSupport, has bid for the definition to be extended to “solicitors working for housingassociations, actors, and PFI construction workers” (Beveridge, 2003).

1. Introduction

l Low-start and tilting mortgagefinance

l Islamic finance4

l Interest-free co-operative financetools, such as those developedover the past 30 or more yearsby the successful JAK Banks inSweden and Denmark forhousing finance;

d) Attracting ethical investors andinstitutional funds throughCommunity Finance Tax Creditsapplicable to community finance forsocial enterprises.5

1.1Housing Crisis – the PropertyMarket Bubble and NegativeEquity Threat

In the year to 31 October 2002, houseprices nationally rose by 30.1 per cent –the fastest yearly rate rise since recordsbegan (Collinson, 2002). This rate wasalmost double the annual rate rise of15.8 per cent in the year to June 2002(Bar-Hillel, 2002). Since the peak lastyear, the annual rise has fallen back inJune 2003 to 12.5 per cent for Englandand Wales (Paterson, 2003). But whilethe Greater London annual riseaccording to HM Land Registry in June2003 had slowed to 6 per cent, theannual rates in the South East at 15.9per cent and in the South West at 19.8per cent were still racing ahead at levelswell above the national average.Nationwide Building Society expect theannual rise in house prices to slow downin the last quarter of 2004 and theannual rise in London and the SouthEast to fall back to 5 per cent by the endof the year (Cooper, 2003).

It is the sheer rate of escalation in the lastquarter of 2002 that alarmed the Bank ofEngland and led the Deputy GovernorMervyn King to announce on 14 November2002 that the property market boom wasunsustainable. Other experts have pointedto parallels with what happened in 1989;just before the property market bubbleburst leading to years of negative equityproblems (Elliott, 2002).

According to HM Land Registry, theaverage house price in England andWales hit £149,935 in June 2003(Paterson, 2003). By comparison, inGreater London, it rose to £240,126.6 Inthe second quarter of 2003, Halifaxreported that house prices began to dropin some areas of London (Stewart,

2003). This sign of future trendsanticipates a ripple effect, with regionalhouse prices falling as well. This hasalready led to predictions of negativeequity, with forecasts from ProfessorAndrew Oswald of Warwick University ofa 30 per cent house price deflation overthe next three years (Hill, 2003).7 In July2003, Alliance & Leicester soundedalarm bells about the housing marketbubble in London and the South Eastand have tightened their lending criteriaaccordingly ahead of other mortgagelenders (Jones, 2003d).

In January 2003, the Financial ServicesAuthority (FSA) expressed seriousconcern about the record levels ofhousehold indebtedness. According tothe latest Mintel survey, British householddebt is now over £800 billion – morethan double its level a decade ago (Mills,2003). Average household income isalmost £36,000, but this nearly matchesthe average household mortgage debtlevel of £33,000 (Elliott, 2003).Borrowing levels are now in excess of£10 billion per month and the ratio ofhousehold debt to disposable incomesoared to 130 per cent in July 2003 –some two and a half times thepercentage level of 1970 according toThomson Datstream (Elliot, 2003).

Carol Sergeant, the FSA’s managingdirector, has warned about theconsequent dangers of a housing priceslump and the growing risk of recessionand rising unemployment (Jones, 2003a).

“There is a heightened risk forconsumers taking on these debtlevels in a low-inflationenvironment where the outlook foremployment may also no longer besecure. There is a risk that when acorrection comes, it could be rapidand disorderly. The results couldbe lower overall economic growth,hardship for consumers andincreased credit risk for lenders.”

Rises in house prices vary considerablyacross each region. In the past year inLondon, price rises have been steepestin the poorer boroughs. Based on a veryhigh first time mortgage of four timesannual salary, a recently qualified primaryschool teacher would be able to borrow£82,000 and a nurse £74,000. Theaverage house price in London’scheapest borough, Barking andDagenham, is over £128,000 for thesmallest properties.

In most boroughs, these public sector

workers could not afford the mortgageeven for a one bedroom flat on their own.Average Greater London prices for a flator maisonette soared to £195,000 inMarch 2003 (Buchan, Finlayson andGough, 2003). To enable some chance ofaccessing housing, some lenders haveincreased the multiple of income ratio tofive times single salary or four times thecombined salary. Such risky practicesalso occurred prior to the 1989 crash(Inman, 2002 and Papworth, 2003).

In the rural South West, the region with thesecond-highest property levels in thecountry, the prices are not much lower thanLondon levels. An average semi-detachedhouse now costs about £148,000 and aterraced house about £124,000. AsLondon salaries are somewhat higher, thedifference in relative terms between bothregions is not significant.

For lower paid seasonal and agriculturalworkers in the South West, the housingcrisis is often worse than in London.Special assistance programmes for keyworkers are limited and primarily covernorthern urban or suburban areas of theSouth West region near to Bristol, Bathand in South Gloucestershire. Recentresearch by the Rural Housing Trustshows that because of lower incomes,rural homeowners in England need todevote much more income on average tohousing than their urban counterparts –57 per cent compared to 32 per cent(Hetherington, 2003).

Prince Charles has drawn attention tothis acute crisis in rural areas, which hehas described as ‘a desperate situation’forcing young people out of theirchildhood villages (Hetherington, 2003e).Lord Haskins has recently observed(BBC Farming Today, 2003):

“The biggest problem in thecountryside is the lack of affordablehousing for key agricultural workersand others. This is a bigger problemthan rural transport to renew thelocal food sector.”

Table 1.1 shows the escalation of houseprices nationally in the past thirty yearssince the homeownership revolutionstarted, during which owner-occupationrose to almost 70 per cent of all tenures.Since 1970, there has been a thirty-foldincrease in house prices.

What is clear from the doubling of pricelevels since 1999 is that homeownershiphas moved beyond the reach of youngworkers on average incomes in the

8Common Ground

Midlands and the South of England. Withincome levels lower, this is also the casein many areas of the North of England aswell. According to the National HousingFederation, in 46 out of 87 counties (53per cent), households with incomesbelow £30,000 cannot purchase a home.As 70 per cent of UK households haveincomes below this level, thehomeownership opportunity is onceagain becoming a preserve of the uppermiddle classes and the rich.

More recent figures confirm this with thesharp fall off in numbers of first-timebuyers (FTBs). In its July 2003 researchbulletin, FPD Savills show that FTBshave fallen fast over the past year to anall time low of 31 per cent of all buyers.This compares to 38 per cent in 2002and is in stark contrast to the long-termaverage of 47 per cent (Stewart, 2003and Papworth, 2003).

Moreover, these findings show that theaverage age of FTBs has risen to 33years in 2003 (Papworth, 2003). Thisreflects a marked decline in recent yearsof the numbers of those in the 25-34year range and a rise in the number ofFTBs aged 35 years or more. It isassumed that rising levels of student debtand the average deposit levels required tobuy a house for the first time arecontributing to this change. According tothe Halifax, in July 2003 the typical FTBin London needs to find a deposit inexcess of £20,000 and pay £193,500 fora property (Denny and Collinson, 2003).

1.2London’s Housing Shortageand the Intermediate MarketProblem

The pressure on the price of housing inLondon has been mounting since the mid-1990s. Sheer lack of housing is thefundamental problem. According to the

London Housing Federation, there aremore than 187,000 households on councilwaiting lists for affordable housing acrossLondon’s 32 boroughs. Additionally, thereare 51,000 statutory homelesshouseholds living in bed and breakfastand other temporary accommodation andwaiting a home. In addition, according toUnison, 500,000 key public sectorworkers in London cannot afford a homein the capital.

The pressure of growing demand againstinadequate supply of housing isescalating year on year, fuelled by apopulation explosion in Greater Londonand South East England. In London alonethe population is expected to increase by700,000 in the next 15 years to 3.4million households (Lydall, Bar-Hillel andAtik, 2002). To accommodate this, anextra 43,000 homes per year areneeded. In 2000-2001, however, onlyone third of this number, 14,205 newhomes, was built in London.

In their report, Key Issues for KeyWorkers, the Greater London Authority’s(GLA’s) Affordable Housing ScrutinyCommittee (2001) analysed the problemas one of a double market failure. InLondon the problem for those onaverage income is one of housing doublejeopardy – being able neither to afford tobuy nor to rent. The GLA and the LondonHousing Federation have bothhighlighted the emergence of a huge andgrowing housing gap with these features:

a) Those priced out of the Londonhousing rental or purchase market fallinto a sub-market, which especiallyaffects those households with annualincomes of between £12,000 and£24,000. Registered Social Landlords(RSLs) cater for housing needs of thepoorest below an annual income of£12,000; the property rental marketbegins to operate at salary levels ofabove £24,000 and at a higher level

above this threshold for thoseseeking to buy;

b) At £233,000, an averagely pricedLondon house is 12 times the annualwage of a bus driver, 11 times thewage of a staff nurse or a postalworker, and nine times the salary of aprimary school teacher (Bar Hillel,2002).

Additionally, the housing stock in Londonis generally ageing, in a poor state ofrepair and consequently expensive toheat and to maintain. To ensure long-term affordability, there is thus a vitalneed for any new housing supply toensure that high quality standards aredesigned in from the outset.

In the National Health Service in London,the problem of staff shortages isparticularly acute. In the South Eastalone, the Government projects a needfor an extra 35,000 nurses, midwives andother health workers by 2008 (Adamson,2002). In many major London hospitals,more than a quarter of nursing jobsremain unfilled. Nurse and mid-wife long-term vacancies were running at 6.1 percent. There were 2,750 vacant posts inMarch 2002, which is twice the nationalaverage (Buchan, Finlayson and Gough,2003). NHS turnover for nursing staffannually is 19.4 per cent, which is aboutone third higher than the nationalaverage. Among seven inner LondonNHS Trusts and hospitals where housingprices are highest, turnover rates are farhigher and range from 30-38 per cent. Itis clearly economically efficient toincrease the supply of affordablehousing.

Vacancies for bus drivers, which LondonTransport has been unable to fill, exceed1,300. Moreover, the rising cost ofhousing in London is driving people out.West London Training and EnterpriseCouncil (TEC) estimates that by 2005four out of 10 teachers may be forcedout of accommodation by increasinghouse prices. The National Institute ofSocial and Economic Research projectsthat 60,000 key workers will be drivenout of London by property costs in thenext 10 years (National HousingFederation London, 2001). Enrolment inLondon’s major universities is now falling,as students from other regions goelsewhere because they are unable toafford housing in London.

9 Common Ground

Table 1.1: How House Prices Have Risen

Year Average House Price

1945 £1,000

1970 £5,000

1973 £10,000

1983 £25,000

1999 £75,000

2003 £150,000

Sources: Building Society Association and HM Land Registry

1.3Tackling the Housing Supply Shortage

For the past 20 years, against abackground of continuous growth in therate of homeownership, housing policyhas been largely left to market forces.There are indications that this is nowchanging and that a more interventionistpolicy by Government is at last emerging.Numerous reports published in thecourse of the past two years havepointed to the growing nature of thecrisis, but one report in particular seemsto have had some impact in shiftinggovernment’s attention to thesignificance of the point that the lack ofaffordable housing is a major impedimentto the efficiency and effectiveness of theeconomy as a whole.

In March 2002, the Joseph RowntreeFoundation (2002) published its LandInquiry Report on underlying problems ofthe growing housing crisis, which hadpreviously been examined from differentperspectives in successive governmentand non-government reports. Thesediverse reports indeed anticipated theneed for additional housing supply inEngland over the next 20 years, but theJoseph Rowntree findings concludedthat the Government has neverthelessseriously underestimated the need fornew housing.

The Land Inquiry team concluded that theGovernment has underestimated thenumber of affordable houses required byat least 50 per cent. In total, the JosephRowntree Foundation identified a housingsupply shortage of 100,000 per year;official estimates are only 62,000. Supplyfalls far short of this lower target withgovernment figures showing a decline inthe number of affordable housing unitsbuilt from 27,800 in 1997-98 to 20,700units in 2000-01 (Foot, 2003).

Where there is the political will, there is away to achieve such high targets. Thedevelopment of affordable housingsupply has been secured at much higherlevels in the past. When HaroldMacmillan was Conservative Minister ofHousing, the Government developed240,000 units in 1952, 318,000 in 1953and 350,000 in 1954 (Guardian, 2002).It was Harold Macmillan who, whilehousing minister, insightfully said that:“Housing is not a question ofConservatism or Socialism. It is aquestion of humanity.” Harold Wilsondeveloped 400,000 new homes in 1967

(Foot, 2003). However, this led to theboom in high-rise and non-traditional,systems-built council housing. It is alsofair to point out that this developmenttook place in the context of bomb sitesand slum clearance, so there was moreland available at that time.

Two thirds of the housing shortfall to bemet is in southern England and 20 percent is in London. However, at presentalmost 50 per cent of new housing isbeing developed in the North and theMidlands. The Land Inquiry researchestimates that 63 per cent of supply canbe met by the market sector, but for theremaining 37 per cent, the Governmenthas, to date, only been willing to providesubsidy for half of what is required. Theconclusion drawn here by the LandInquiry is that it is the need for subsidy inthe intermediate sector, which has notbeen addressed:

“The reality of shortfall is primarilyexperienced not by ‘roofless’people or people on very lowincome, but by people on low tomedium earned incomes – onwhom the viability of both urbanand rural areas depends. It isunacceptable for Government torefuse to address these argumentsbecause of the political difficulty ofachieving higher levels of provision,or the unwelcome public cost offunding a much wider range ofaffordable homes. The indirectconsequences can now be seen inthe disruption to public servicesand the social and economic coststo other sectors of inadequate andexcessively expensive housing.”

But the Land Inquiry assessment ofgovernment inaction goes further, toconclude that the neglect of housing asa social and economic issue is presentlyexerting a debilitating impact on theperformance of the British economy.

“Moreover, there is increasingevidence that the relationshipbetween housing and labourmarkets in the UK is producinginflexibilities, including laboursupply and cost, which impactboth upon the UK’s internationalcompetitiveness and its abilities todeliver the environmentalimprovements required under EUmembership obligations.”

It is this conclusion in particular that hasconcentrated minds both at theDepartment of Trade and Industry (DTI),

and at the Office of the Deputy PrimeMinister (ODPM) on the strategic issueof housing policy in the years ahead.

The Land Inquiry’s recommendations foraction provide a broader viewpoint onhow the enormous housing supplychallenge can be tackled effectively. First,it recommends that government developa proactive planning culture and moveaway from over-reliance on Section 106agreements (see Glossary). Here lessonscan be drawn from greaterinterventionism in Germany and France,where planners rather than privatedevelopers take a leading role, and arethus strategically involved in landassembly and land pooling (see Glossaryfor full explanation).

As well as learning from continentalEurope, the Inquiry highlights the need tolearn more from Community Land Trusts(CLTs) in the US, where non-profitgroups are directly involved in developingsites for affordable housing andworkspace. CLTs take land out of themarket in order to maintain moderatelevels of rent, homeownership costs andcommercial lease prices againstexcessive market pressures in areas ofhigh land cost. The Land Inquiry indicatesprospects here for local authority estateregeneration through CLTs.

In particular, the Inquiry identifiessignificant potential for equity-sharingsolutions between the land trust andprospective key worker homeowners. Itidentifies a potential partnership, in whichmore interventionist planners pool andassemble land and CLTs deliver solutionsin local communities where theaffordable housing is needed.

The report also raises concern about thesplit between rural and urban affairscreated potentially through the division ofroles between the Office of the DeputyPrime Minister (ODPM) for urban areasand the Department for Environment,Food and Rural Affairs (DEFRA). In thiscontext, it observes:

“Current policy is based on thetraditional typologies of enclosedcity systems and an urban/ruralsplit, rather than understandingcities as functional systems, withflows and linkages into and out ofrural areas.”

It is this integration of urban and ruralthinking that will be vital if housingpolicies over the next 20 years are to beproperly configured and sustainable. For

10Common Ground

instance, the Land Inquiry report stressesthe need to integrate public transportdevelopment with new housingdevelopment plans.

1.4Key Worker Housing: CurrentApproaches and EmergingSolutions

In July 2002, Gordon Brown announcedthe largest sustained increase in publicspending for nearly 30 years in hisComprehensive Spending Review (Dean,2002). While health and education havebeen the largest beneficiaries ofLabour’s return to Keynesian styleeconomics, housing has benefitedsignificantly as well. The new plannedspending, largely based on increases ingovernment borrowing, will increasespending on the NHS by 7.3 per cent inreal terms over the next five years,spending on education by 6 per centover the next three years and spendingon housing by 4.2 per cent. Interestingly,transport will see the sharpest rise in realterms of 12 per cent annually.

In launching the expanded budgets,Brown described the rise in housingexpenditure as “the most sustained risein housing investment for 25 years”.Factually this is correct, but it ignores thelean years for housing under theConservatives, when market forces alonewere seen to be the primary solution andwhen housing expenditure bygovernment fell by 83 per cent from 3.6per cent of GDP in 1976 to 0.6 per centin 1997. So in many ways the increaserepresents a return to a more even-handed approach to housing provision bygovernment. But given the twenty ormore years of under-investment, thedeficit is now enormous and the budgetincreases, while overdue and welcome,leave a large financing gap that needs tobe filled by other means.

In response to the Chancellor’sannouncement on housing expenditure,the Royal Institution of CharteredSurveyors (Dean, 2002) has noted thatthe annual rise to a spend of £5.9 billionin 2006 from the low point of £2.7 billionin 1997 will only provide for an extra10,000 affordable homes per year. Theydescribe this as “a splash in the ocean”when measured against theGovernment’s recognised figure of anannual gap of 60,000 homes neededbetween the 162,000 housing unitsconstructed in 2001 and the 220,000new households currently being formed.

Housing units built in recent years havebeen at the lowest levels recorded since1927, apart from the war years (Inman,2002). Housing built by the privatesector has fallen from 127,800 in 1997to 115,700 in 2002 (Foot, 2003). Newconstruction can rise to close the gapbut, according to the NationalHousebuilders Federation, the marketcannot achieve affordable housingsolutions through Section 106agreements alone under the currentplanning system. The private sectorargues that either cheaper greenfieldsites will be needed or more subsidy willhave to be found to deliver the largevolume of low and moderate costhousing needed in southern England.

1.5London Housing Commissionand the Plan for London

The London Housing Commission, set upby Livingstone in 2000, advised theMayor of the potential to increase theproportion of affordable housing to 50per cent of all future new developments(Livingstone, 2001). Achieving this wouldrequire a partnership with all 32 Londonboroughs, the Housing Corporation,major employers, and private developersand house builders (Walker, 2002).According to the London HousingCommission, financial subsidies from theHousing Corporation would also need tobe increased by a minimum of £122million per year for London – a highlysensitive request in light of the fact thatregistered social landlords in Londonalready receive 43 per cent of the annualSocial Housing Grant budget for England(Wintour, 2002).

In June 2002, Livingstone launched hislong awaited London Plan – setting outin 400 pages a comprehensive 15-yeardevelopment plan for transforming thecapital by 2017 into a 24-hour multi-cultural city (Wintour, 2002). Theproposals are integrated and set out anambitious strategy for bringing togethermassive transport improvements with ahuge increase in housing and educationfacilities.

In terms of numbers, the London Plancalls for the construction of a minimumof 459,000 homes to accommodate theprojected 630,000 new jobs by 2016.The annual rate of new housingconstruction sought in London is 23,000,treble present levels. Half of these arecalled for by delivery of affordable homesthrough development partnerships, and

the level of extra housing subsidy soughtfrom the Government is a further £150million per year.

Livingstone sees brownfield sites andgreater housing densities in newdevelopments as the way to secure theland for the new housing. The LondonPlan identifies a number of major sites forconcentration of the housing – both in thecentre and City fringe areas as well as inEast London and the Thames Gatewaycorridor running out to North Kent.

Government endorsement has now beengiven by Tony Blair and John Prescott forthe creation of this ‘linear city’ along 40miles of the Thames to Medway City onthe south of the river and to Southend-on-Sea on the north. John Prescott’splan is to develop 300,000 affordablehomes in the South East of England andthe South Midlands by 2016 to copewith the housing shortage andovercrowding in London (O’Hara, 2003).This is in addition to the 1.1 millionhomes that will be built commercially bythe private sector for sale or to rent overthe same period to cope with risingdemand in Greater London and theSouth East. The Thames Gateway willaccount for 120,000 of this total. InnerEast London in Newham and theDocklands area alone are targeted for48,000 new housing units (Hetherington,2003d).

Crucial to the viability of thesedevelopments will be majorimprovements to public transport. One inseven Londoners relies on publictransport to get to work already and thisis likely to increase in future. Two CrossRail links are planned to provide rapidtransit connections from Whitechapel to‘central activity zones’ in Newham andCanary Wharf on the one hand and tospeed up travel from Hackney to CentralLondon on the other. The Thameslink2000 project will significantly reducejourney times from the centre to thesuburbs south of the river. North of theriver, both the East London and the WestLondon lines will be extended and a neworbital rail network, OrbiRail, will beconstructed.

High-rise housing is seen as a major partof the plan – particularly in transport andbusiness development hub areas such asPaddington, Waterloo, Kings Cross, andElephant and Castle. Outlying areas fordevelopment include the Isle of Dogs,Stratford in Newham, and Croydon.Livingstone also sees the need for a newdensity standard and wants to change

11 Common Ground

current planning regime rules to raisemaximum housing density from thepresent average level of 20 housing unitsper acre to a new minimum level of 30units per acre. Plans are developing tobuild homes on top of single-storeysupermarkets and petrol stations. Tescohas reported to the Mayor that they couldprovide an extra 10,000 homes on theirexisting London sites alone (Lydall, Bar-Hillel, and Atik, 2002).

The London Housing Commission hasrecommended that, of the new affordablehousing unit target (50 per cent annuallyof all housing developed), 35 per centshould be for social housing for those onlow incomes and 15 per cent should befor the earners in the intermediatemarket such as nurses and teachers.Further research has indicated that the50 per cent target can feasibly beachieved in two-thirds of London’sboroughs. But in 13 of the 32 boroughs,Livingstone has accepted that only atarget of 35 per cent affordable housingmay be achievable.

Opposition group politicians and businessgroups have rejected the very ambitioustargets contained in the London Plan asbeing unrealistic (Wintour, 2002). Propertyresearch consultants, FPD Savills, hasestimated that the volume of housingsought annually was not achievable –particularly as the levels of affordablehousing outputs sought from the housebuilding industry would squeeze outprofitability to the point that it would notbe possible to entice those with land tobring it forward for development.

1.6 Starter Homes Initiative and Low-cost HomeOwnership Programmes

On 6 September 2001, the Governmentprovided £230 million under Round 1 ofthe Starter Homes Initiative to assist8,000 key workers in London to buy theirfirst home. Funding assistance was givenin the form of interest-free loans andShared Ownership. Assistance to keyworkers was provided primarily fromregistered social landlord members ofthe ‘Keys to the Capital’ Consortiumincluding Tower Homes (a subsidiary ofLondon & Quadrant), Metropolitan HomeOwnership (a subsidiary of MetropolitanHousing Trust), Boleyn & Forest HousingSociety (a subsidiary of East ThamesHousing Group) and Notting Hill HomeOwnership (a subsidiary of Notting HillHousing Trust)

Round 1 funding assisted 4,000 nurses,2800 teachers, 900 police officers and300 other sundry key workers to financeaffordable homeownership. Round 2funding from May 2002 provided anadditional £20 million of funding to helpa further 2,000 key workers in high-costareas outside London. Subsidies inLondon have averaged £27,000 per keyworker and in Round 2 were based upon£10,000 equity loans – these were notavailable in Round 1.

The Round 1 initiative has come underconsiderable criticism from public sectorunions. Unison has stressed that, as aconsumer demand side solution, theinitiative was fundamentally flawed andserved mainly to push up house prices.Unison argued that such demand sidemeasures as the SHI should berecognised by Government as “atemporary solution to the current crisis”because the “fundamental problem isone of under-supply of housing of theright type, size and cost in the rightplaces” (Blackman, 2002). The RoyalInstitution of Chartered Surveyors hasagreed with this criticism.

Richard Donnell, Head of ResidentialResearch at estate agents, FPD Savills,has argued that the funding should besupporting more rented accommodationas otherwise government subsidy willsimply be lost (Blackman, 2002). TheNational Housing Federation has alsoraised concerns that the shift in subsidyin London for mid-market housing runsthe risk “that developers may take a viewthat key-worker accommodation can bethe affordable housing required throughSection 106 agreements”.

The shift in Round 2 towards equity shareloan finance with no repayment until theproperty is sold reflects the concern ofthe Government that the funds should berecycled, but also that some return fromproperty price inflation should beobtained. A report by FPD Savills hasshown that surging house prices inLondon alone have left 800,000households unable to afford even a£75,000 flat, and that the Starter HomesInitiative funding was nowhere near theextra £20 billion they estimate is requiredby government to tackle the key-workerproblem in London (Inman, 2002).

What this criticism loses sight of, though,is that under New Labour the balancebetween subsidy for social housing forthe poorest and subsidy for low andmoderate income workers has shifteddrastically away from the latter. In a

report reviewing Low Cost HomeOwnership (LCHO) initiatives such as theSHI, the Government shows that thenumber of LCHO funded properties inEngland has fallen from 16,871 in 1995-96 to under 4,000 prior to the start ofthe SHI (DTLR, 2001). Consequently, theSHI does not even take the LCHOfigures back to what they were under theConservatives, when 30 per cent ofhousing subsidies went to LCHOprogrammes (Weaver, 2002).

Other evidence shows that LCHOprogrammes are extremely popular andthere is no shortage of demand.Approximately one in two of LCHOproperties are in London and, in 2000-2001, 1,300 new low-cost properties werefunded by the Housing Corporation in thecapital against demand from 41,000eligible applicants (Martin, 2001). In 1999-2000 the average income of a LCHObuyer was £18,185 – 46 per cent weresocial housing tenants opting for SharedOwnership and 54 per cent were low- andmoderate-income households seeking anaffordable means of homeownership andnot renting from an RSL (Martin, 2001).

In 2000, the Joseph RowntreeFoundation set up a Task Force to reviewLCHO programmes and commissionedGraham Martin to analyse low-cost homeownership submissions in response tothe Government’s Housing Green Paper.The Task Force focused on the two maincurrent LCHO programmes, SharedOwnership and Homebuy (Martin, 2001).The latter is a 25 per cent equity loansubsidy to assist the purchaser with an‘interest-free’ shared investment from thestate, enabling them to acquire aproperty while maintaining their mortgagestake of 75 per cent, which is within theirmeans. The Task Force found from itsinvestigations that:

a) There is a substantial level of unmetdemand from LCHO programmes inEngland and Wales;

b) Strategic use of LCHO initiatives canachieve increased housing supplyand more inclusive communitiescontributing to economic and socialstability in both high and low valueareas;

c) Local authorities often fail to see theimportance of LCHO initiatives underpressure to house the homeless;

d) Homebuy is popular with lenders andpurchasers and in Wales is morepopular than Shared Ownership.

12Common Ground

The key recommendations from thisstudy are that:

a) Government planning guidance andHousing Corporation guidance onsustainable social housing shouldensure LCHO properties are includedin schemes of more than 25properties;

b) A standard modular lease8 forShared Ownership should bedeveloped; and

c) Homebuy equity loan elementsshould not be confined to a 25 percent proportion but be more flexiblyavailable.

In addition, the Task Force concluded thatHomebuy could be made more flexible bythe use of three elements in housepurchase in some high-cost circumstances.For example, this might include a 50 percent conventional mortgage, a 25 per centlow interest equity loan, and a 25 per centno interest equity loan.

The former Housing Minister, LordRooker, announced at the NationalHousing Federation conference inSeptember 2002 that, over the next threeyears, LCHO programmes will receivemore funding and that, with the additional£1.4 billion allocated for housing underthe Comprehensive Spending Review,more will be spent on helping those onlow and moderate incomes to buy theirhomes. With a lower level of subsidy, theGovernment sees the scope to providetwo units of key-worker housing for eachunit of social housing.

1.7Increasing Housing Supply –Sustainable Communities Plan

In February 2003, John Prescottlaunched the Government’s long-awaitedSustainable Communities Plan, which setsout a framework for housingregeneration for England over the next15-20 years, as well as costinggovernment-spending priorities over thenext three years (ODPM, 2003). ThePlan is a radical one in that it devolvesresponsibility for delivery from centralgovernment to regional government.

Under the new system, Regional HousingBoards (involving the Government Office,the RDA, the Regional Chamber, theHousing Corporation, and EnglishPartnerships) will be responsible forpreparing a Regional Housing Strategy.

Funding to resource implementation ofthe strategy will be taken away from thelocal authority Housing InvestmentProgramme and from the HousingCorporation’s Approved DevelopmentProgramme and held in a single regionalpot for housing investment.

In objective terms, Prescott describedSustainable Communities as a “stepchange”. There will be both more fundingfor housing development and regenerationover the next three years and a shift inpriorities. Since 1997 the Government’spriorities have been to deal with a backlogof £19 billion of disrepair problems in thesocial housing sector. Strategic objectiveswill now shift on the one hand to tacklingthe severity of the housing shortage inLondon, the South East and the East ofEngland, and on the other hand to dealingwith low demand and abandonmentproblems in the North of England.

Sustainable Communities data show thatan extra 155,000 households are formedeach year against a net housingconstruction figure of only 120,000.Closing this gap is a top priority of thestrategy and ensuring that the newRegional Housing Boards overcomeproblems of over supply of new housingunits in the North of England in recentyears and under supply in the South ofEngland.

In the South of England, accessing newland supply is vital. The Government’sNational Land Unit Database hasidentified at least 66,000 hectares ofbrownfield land, which can be deployedto build 920,000 homes or 60 per centof the homes the Government estimateswill need to be constructed by 2016.However, in the South East only 28,000acres are available for 380,000 homes.With 43,000 homes per year neededuntil 2016 in London and the South East,it is clear that most of the greenfield losswill be on sites in this region.

There are several solutions set out in theSustainable Communities Plan to tacklethe housing supply gap in southernEngland. The main ones are as follows:

l Growth areas: Following feasibilitystudies, John Prescott hasannounced six Key Growth areas fornew affordable housing development:Milton Keynes and Northampton, theSouth Midlands (including Bedford,Luton, Aylesbury Vale, Corby,Wellingborough and Kettering),Harlow, the London-Stansted-Cambridge (LSC) corridor, Ashford in

Kent and the Thames Gateway.Expansion of these areas and use ofgreenfield sites as necessary areintended to provide the additionalland needed to accommodate thehousing required for London, theSouth East and the East of England.

l Modern methods of constructionand off-site manufacture: TheHousing Corporation and EnglishPartnerships see enormous scope forusing modern prefabricationtechnology to provide housing atmuch lower costs and more quickly –particularly on the major developmentsites planned. The SustainableCommunities Plan endorses therecommendation of the Sir JohnEgan Task Force on constructionmethods (Egan, 2000).9

Other ideas set out in the SustainableCommunities Plan include measures toreduce the 730,000 empty properties(3.4 per cent of the national housingstock). Eighty per cent of these areprivately owned and 135,000 are inareas of the North of England wherehousing supply exceeds demand. TheGovernment intends to use a range offiscal measures (from VAT reduction onrepair work and reducing Council Taxdiscounts on second homes) to reducethis number steadily in areas of highhousing demand.

Since the announcement was made,Prescott’s four Growth Areas haveencountered political resistance fromlocal authorities. While the ODPM havecosted the new housing, the localauthorities have produced estimates forthe infrastructure required for newschools, hospitals, roads, railimprovements, and other facilities toaccommodate the new homes. For the130,000 homes planned for the ThamesGateway and Ashford, Kent CountyCouncil estimates that an extra £3 billionwill be needed – more than six times thebudget for the housing element(Hetherington, 2003d and O’Hara,2003). In addition to this, Kent estimatesthat a further £1.1 billion will be neededfor infrastructure development in Ashford.

The expenditure under SustainableCommunities over the next threefinancial years from 2003-04 to 2005-06 will include:

a) £22 billion overall to improve housingand communities;

13 Common Ground

b) £5 billion for affordable homes –including £1 billion for key-workerhousing;

c) £446 million for the ThamesGateway and £164 million for thethree other Growth Areas; and

d) £350 million invested for bettertraining, for updating procedures andas a result speeding up planningdecisions on housing provision.

Most of the new housing funding will betargeted on London, the South East andthe East of England. The SustainableCommunities Plan shows that the WestMidlands and the South West are not asseriously affected by supply and demandimbalances. But the Government willallocate funding for the development of5,000 affordable homes in villages. Fromgovernment figures, it would appear thatabout one in five of these would be inthe rural South West (ODPM, 2003).

The initial budget for key-worker housingwill be the Government’s Challenge Fund,which has increased to £300 million for2003-04 – a threefold increase on the£100 million available in 2002-03. Thenew budget seeks to deliver 6,000 newhomes in London and the South East forkey workers in the first year – at least1,800 of which will be built with modular,off-site construction techniques.

Under the new system, any grant aid fromthe Housing Corporation will require newunits to comply with the latest BuildingResearch Establishment’s EcoHomesPass standard for sustainable residentialdevelopment. The forthcoming HousingBill, anticipated in Spring 2004 willrequire all sellers to provide a homeinformation pack to prospectivepurchasers. This will require information tobe provided on the energy performanceof the building for purchasers.

The Government envisages severalmechanisms to facilitate low-costhomeownership. These include:

a) Shared Ownership but especiallyHomebuy.

b) The lifting of restrictions on the CashIncentive Scheme to assist tenants toleave Council housing and becomehomeowners.

The Government is also consideringextending the Housing Corporation’s powerto fund bodies other than housingassociations for the delivery of low-cost

homeownership programmes. JohnPrescott’s Homeownership Task Forcechaired by Brenda Dean, which willcomplete its findings later this year, willdevelop new policy and practices. Thewider scope for non-RSLs to function asproviders could be a significant opportunityfor the non-registered housing co-operativesector to play a key role under SustainableCommunities. The private rented sector isalso potentially a delivery agent here.

At present, 40 per cent of households areone-person households. This will increasesharply in the next 20 years and there isscope for reviving the private rentedsector to address these needs. In the early1980s, the private rented sectorrepresented 11.4 per cent of all housingtenures; today it is even less at 11.1 percent (Walker, 2002). Elsewhere in theEuropean Union and in North America, theprivate rented sector is a very significantprovider of housing. For example inFrance, private renting accounts for 24per cent of housing provision and inGermany private landlords house 42 percent of households.

In May 2002, an independent PrivateRented Sector Commission organisedjointly by Shelter and the JosephRowntree Foundation called for a newsettlement for the private rented sector.The Commission, involving representativesfrom landlord associations, localauthorities, tenant rights groups, studentgroups, housing advice agencies andenvironmental health officers, has calledfor a package of measures to significantlyincrease the amount of qualityaccommodation in this sector over thenext 25 years. By 2027, it is projected thatthere will be four million more householdsthan today and that 80 per cent of theincrease will be in one-person households.

Evidence shows that, as in continentalEurope, for many of these householdsprivate renting can be a more attractiveand a better option than buying –particularly as more city centre housing isdeveloped. However the quality of suchhousing is often the poorest for thisgrowing target group. The Commissionestimate that just to maintain andimprove existing levels of private rentedsector accommodation will need £1billion of investment annually. To expandthe private rented sector in 25 years to25 per cent of tenures will need £3billion of annual investment.

To expand the sector and the quality ofhousing provided, the Commissionrecommends:

a) Tax reforms so that tax relief forprivate landlords is equivalent tothose of other small businesses.

b) Use of Section 106 agreements toexpand the sector.

c) Wider use of longer tenancies on anassured basis.

d) Wider development of tenant depositand rent guarantee schemes.

e) Training courses and selectivelicensing for landlords and agents.

f) Major reforms to simplify and improvehousing benefit administration.

Another change, which may possibly beintroduced by the Government, could bechanges to the existing Right To Buysystem. Since 1981, more than onemillion people have become homeownersthrough purchase of their council house.This has operated significantly toincrease homeownership in the past 20years from 57 per cent to just under 70per cent today (Kampfner, 2002).

But continuation of this policy, and itspotential extension by a futureConservative Government to RegisteredSocial Landlord properties has asignificant impact on the social housingstock available for rent. For example, in2000-01, Registered Social Landlordsdeveloped 18,000 properties for rent, butin the same year, 53,000 councilproperties were sold off. It is a source ofconcern that, with current discounts ofup to 80 per cent, the costs of replacinghomes lost under the Right To Buy arelittle different from the cost of newprovision. With an average discount of£17,000 on each council house sale, thelong term cost to the public purse hasbeen estimated at £850 million annually(Hetherington, 2003b). Of this cost,£308 million applies to London.

As the Government is well aware, thereis also evidence of an increase in privateproperty company practices, typicallyinvolving provision of large cashincentives to persuade council tenants tobuy their property and then to let it tosomeone else immediately afterpurchase. The ODPM has commissionedHeriott-Watt University to identify abusesand to investigate what can be done inlegal terms to close the loopholes. Thereis a suggestion that future social housingdeveloped may be exempt from purchaseand the Right To Buy system restricted.

14Common Ground

To date, the main response to the crisishas been the Government’s StarterHome Initiative (SHI), launched inFebruary 2001 to help key workers inLondon to access housing. Thisprogramme has since been extended toareas outside London in the HomeCounties and Oxfordshire, with smallerinitiatives elsewhere.

The main delivery vehicle for the SHI byregistered social landlords has beentraditional forms of shared ownership.But the Government is open to otherapproaches. In her speech to theGuardian’s Key Worker Conference on27 February 2002, Sally Keeble MP,Undersecretary for Housing Planning andthe Regions, called for “imaginative newschemes, which give more choicethrough innovation in housing and wideraccess to housing across differenttenures”. In his keynote address to thesame conference, Ken Livingstone,Mayor of London went further to call foran entire new intermediate market.

“This conference today is primarilyabout people on low or moderateincomes, say £15,000 – £25,000,who form this intermediate sector.My longer term vision is thatLondon should develop a newintermediate housing market tomeet this new demand for whichthe supply in neither conventionalsocial rented housing, nor markethousing… I see the developmentof an intermediate housing sectorin London as a vital strategic andeconomic issue.”

Livingstone’s challenge stems from theconclusion of the GLA’s AffordableHousing Scrutiny Committee inquiry intokey-worker housing needs. In particular,the GLA identified the need for newforms of limited-equity housinginvestment models and called on theHousing Corporation and the Associationof London Government to take a lead insponsoring research studies into howthese could be developed.10 In the GLA’sfinal report (2001), Key Issues for KeyWorkers, it was observed that unlikeshared ownership which is developed forsale, mutual housing is “more beneficialto the long term provision of housing forkey workers and their recruitment andretention” because it can be designed tobe permanently affordable. The GLAposed a specific challenge to co-operative housing developers to get the

design right.

Limited- or restricted-equity co-operativehousing is an intermediate form ofmutual housing between the par-valuerented housing (see Glossary) that existsin Britain and full-equity or market-valuemutual models, such as the newcommonhold tenure in the UK, or the up-market condominiums popular in the USfor flat owners.11 Such housing has beenpopular and has worked in the past inBritain in the form of co-partnershiphousing prior to the Second World Warand co-ownership housing in the post-war period. Unfortunately, however, theseforms of tenure have proved to beunstable and, through privatisation, havevirtually disappeared.

However in other countries such asSweden, Norway, Denmark, and the US,limited-equity co-operative housing isboth popular and important as a tenureform to tackle intermediate housingmarket needs – especially in cities withhigh costs such as New York, LosAngeles, Chicago, Stockholm, Oslo, andCopenhagen.

The need is to find a form of housingtenure that is affordable for low tomiddle-income people where housing ispermanently in short supply andtherefore expensive. It has to meet twoconditions. First, it must be stable, andable to offer a continued supply ofhousing on similar terms over a longperiod of time. If it deforms into freeholdowner-occupation or market renting, thenit has failed in its ability to deliveraffordable housing. Also, in order to beaffordable, it will need some kind ofsubsidy by government or by financialinstitutions that have a social purpose.

The subsidy cannot be allowed to leakout into one-off capital gains forindividuals. This means that sale of theproperty has to be either ruled out orrestricted. It can be ruled out altogether ifa non-equity co-op is set up that hassome built in restriction on the distributionof assets on winding up. It can berestricted either by allowing only part ofthe equity to be owned individually(shared ownership) or by restricting theprice. Second, the tenure form has toprovide some means by which individualscan make capital gains, or at least realisesome kind of cash payment when theyleave the property to enter the private-property market. Unless this happens,

people who stay in a mutual form ofhousing for any length of time aredisadvantaged compared with those whoare already in the property market.

These two conditions are incompatible.They can be made to co-exist throughshared ownership, in which ownership ofa dwelling is held partly by the individualresident and partly by a landlord or co-operative. This form does not attempt atrade-off between affordability for thefuture and capital gains for individuals,but simply keeps them separate. Theremay be other, more mutual solutions, inwhich the equity is held collectively bythe residents, with some kind of ringfencing to stop them distributing thisequity to individuals, but enabling peoplewho are leaving to receive a premiumreflecting the value added to the propertyduring the time they were members.

Previous attempts to square the circle inBritain have included tenant co-partnership (1904–1920s), co-ownership(1961–1980), and Shared Ownership(from 1978 onwards). In this section, thehistory of these is traced and lessonsdrawn from their successes and failures.Co-operative housing sectors in othercountries are also identified where thesame balancing act has been attempted.In conducting the investigation theobjective has been to look for co-operative forms that have managed toexist, and hopefully prospered, in thespaces between non-equity co-ops andowner occupation.

2.1Community Land Trusts –Securing Permanent LongTerm Affordability

The British and North American housingmarkets are unique in having such highlevels of homeownership. However, in theUS by contrast to the UK, the privaterented sector is larger and so are otherforms of housing such as limited-equityco-op housing in major cities like New York.

Aspen, Colorado provides an extremecase, even by American standards, ofhow a reliance on the market alone canlead to average-income householdsbeing completely priced out. During the1990s, the ski resort town of Aspen wasexpanding quickly and property pricessoared to 12 times the average

15 Common Ground

2 Mutual Solutions for the Intermediate Market

American level (Salman, 2002). Thedemand for vacation homes took over 70per cent of all private housing, leading toan absurd situation where teachers,hospital workers, hotel staff andrestaurant workers were forced to live oncampsites or even in their cars. In theend, only by providing massive subsidiesfor key workers and requiring all newdevelopments to provide 70 per centtargets for affordable housing has thecrisis in Aspen slowly been brought backunder control.

The US housing market in New Englandhas boomed in the same way as themarket in southern England, withdemand outstripping supply and thereliance on the free market leading todysfunction. One interesting innovation inthe US (and more recently in Canada aswell) has been Community Land Trusts(CLTs).

The pioneers of the Community LandTrust movement in the US were BobSwann and Ralph Borsodi. They hadbeen inspired by the success of VinobhaBhave, a successor to Gandhi, who, bywalking the length and breadth of Indiain the 1950s and 1960s, made personalcontact with hundreds of largelandowners in India and persuaded themto put over four million of acres of land(almost 1.5 per cent of all land in India)into trust to enable destitute landlesspeasants to feed themselves throughaccess to locally managed ‘commonsland’ (Bhave, 1994). The growth of thisIndian ‘bhoodan’ (or ‘land gift’) movementcame to the attention of Dr Martin LutherKing. With the support of individuals whohad been actively involved in the CivilRights struggle around Albany, Georgia,Swann, Borsodi, and a number ofcolleagues established the first USCommunity Land Trust in rural Georgia in1967 to provide affordable housing andfarm land for African Americans.

Learning from the weaknesses in theIndian model, the ingenuity of Swann wasto devise a stable mechanism for local landmanagement which involves threecomplementary sets of local stakeholders:the leaseholders on the land,representatives of the wider localcommunity, and professionals (architects,surveyors, finance experts, and builders)with necessary skills willing to gift time andeffort to help develop viable CommunityLand Trusts. The idea has taken time tobecome rooted in the US affordablehousing movement. Early projects in the1970s and 1980s amply demonstrated thepotential of the CLT structure to secure

sustainable housing development in alocally managed way, but it is only in thelast 10 years that the CLT movement hasshown how to grow to scale.

CLTs in the US are developed in localareas to provide permanently affordablehousing. They are a dynamic form ofhousing tenure where parcels of land areacquired by a non-profit company (theCommunity Land Trust) and held inperpetuity. Residential structures thatalready exist on the CLT’s land, at thetime of acquisition, or structures that arebuilt later on the CLT’s land are sold toindividual homeowners, a housing co-operative or another non-profit company.The owners of these buildings lease theunderlying land from the CLT. Embeddedin these long-term (typically 99-year)ground leases are provisions that allowthe CLT to regulate the occupancy, sub-letting and resale of the buildings. Whena building’s owner decides to leave theirhome, they must sell to the CLT for abelow-market price that is designed tobalance the interests of the homeownerin receiving a fair return on their originalinvestment and the interests of the CLTin maintaining the home’s affordability forthe next homebuyer of modest means.

Parcels of land are acquired by the CLTthrough transfers of ‘surplus property’from state or municipal agencies, throughcharitable donations from private sectorproperty owners, or through thecontributions of funds made available tothe CLT by governmental programmes,private foundations, and individuals.

Through this form of housing ownership,homeowners hold a deed to theirdwellings and a long-term lease for theland beneath their dwellings. By takingland out of the market, frequentlythrough government subsidy, the cost ofbuying a house can be reduced by 25 to30 per cent in most markets. Becausethe land is never resold by the CLT andbecause affordability controls are placedon the resale price of the housing that ison the land, any public (or private)subsidies that have gone into creatingaffordability, once locked in place, can berecycled to assist subsequentgenerations of low- and moderate-income homebuyers. Indeed, it is thespecific mission and primary raison d’etreof most North American CLTs to providepermanently affordable housing(although a number are also involved inleasing land for commercial andrecreational purposes as well).

CLTs incentivise homeowners to maintain

and improve their properties through aresale formula that grants a share of theappreciated market value of their homeswhen they are sold. The resale formulavaries from CLT to CLT and from area toarea. The original resale formuladeveloped by Bob Swann values thebuilding only through the local townassessor for property taxes, theequivalent of the British district valuer.The resale price appraised is based oncurrent building rebuild costs adjusted fordeterioration and obsolescence. Insuranceadjusters are familiar with this calculationand depending on deterioration can rangetypically from 50 to 95 per cent of new.

More restrictive resale formulae can beapplied as with limited-equity co-ophousing in the US. These resale rules arecommon among CLTs affiliated to theInstitute for Community Economics. Sucha limited-equity appreciation formula mayallow the homeowner to pocket 25 percent of the increase in the market valueof their home. This is usually done byobtaining two valuations of the building’sworth (not including the value of theland), one at the time of purchase andone at the time of sale. The homeownerreceives 25 per cent of the building’sappreciation.12

CLTs have a wider application in NorthAmerica than just housing and are alsoused for revitalising disinvestedneighbourhoods, developing workspacefor local businesses, developingcommunity facilities for non-profit serviceproviders, developing retail and housingin the same projects, providingrecreational space in urban areas andpreserving natural space in rural areas.

In western Massachusetts, CLTs are alsobeing used to revive small towns and toprotect and preserve small farms. The EF Schumacher Society worked withSwann to tailor the CLT model to thispurpose. A collaborator of Swann’s inAustralia, Shann Turnbull, has indicatedthe future potential for Co-operativeLand Banks (CLBs) as vehicles for widerapplication beyond housing, whereverthere is a need to secure permanentlyaffordable land (Turnbull, 1975 andMorehouse, 1989).13

In the last two years, the application ofCLTs to rural and urban areas in Englandhas been researched with funding fromthe Housing Corporation (Dayson,Paterson and Conaty, 2001).Independently of this research, the firstEuropean CLT developments have

16Common Ground

already been achieved in Scotland in theHighlands and Islands over the past 10years (Scott, 2003). The buyout of theNorth Lochinver Estate by the AssyntCrofters in 1993 and the establishmentof the Isle of Eigg Heritage Trust in 1997pioneered the Scottish CLT movement.

Inspired by the these grass rootssuccesses, Brian Wilson MP led thesetting up of the Scottish CommunityLand Unit (CLU) in 1997 underHighlands and Islands Enterprise toprovide technical assistance and funding(Highlands and Islands Enterprise, 2003).The CLU has secured Lottery funding toestablish the Scottish Land Fund tofinance buyouts. Today the CLU has astaff of 15 and an annual budget tosupport Scottish CLT projects of £5million. A high profile example supportedby the CLU has been the Isle of GighaTrust where a CLT for the localpopulation of 120 has been establishedthrough the purchase of 3,200 acres for£4 million. Ninety-five per cent of thefunding was provided by governmentsources including the CLU (12 per cent)and the Scottish Land Fund (83 percent) with the local community raisingfive per cent. Following the buyout, 41houses have been improved, 14 newhouses built (eight to rent), a communitybuilding built and three small businessunits constructed.

The Land Reform (Scotland) Act 2003provides a full framework for assisting agrowing number of CLTs to be

established. The CLU has recentlyassisted a community buyout by 3,000crofters to purchase 93,000 acres onSouth Uist. The South Uist plan is muchlarger than the recent purchase by 800local residents of 22,000 acres of theAmhuinnsuidhe estate on the Isle ofHarris which Johnathan Bulmer, the ciderheir, put on the market in 2002. TheScottish Land Fund has provided themajority of the £2 million purchase pricefrom Bulmer.

In concept, CLTs are very similar to theco-operative land-use practices promotedand partially implemented almost acentury ago by Ebenezer Howardthrough the Garden City movement inLetchworth and Welwyn Garden City(MacFayden, 1970). CLTs are similar aswell to the Quaker-led model villagetrusts implemented philanthropically byGeorge Cadbury through the BournvilleVillage Trust in Birmingham in 1900, andby Joseph Rowntree in the NewEarswick model village in York in 1902(Harrison, 1999).

CLTs are not just about housing butabout securing affordable andsustainable communities (Minton, 2002).They are a modern and flexible vehiclefor neighbourhood regeneration and canlimit the pressures of gentrification.Limited-equity housing co-operatives forkey workers, constructed on land that isleased from a CLT can potentially bedeveloped through the use of gifted orsubsidised land. CLTs can also provide

the ideal legal framework for governmentsubsidy to be locked in and used forseveral generations into the future, toguarantee the permanent affordability ofhousing to meet local needs.

It is interesting to note that, inbequeathing the money to establish hischaritable trusts in 1904, JosephRowntree was so impressed with theprospects of model villages like NewEarswick for providing long-termsolutions to poverty and disadvantagethat he charged the directors of thetrusts to focus future researchinvestment programmes on the practicalissue of land reform.

“I desire in the followingMemorandum to indicate ingeneral terms the considerationswhich have induced me to found[these] trusts...... I have alreadyalluded to the land question. Suchaspects of it as the nationalisationof land, or the taxation of the landvalues, or the appropriation of theunearned increment – all need atreatment far more than they haveyet received. If one or other of theDirectors and Trustees were ableto collaborate with competentinvestigators and workers uponthese questions, it would besuitable for large sums to beappropriated in this direction.”

2.2Early British Housing Co-ops –the Tenant Co-partnershipExperience

The tenant co-partnership form of co-operative began in 1901, when EalingTenants was founded. Its main promoterwas the Liberal MP Henry Vivian, whohad set up a labour co-partnership,General Builders Ltd, from whom the firstEaling members were drawn. Labour co-partnership was a marriage of ethicalinvestment and worker profit-sharing thathad arisen partly as a reaction againstthe consumerist emphasis of the co-operative movement, and partly as aliberal alternative to the classantagonisms of industrial capitalism. Itwas deliberately designed to reconcileconflicting interests by giving a ‘bonus tolabour’. From reconciling labour andcapital, it was an easy step to reconcilingtenant and landlord.

17 Common Ground

Land Trusting – Stewarding the CommonsCommons land is at the root of British history and, “until the 14th century, land wasnot purchased or even bequeathed by legacy but bestowed in trust and in returnfor certain services. It was not even held by law, much less by a money transaction,but by custom alone and so upon a traditional basis.” (Massingham, 1942). Todaycommons and wasteland represents only eight per cent of land in the UK (DETRand Cahill, 2001) or 4.8 million acres. As local authorities or government bodiesmanage most commons land, the traditional stewardship role by local people or‘commoners’ is now largely part of folklore. Movements for tenant managementand resident control of regeneration programmes perhaps foreshadow a change inthis and demonstrate how wider local land stewardship by local people can berevived. The development of initiatives to revive the use of the ‘commons’ to meet

local people’s housing and enterprise needs began in the 19th century and wascentral to the vision of the co-operative movement. Robert Owen called for‘Villages of Co-operation and Unity’, enabling the poor and unemployed to resettleon the land in sustainable villages. John Ruskin established his St. George’s Fundin 1871 to finance the acquisition of land to be held in trust for affordable housingin villages to help protect and revive rural industries and crafts. One of the firstinitiatives was the funding provided by Ruskin to Octavia Hill, which initiated theHousing Association movement in Marylebone, London in 1871. Following in thefootsteps of Ruskin’s success, the National Trust was founded by Octavia Hill andCanon Hardwicke Rawnsley in 1895 to hold land in the public interest.

The Ealing society signalled a seriousintention to involve tenants in thebusiness by setting their minimumshareholding at £50, payable ininstalments. The building of their estate,known as Brentham Garden Suburb,began along conventional lines in 1904.Roads were laid in straight lines, and‘pattern book’ terraces built which wereundistinguishable from those built forprivate landlords. However, the movementsoon broadened out. There was an influxof rich and influential supporters ofEbenezer Howard’s garden citymovement, who oversaw the marriage ofgarden city design and tenant co-partnership tenure. The progressivearchitect, Raymond Unwin, was broughtin to redesign the estate along modernlines, with low-density housing, curvingstreet patterns, narrower residentialstreets than had been allowed underlocal bylaws, and artfully designedterraces that departed radically from thetraditional speculatively built industrialhousing that was the norm.

A central body, the Co-partnershipTenants Housing Council, was set up topromote the idea, and soon societieswere springing up all over Britain. In1907, the Council became a federation,Co-partnership Tenants Ltd. This centralbody was the key to rapid expansion ofthe movement; it co-ordinated loanfinance, advised on site layouts andplans, did some of the on-site buildingwork, and set up two subsidiaries thatbought in materials and provided ready-made joinery. Between 1901 and 1912,14 societies were formed under thissystem, building 6,595 dwellings, for apopulation of 30-35,000 people (Birchall,1988, 1995a).

The most famous co-partnership estates,apart from Brentham, were atHampstead Garden Suburb where fivesocieties produced 5,650 homes, andLetchworth Garden City, where onesociety built 323 homes. Many moresocieties were formed that did notregister as members of the federation;54 have been found so far, but it hasproved impossible to estimate thenumber of homes built (Birchall, 1995b).The First World War interrupted themovement, leaving several societies withmore land than they could build on(though Government used the co-partnership form to build estates formunitions and naval dockyard workers).

After the War, supporters of themovement made sure that, under the1919 Housing Act, co-partnership was

given the same access to centralgovernment aid as council housing, butmost local authorities chose to build forthemselves. Some existing societiescompleted their estates, but only a fewnew societies were formed: some wereset up by partnerships formed betweenlocal authorities and large employers inSouth Wales, and Howard used themodel for several societies in WelwynGarden City. In general, the energies ofreformers switched to council housingand the co-partnership movementdeclined.

The aim of co-partnership was explicitlyto combine the best elements of rentingand owning. Tenants would be jointowners, having pride in ownership and anincentive to keep up their home and theestate, their efforts being directly linkedto the level of rents and the dividendthey received. Like owner-occupiers, theywere responsible for repairs anddecorations inside the home. The £50investment demanded by most schemeswas a very large sum at that time, whenthe cost of building a small house wasonly around £125. Their dividendpayments could not be withdrawn untilthis minimum was reached. On the otherhand, they would be freer than owner-occupiers to move in search of work, andwould not bear the risks associated atthat time with a minority tenure (only 10per cent of households were owner-occupiers, the rest privately renting).

Outside investors also gained. They werelike private landlords, but their risks wereminimised by the financial involvement oftenants. Loss of income through emptyproperty was negligible, since less thanfive per cent of the tenants moved eachyear. Rent arrears were almost non-existent. Furthermore, the investors didnot have to give tenants real control.Voting rights went with the number ofshares, up to the limit of £200 imposedby Industrial and Provident Society law. Insome cases, in the first few years one ortwo places were reserved on the boardof directors for a tenant-representative,but tenants were in the minority.

The promoters were keen to point out thatthe underlying aim was not merely toprovide hybrid tenure but to go further,inventing a more collective form of tenure,in which individual incentives gave way to aco-operative spirit and dwellers identifiedwith the estate as a whole. The annualgalas and pageants held before the FirstWorld War were a conscious attempt toinculcate a sense of community, but it wasexplicitly a co-operative community, bound

together not just by proximity but by thenature of the tenure.

A linked aim was to avoid class conflictby deliberately mixing different incomegroups in each estate. The evidenceconcerning the range of rents chargedshows that they succeeded in this. Whatthey did not succeed in doing waspromoting a form that was generallyaccessible to people on low incomes.One estate in Hereford did house mainlyfarm labourers, but most tended toattract clerks, skilled artisans, localgovernment workers, and even a fewprofessionals such as teachers. Themixing of classes did not usually extendto semi- and un-skilled workers. Therequirement to find a large deposit putoff anyone on a low or irregular income.

The promoters tended to be divertedaway from provision of working classhousing by this emphasis on innovativedesign and garden suburb layouts. AtEaling, for instance, the lowest renthouses were built only because of acondition laid down by the Public WorksLoans Board (schemes obtained a loanof two thirds of the value of the homesfrom the PWLB). This was a major failingand goes a long way to explain why post-war housing policy swung in favour ofcouncil housing.

At first this new form of tenure workedwell. However, it was unstable. Early on,the aim of the promoters, like that ofprevious co-operative experimenters, wasthat tenants would eventually gaincontrol. In four estates where propertyvalues did not rise much and outsideinvestors were willing to sell their shares(Keswick, Sevenoaks, Leicester, andManchester), tenants did eventuallyachieve this.

However, in areas where property priceswere rising and investors saw thebenefits of keeping control (Ealing andHampstead), they changed the rules. Forinstance, in 1911, tenants at Ealing weredeprived of their right to a representative,and soon afterwards new tenants atHampstead were discouraged frombecoming members. After the War, Co-partnership Tenants Ltd acquired acontrolling interest in Ealing, Hampstead,Garden City, and Fallings Park, and theywere sold on to property trusts whichbegan to sell houses to tenants and, asthey came vacant, to sell them on theopen market.

Two more estates eventually fell to theproperty interests – Stoke-on-Trent in

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1963, and Harborne, a few years ago,after tenants had resisted several hostiletakeover bids. At Cardiff and Oldham, thesocieties began to sell their houses onleases to tenants, and were eventuallywound up. At Sealand (and probably alsothe post-war estates in South Wales) theproperty transferred to the ownership ofthe local employer, which had sponsoredthe society. With a few exceptions, then,this form of tenure gradually deformedinto the two dominant tenures, owner-occupation and private rental, with somecynical and greedy asset stripping alongthe way.

Lessons learned from the Tenant Co-partnership history are:

a) A mix of outside shareholders andtenant shareholders proves to behighly unstable. Capital should beraised from financial institutions thatdo not require a share in ownership;

b) Where tenants do gain control oftheir equity, in the absence of a co-operative movement their estatesbecome isolated and members seethemselves as ‘collective owner-occupiers’;

c) However, the idea of tenantshareholders proves to be a soundone, making members take aninterest in their housing and in thewider community.

2.3Co-ownership – Key WorkerHousing in the Post War Period

The demise of co-partnership and therise of conventional public sector rentedhousing meant that co-operative housingdid not reappear until after the SecondWorld War, and then only in one isolatedcommon ownership co-op, at Dronfield.In 1961, a new experiment in co-ownership began. Harold Campbell(secretary of the Co-operative Party) andReg Freeson (a Labour and Co-operativecouncillor) promoted the idea, but theyhad little success in influencing theLabour Party, though Freeson managedto promote three small co-ops in his ownlocal authority, Willesden.

They had more success with the thenConservative Government, which waskeen to find new ways of promotinggood quality private rented housing forthose who needed to rent, and a way intoowner-occupation for people who couldnot otherwise afford it. The only

alternative the Government had foundwas ‘cost-rent’, by which non-profithousing societies were to provide newrented housing, but it was thought therents might be too high. Campbell tookthe Scandinavian co-operative housingmodel and applied it to Britain. It had twokey elements that found favour. First, asa group of owner-occupiers, co-ownerscould claim tax relief on their mortgagesand thus provide a cheaper alternative tocost renting. Second, if members wereallowed to build up an equity stake overtime, this would help them to gain accessto owner-occupation.

Between 1961 and 1977, 1,222 co-ownership societies were formed,producing over 40,000 dwellings. Theywere aided by a new Housing Corporation,established in 1964 with £100 million ofTreasury funding and a pledge of £200million from building societies. At first theCorporation promoted cost renting and itwas only when the Labour Governmentappointed Campbell to the Corporation’sboard in 1966 that this new form oftenure took off.

It was helped by the introduction in 1967by the Labour Government of optionmortgage tax relief. This was theprecursor to Mortgage Interest Relief atSource (MIRAS), aimed at people on lowincomes, and could be applied to the co-owners’ collective mortgage. Also in 1967,changes were made to the structure,making it easier for people to becomemembers; the lease was reduced from 99years to three years or less, and depositsreduced from five per cent of the cost ofthe dwelling to no more than theequivalent of six monthly payments.

This form of tenure was constrained fromthe start by the ‘top-down’ way in whichthe schemes were developed. A newsociety was registered by foundermembers, who were usually thecommittee members and staff of a localhousing association. They had thescheme designed and built, selected thefirst co-owners, and then usually tied thesociety to a management agreement withthe association for anything up to sevenyears. They were supposed to ensurethat, six months after letting the scheme,resident members would be elected andtake over, but sometimes the agentsfailed to get round to doing this for years.

When the residents did gain control theywere not expected to do any self-management. In fact, guidance from theHousing Corporation discouraged themfrom becoming self-reliant but advised

them to rely on their managing agent.The co-operative nature of the schemeswas played down, only being mentionedwhere it had to be, in the model loanagreement and rules (Birchall, 1988).

The way co-ownership was developed andregulated contrasts sharply with theScandinavian co-operative model on whichthe co-operative promoter HaroldCampbell had drawn when he began topromote the idea of co-ownership. InNorway and Sweden, a ‘mother’ co-operative linked to a savings bank wouldfound ‘daughter societies’, making surethat they were real co-operatives,educating and training their members, andoffering management services that thedaughter society could take or leave as itsmembers wished, subject only to somebasic regulation and accounting rules.

In a few early societies founded bycommitted co-operators, educationalwork was done to prepare the dwellersto take over control. The HousingCorporation had the task of educatingmembers, but confined this to someleaflets, the main tone of which was thatco-owners should leave management oftheir estates to the professionals(Birchall, 1988). In most cases, all thatthe members received was the legaldocumentation relating to their tenancy,and many members did not understandthe difference between co-ownershipand renting. Nor were they particularlycommitted to the idea; no attempt wasmade to vet prospective members fortheir willingness to take on theresponsibilities of active membership.Also, the founding association had aninterest in keeping the members lockedinto long-term management contracts,and sometimes tended to play down thestatus of co-ownership.

With hindsight it can be seen that it wasoften easier for both parties to lapseback into the mind-set of landlord andtenant rather than to do the work ofcreating a new identity as co-owner andmanaging agent. Sometimes membersonly found out that they were membersof a co-op and not the tenants of theirself-appointed managing agent whensomething went wrong.14 Some schemeswere poorly designed or built withunsuitable materials, and it was onlywhen the members began to organisethemselves in response to deterioratingconditions that they discovered theywere, collectively, the owners.

Sometimes, societies had to face seriousdesign and building faults, and began a

19 Common Ground

long battle in the courts, suing thearchitect and sometimes the builder andin some cases winning substantialcompensation. At the end of the 1970s,there were 48 societies in ‘loss rent’status, unable to pay their mortgage tothe Housing Corporation; most of thesewere in trouble because of design faultsand building failures. At the beginning ofthe period the Corporation officials weretelling co-owners to leave it to theprofessionals. By the mid-1970s, theCorporation had to provide them withloans towards their legal action.

Sometimes, members wanted to get ridof their managing agent, whom theyassociated with the failures of thefounder members, only to find that theywere locked into long contracts that theHousing Corporation officials werereluctant to cancel. In interviews carriedout by one of the authors, JohnstonBirchall, in the early 1980s in foursocieties, active members expressedclearly the view that the professionalsinvolved as founder members had beeninterested more in the development feesand ongoing management allowancesthat the schemes would generate than inthe idea of co-ownership. Theirsuspicions were not eased by theattitudes of Corporation officials who,although only following current policy,seemed to be unwilling to acknowledgethe Corporation’s own failures ofregulation (Birchall, 1988).

However, the experience in three of thesesocieties was coloured by long anddifficult court action to sue architects forpoor design. In other societies, theexperience was a happier one, and inmany cases co-ownership was a success.Where the scheme did not have anyserious design or building defects, themanaging agent was efficient, and someco-owners took the trouble to run thesociety, it provided a relatively stable formof tenure. However, the form that co-ownership took kept on evolving inresponse to experience; by the late1970s, the Housing Corporation hadissued five sets of model rules. Running aco-ownership society was a difficult job.

Even well run societies faced problemswhenever the legal form of their societyhad to be tested. Members found thatthey were in a kind of limbo betweenrenting and owning; they were declaredineligible for rent rebates because theywere owners, yet denied insulation grantsbecause individually they were notowners. They had no security of tenure,yet it proved hard to evict owners who

had defaulted on their rent because thecourts could not decide whether theywere owners or renters. Many activemembers eventually reached theconclusion that it was an over-complexform of tenure that few understood, andwhose legal status was in doubt. Also,Housing Corporation guidance notesrequired that societies seek theCorporation’s approval for all rentincreases, premium payments andchanges of managing agents. Activemembers tended to resent therestrictions this imposed on them, andthe implication that management shouldbe left to the ‘experts’.

In Norway and Sweden, members had toprovide a significant down payment,saved up over time in the mothersociety’s savings bank. In co-ownership,in order to provide easy access, theCorporation required only a nominalshareholding, which was bound to limitthe amount of equity members couldbuild up, and also prevented societiesfrom building up reserves. In Scandinavia,members built up an equity stake,expressed in law as a ‘right to occupy’that they could sell on when they movedout of the scheme.

At the time when co-ownership began inBritain, this equity stake was regulatedclosely in both Norway and Sweden andthe sale price calculated according to aformula that kept it affordable (though,as we shall see below, in both countriesthe price soon became deregulated). Co-ownership was based on a similar idea,namely that members would build up anequity stake in the property over time.After five years of continuous tenancy,they had the right to a ‘premiumpayment’ on leaving.

At first this was calculated on the basisof a complex formula that included theamount they had personally paid off thecollective mortgage plus a percentage ofthe rise in value of the dwelling,calculated on a notional rise in buildingcosts. This was later modified to take intoaccount the market rate achieved for thenew rent; a departing co-owner could notbe paid more than the society could raisethrough its rents. This often worked well,making it easier for departing membersto afford a deposit to buy their ownhome. However, if the societyexperienced a high turnover of departingmembers, or had not built up sufficientreserves, it would have to borrow moremoney. There was also a potential forloss of experienced active members. Thepremium was only payable if a member

left, and societies would periodicallyexperience a high turnover of members,making it difficult to maintain a co-operative spirit.

In 1976, co-owners formed a federalbody, the Council of Co-ownershipHousing Societies. It suffered from theusual problems that co-operativefederations face in trying to generateenough membership income to sustainthemselves and be effective. However, inits short life, it managed to tackle a longcatalogue of problems faced by co-owners,15 and began to generate thebeginnings of a real co-ownership‘movement’.16 At first the mood wasconfident, and delegates to the annualmeetings defended the idea of co-ownership by large majorities against the idea of demutualising the societiesand allowing members to become owner-occupiers.

By 1979 the mood had changed, andmembers were asking whether co-ownership had failed, through internalproblems within the societies and afailure of premium payments to enablemembers to raise a deposit towardsowner-occupation. They voted that if theterms were right they would sell up. In asurvey carried out by the Federation, twothirds of members agreed. Thenmembers of one co-ownership lobbiedMargaret Thatcher to let them dissolvetheir societies and sell to the members;the result was the inclusion of the ‘rightto sell’ in the 1980 Housing Act. Mostsocieties sold up, leaving those that werestill battling with poor design or buildingwork to carry on until they, too, were in aposition to sell. In 1983, the Council waswound up. There are 24 societies still inexistence; of which 16 are still registeredwith the Housing Corporation and therest are unregistered.17

Key lessons learned from co-ownershipare:

a) A particular form of co-operativehousing cannot simply be lifted fromanother country and be expected towork unless wider conditions aresimilar, and attention is paid to all theelements that go into making it work;

b) Promotion and development shouldnot be left to housing professionalswho do not share co-operative valuesand ways of working;

c) When education and training ofmembers are not built in from the

20Common Ground

start, co-operatives will fail to becomein practice what they are in principle;

d) If members are not involved from thestart with estate layout and housingdesign, mistakes may be made forwhich they will later have to pay;

e) If members can only realise thefinancial benefits of co-operation byleaving, then after the qualifyingperiod there may be a high turnover,leading to a crisis in participation andhigh cost of socialising new members;

f) If the financial benefits are calculatedon too complicated a formula theywill be uncertain and lack legitimacy;

g) If the financial benefits on leaving areset too high and there is a highturnover, then the co-operative maynot be able to finance the payouts;

h) If the co-operative involves a newform of tenure the costs will be toohigh; there will be misunderstandings,high legal fees, unnecessary disputes,and a need for new legislation.

2.4Shared Ownership Co-operatives

Another way of bringing the advantagesof owner occupation and rentingtogether is to combine them in onescheme, but without mixing themtogether. By the late 1970s, it was clearthat the co-ownership experiment hadrun its course. Harold Campbell, thedirector of the Greater LondonSecondary Housing Association(GLSHA), began to develop this optionas a new, and less-complex, alternative toco-ownership.

Glenkerry House is a tower block in theEast End of London that, like the morefamous Trellick Tower, consists of animmense 14-storey wall of flats, at eachend of which is a separate lift shaft.Unlike much of the high-rise andsystems-built housing of the post-warperiod, its design and building are of goodquality. There are four four-bedroommaisonettes on the ground floor, 17 one-bedroom, 45 two-bedroom and 12 three-bedroom flats; 78 flats in all.

Researching the co-op in 1983, Birchallcalled it a “friendly but reservedcommunity”, in which there was noproblem in generating enough interestamong members, and which was

exceptionally well run (Birchall, 1988,). Itis a ‘community leasehold’ co-op. Thelocal authority is the freeholder.18 It hasgiven the co-op a long lease, in which itis stipulated that:

a) No more than 50 per cent of theequity can be bought by individuals;

b) Sales of this equity will not be on theopen market but at the districtvaluer’s valuation.

The co-operative bought a 99-year leasefor £1,435,000, with a HousingCorporation grant of £717,000 and aGreater London Council grant of£144,000. Sales to members brought inabout £464,000. The residual amountwas raised through a loan from the GLC,which qualified for option mortgage relief,and charged to members as ground rent.

The co-op was registered in 1978. Twothirds of members were chosen from listsof people in housing need provided bythe local authorities. Although thescheme relied on ‘founder members’from the GLSHA board, it was developedalong co-operative principles.

There was an educational programme,prospective members were involved at anearly stage, and a consultative committeewas formed before the first managementcommittee was elected in 1980. Theysoon became self-managing, opting tohire their own co-op manager rather thanrely on managing agents. That thesubsequent history of the co-op wasuneventful is due in no small part to thequality of this manager, but also to somehighly skilled committee members. Thefact that members own 50 per cent ofthe equity means there is no problem ingenerating an interest in governanceamong the members.

The Conservative Government of thetime was not prepared to back thismodel, because the model did not allowco-op members to staircase to fullindividual ownership. GLSHA developeda staircasing co-op model which, whenthe agency was wound up, was takenover by CDS Co-operatives. At this pointthe agency had developed 700 units ofaccommodation in shared ownership co-operatives. The problem with the modelin conventional applications (e.g. aspracticed by housing associations today)is that through staircasing, as themembers gradually buy out the co-opinterest, they can correspondingly lose acommonality of spirit, the commitment to

member co-operation and participation inco-management. This makes theunconventional style of Glenkerry Houseparticularly attractive for our purposes intrying to develop a model that will bothprovide equity stakes for members thatrespond to market signals, and lock inthe subsidy so as to remain affordablefor new members.

2.5Comparative Analysis of Co-operative TenuresInternationally

Clapham and Kintrea suggest that co-operative housing can vary along acontinuum from individualist tocollectivist, more or less resemblingowner-occupation or social rentedhousing (1987). The main characteristicthat varies is the amount of equity stakeowned by individual members. Oneshould expect to find examples aroundthe world of co-operatives that have nosignificant individual equity-stake, someregulated and limited-equity stake, and astake that is sold freely in the market.

Non-equity co-ops – Canada and DenmarkCanada and Denmark have non-equityco-ops. Canada is of interest because ofits system of mixed-income groups, inwhich government subsidy goes directly to low-income co-op members.This provides the kind of mixedcommunity that tenant co-partnersenvisaged, and also the skills needed to run a co-op.

Interestingly in the 1980s, the Co-operative Housing Federation of BritishColombia developed the CommunityHousing Land Trust Federation (CHLTF),which became a non-profit charitablesociety in 1993 (Lew, 2001). CHLTF has since been developed as amechanism to establish a foundation forthe permanent affordability of co-operative housing in Canada. MostCanadian housing co-ops lease landfrom government bodies. These leaseagreements typically have rentalescalation clauses based on thepercentage of market rents in the area.

In the 1990s, for example, land pricerises in Vancouver have led to largerental increases for co-ops which have inturn impacted upon affordability. Also thegovernment leases typically runconcurrently with the building mortgagefor the co-ops, so expiration of theleases threatens the continuity of

21 Common Ground

dwellings in the mutual sector shouldgovernment priorities be different whenthe leases expire.

Since 1996, the housing co-operativesector in British Colombia has steadilytransferred properties to the CommunityLand Trust established with the supportof the provincial government. Thecharitable status of the CLT thoughmeans that the housing units developedare restricted for the use of low-incomehouseholds only. In recent years a LandTrust Development Fund has beenestablished to acquire additional land bythe purchase or donation for the CHLTFto establish more and more housing co-ops on the basis of permanentlyaffordable ground leases withoutescalation rental clauses (Merkley, 1996).

Denmark is of interest because of theway in which the co-operative form hasinfluenced all non-profit housing, so thatit is hard to distinguish between co-operative and public-benefit housing.

In order to qualify for government support,all non-profit providers have to establisheach residential project as a legallyindependent entity, under the direction ofa management council, composed entirelyof residents (Richman, 1995). Residentsalso have the power to oversee electionof the majority of representatives who inturn oversee the parent housingassociation. Associations fall into one ofthree types: co-operative societies, whoseshareholders are prevented from realisingappreciation on their membership share,self-governing associations whose poweris devolved from local government, andjoint stock companies, where outsideethical investors limit their return to fiveper cent. Resident democracy works in allthree forms.

Limited equity stake co-ops – the USThe limited-equity stake is found primarilyin the US. Limited equity co-operativesrestrict the resale value of shares byapplying a formula established in the co-op’s bylaws. The co-op often has theright of first refusal to buy the outgoingmember’s share, and the right of firstapproval of prospective members. Thisform is generally affordable because thecost of membership shares is low. Onleaving, a member receives the originalshare, plus the cost of any improvementsmade, plus some limited appreciation asspecified in the original agreement (Roheand Stegman, 1995).

The formula for increasing the value ofshares depends on the program under

which the co-op is financed. Because co-ops have been set up under severaldifferent mortgage and tax subsidyregimes, all with different requirementsas to affordability, it is hard to generaliseabout how the initial equity stake isrevalued.

Many California co-operatives, forexample, use a limited-equity formulathat allows shares to appreciate at a rateof 10 per cent of the original value of theshares per year. Many others tie the rateof share appreciation into changes in theconsumer price index.

The conversion of public housing to a co-op in Nashville, Tennessee offers anotherexample. Here, the prospective memberhas to pay a non-refundable membershipfee or working capital contribution of$100, plus a subscription price of $400based on the value of the occupancyagreement. If a member wishes to leave,the board has the right to purchase themembership at its transfer value. This isthe sum of the initial subscription fee,plus the value of improvements, plus theamortised element19 of the principal ofthe loan which was paid off by the co-operative using the payments made bythe departing member after the firstthree years of occupation, plus the valueof any sweat equity contributed (Roheand Stegman, 1995).

In New York, the price of shares inlimited-equity co-operatives currentlyranges from $250-$2,500. A group ofnew co-ops that has recently taken overthe apartment blocks has an entry priceof $250 for existing tenants, whichrecognises the ‘sweat equity’ they haveput in over the years to keep up thebuildings. When someone sells, the pricewill be $6,000 for small and $9,000 forlarger units. This is fixed for the firstthree years, and then it will be revisedupwards on a national scale based onmovement in median incomes.

Other co-ops are more flexible, with justan income restriction and the co-opdeciding on the formula. Here, the onlycheck on prices is how much people canraise in personal loans; the low-incomerule restricts what people who are buyinginto the co-op can afford. The price inthese cases will be much higher than incity- or state-subsidised co-ops and morelike what one would pay as a downpayment on a condominium. Some havestrict formulae prescribed by the state,consisting of two elements: amortisationof the mortgage and investment incapital improvements. Some have a fixed

percentage rise each year. The practicevaries between co-ops, but once theformula has been set, individual co-opstend to stick to it; a lot of dissent iscaused if the rules change for newmembers.

In summary, there are three basiccategories of co-operatives in the US:zero equity, limited equity and marketrate. The middle group is the mostcommon and, within it, many differentformulae are used to set the resale priceof shares.

As well as formulae written into bylaws,there are two indirect ways in which theprice of shares is restricted. First, manyco-ops have an income test restrictingapplicants for membership to people onlow incomes. Co-ops in New Yorkclassed as Housing DevelopmentFinance Corporations (HDFCs) have acertificate of incorporation specifying thatthey must provide housing to people onlow incomes, with resale restrictions andincome guidelines. Even when theseguidelines expire, the low-incomeprovision continues. This automaticallymeans the shares must be within reachof low-income people. Second, co-opscan have a ‘no mortgaging’ rule. Forinstance, in the Brooklyn co-ops set up70 years ago by the Finnish community, aresale restriction of sorts is achieved bythe co-op refusing to sign a recognitionagreement with the bank. Without thisrestriction shares could be mortgaged, asthey are regarded in law as real property.This is a ‘natural’ way to restrict prices.

There have been problems with thelimited-equity arrangement. If shareprices match prevailing market rateslocally, most co-operative shares will beunaffordable for low-income houses,which is why resale limits are placed onthe transfer value of shares in limited-equity co-operatives.

If prices fall far below those rates, there isa problem of enforcement, becausepayments can be made ‘under thecounter’ by an incoming member to theoutgoing one. This is the principal reasonwhy co-operatives buy back the shares ofdeparting members and why they arebeing developed on CLT land. The formerprevents under-the-counter deals. Thelatter prevents the co-operative itself frombecoming lax in enforcing its own limited-equity restrictions. The CLT provides asecond line of defence for affordability.

If the share price goes higher thanmarket rates, outgoing members can be

22Common Ground

stuck and unable to move. For instance,in San Francisco the shares of federallysponsored limited-equity co-ops becamevery expensive. The only people whocould afford them were immigrants fromAsia who came to the area with largesums of cash, but who had troublefinding employment and had little income.

A different problem was experienced inSacramento, California. In that case, themarket did not keep up with the formula.The shareholders were very upset and didnot know what to do. They would not selltheir shares below the formula price andfelt trapped. Needless to say the co-opwas not a happy place. In Los Angelesco-operatives the situation is stable, andequity share increases are more likereceiving interest on the share price as ifit was in a savings account. They paysimple interest; if it were compoundedthis would cause affordability problemsfor incoming members.

To what extent do the membersindividually have an incentive to break upthe co-op to make speculative gains? InNew York there are currently no strongpressures to break up the co-ops forpersonal gain, for four reasons. First,there is the low-income rule, whichrestricts the type of person who comesinto a co-op. Incomes average around$10,000 in new co-ops and $15-25,000in more established ones. In co-ops thathave Section 236 funding,20 memberswhose income goes above a ceiling haveto pay an extra monthly charge. Second,there are legal restrictions. New co-opstend to be dependent on the consent ofa bank, or of politicians, who can write inrestrictions. Restrictions are written intothe bylaws, so it takes a two-thirdsmajority to change them. Also there is aregulatory agreement that comes withthe mortgage, or tax abatement, or a landdisposition from the City. It can also bewritten into the deed for the co-op. So inpractice there are numerousopportunities to write in restrictions.There has been considerable abuse –not by co-ops but by other agenciesreceiving subsidy – so lenders are nowbuilding in many more restrictions.

Third, the number of sales is low – lessthan one per cent yearly. More frequently,units become available because peopledie, so there is not much pressure onresale values. If the co-op members weremore transient, it would be more difficult,but as it stands there is time to build upa co-operative spirit, through educationand training of members. Fourth, theshare valuation does not cause trouble,

because the other factor is the monthlycharge, which is low and good value.There is individual greed, but if membersconverted or sold at market value theywould end up paying much highermonthly charges.

However, property prices are spirallingupwards in some areas; on the LowerEast Side apartments now sell forbetween $400,000 and $1 million.Considering that co-op members havepaid $1 for their building, this is bound tobecome an issue eventually.

It has already appeared in one set of co-ops. The ‘Mitchell-Lama’ co-ops, so-called because of the legislation underwhich they were founded, comprise halfof all co-ops in the US, including thefamous ‘Co-op City’ in New York. They allhad zero equity, with an entry fee of$500 per room, and with no increase invalue over time. Then the restrictionperiod ended and they now have theopportunity either to go back intoregulation with tax abatement or to ‘gomarket’. How they decide depends ontheir leaders. Many have decided touphold co-operative values and maintaintheir limited-equity status. Tens ofthousands of units have been lost; theyturn into market-value co-ops and sell for$450,000 instead of for the $5,000incoming members would have paid thelimited-equity co-op.

Market rate co-ops and tenantownership co-ops – the US andScandinaviaIn the US, Norway and Sweden, marketrate co-operatives operate. Here,shareholders may buy and sell theirshares at full market value. In the US,prices are similar to those incondominiums. The co-op is financedthrough mortgages with interest rates atmarket level. There are no restrictions onthe resale price of members’ shares. Themost successful market rate co-ops are‘senior co-operatives’ for people over 55.Government-guaranteed loans are usedto reduce the cost of finance, and mainlythe development is done by privatedevelopers. The buyer signs a purchasecontract and makes a down payment.

It takes about a year to reach a pointwhere 90 per cent of units have beensold, at which time the co-op comes intoexistence as a democratic, member-controlled body. Unsold units remain theresponsibility of the developer. Senior co-ops have been developing quickly inmany parts of the US. However, it is nolonger as popular an option as it used to

be, because lenders prefer to lend tocondominiums and it is difficult to obtaina share loan.

In Sweden, people cannot own anapartment in a multi-occupied blockwithout belonging to a co-operative; thelaw prohibits individual ownership. Co-operative tenure, bostadsratt, is usuallytranslated as ‘tenant ownership’,somewhere between tenancy andownership, and fully enshrined in law(Svensson, 1995). Under the Tenant-Owner Act of 1930, all other types wereprohibited, though existing ‘rental’ (non-equity) co-ops remained. This Actestablished the credibility of the co-operative form of tenure.

For more than 40 years, HSB Bank, whichspecialises in housing, maintained asystem of transfer and price control.People had to be on a waiting list of theregional HSB society to stand a chance ofgetting a co-operative flat. Transfer priceswere based on initial payments andamortisations. By the 1950s, thesearrangements began to be criticised, butHSB managed to resist change until1969, when market transfers were finallyallowed. Riksbyggen made the samedecision around the same time. Until1973, buyers and sellers were informed ofHSB’s recommendation on price, and thenwere allowed to agree a market price.

The lifting of price controls was done inthe context of a market in which supplyhad overtaken demand. It became morecontentious when prices began to rise.From the mid-1980s, banks began toaccept a tenant-ownership certificate ascollateral for long-term loans. Thiscontributed to the soaring price of co-operative flats. Low-income householdswere priced out, especially in centralStockholm and other big cities.

HSB and Riksbyggen have begun todevelop more specialised housing for theelderly, young households, and so on, buthave not been able to reinstate pricecontrol. Some commentators think it isnow a commodified tenure, similar toowner-occupation (Lundquist, Elanderand Danermark, 1990), but others see itmore as a tendency away from the‘social’ aims of the past (Svensson,1995). The high price of co-operativehousing has recently led to a newinterest in rental co-ops, and new oneshave been established on the basis oftrial legislation. But political support forthem has been patchy, and they remainmarginal in the housing market.

23 Common Ground

In Norway, a similar process of gradualcommodification of co-ops has occurred.In the early post-war period, there werestrict controls on the exchange of secondhand co-op dwellings, with deposits fornew entrants set at an initial price plussome allowance for inflation. During the1970s, a widening gulf between owner-occupiers and co-op members led to ablack market in sales of co-op dwellings(Kintrea and Munro, 1985). Someindependent co-ops dissolved in order thattheir members could to sell on the openmarket. In 1981, following the election ofa Conservative Government, price ceilingswere adjusted upwards substantially, andthen entirely abolished everywhere exceptin Oslo and 11 other areas.

2.6Evaluation and Key Lessonsfor a New Tenure Model in the UK

The experience of limited-equity co-opsin Britain is not a positive one. In tenantco-partnership, tenants gained five percent interest on their shares, and wereable to sell them back to the society onleaving. But because the shares were notrevalued in line with the market value ofthe homes, there was a growingmismatch between the book value of theshares and their value to propertydevelopers who wanted to take over thesociety. Members of Ealing Tenants wereoffered £24 per £10 share by theproperty trust that gained control. In co-ownership, the initial share was set low,and it took a long time for members tobuild up the ‘premium’ that they couldtake away with them. The formula forcalculating this was too complicated, andthe payments led to some societieshaving to borrow substantially just to payout departing members.

Limited-equity co-ops in the US are not avery good test of whether such a formwould work in the quite differentcircumstances of key workers in the UK.They are much more like our own non-equity co-ops set up in the 1980s underthe Housing Corporation in England andWales, and they are even more similar tothe community ownership co-ops set upin Scotland to take over public housingestates. No references in the USliterature could be found to the policyintent that these co-ops might be astepping-stone towards home ownership.For dwellers, they are an alternative toprivate renting, squatting orhomelessness. For policy-makers, theyare an alternative to abandonment, poor

quality private renting, and speculativeconversions of rental housing tocondominiums.

There is one area of similarity. The USmilitary is developing limited-equity co-ops to house its personnel on army andair bases, using low-cost land it alreadyowns and has prepared. The idea is thatits personnel, who currently experienceproblems in the conventional housingmarket, will be able to live in a co-op, andwhen transferred to another base, find asimilar co-op to transfer to, thus savingon transaction costs.

In general, though, the lessons to belearned from the US are that the morelimited the equity, and the moretransparent the method by which it isrevalued over time, the more likely theco-op is to succeed and to remainaffordable. It is better for low-incomeworkers than for those on middleincomes, but with the advantage overnon-equity co-ops that it takes somefinancial commitment on the part ofmembers, and provides a ‘nest egg’ ifthey leave.

The problems with the US co-ops can beovercome. For instance, the simplest wayto raise the cash needed to buysomeone out is to have the new memberpay over the full amount. But this causesaffordability problems. In co-ownershipthis meant some societies having toremortgage in order to remain affordable.This put a burden on existing members. Ifthere is a source of loan finance forincoming members, the better option isto have the new member pay out the oldone. It insulates the society’s ownfinances from the buying and selling ofmemberships.

Alternatively, the society could arrangefor mortgage funds, which could increaseor decrease so that the co-op could buyout a departing member and finance aloan for an incoming member. Therevaluing of shares must be transparentand simple. The easiest method would beto shadow average earnings or a retailprice index. The democratic process in aco-op is not designed to handle this sortof issue well, and because somemembers will be intending to stay alltheir lives in the co-op while othersexpect to leave sooner, members willtherefore have different incentives.

Hansmann (1996) argues that there is adirect correlation between the existenceof co-ops or mutuals in any businesssector and the degree to which members

differ in their interests. A co-op is muchmore likely to succeed if there are noserious differences of interest betweenmembers. It does not seem too difficultto find ways of preventing the break upof a co-op for private gain. Lenders canattach conditions to their loans, but asthe American case illustrates this cancause problems when the mortgageperiod is ended. It is better to lock theassets into ownership through acommunity land trust, taking a freeholdinterest and then issuing leaseholds.However, leaseholders now have strongrights to enfranchise, and any schememust be exempt from the Right To Buythe freehold. Alternatively, a publiclyaccountable agency could take out a‘golden share’ in the co-op to prevent itsbreak up.

For key workers on middle incomes, thelimited-equity model does not offerenough of an opportunity for theincrease in equity needed eventually toattain owner occupation. TheScandinavian tenant ownership model ismuch more relevant, or rather, the modelas it used to work before market valuesales of the ‘right to occupy’ wereintroduced. The Scandinavian modelcould be made to work in the UK underthese conditions:

a) A mother-daughter structure (seeGlossary) of financing and developingschemes is set up;

b) Education of prospective members inwhat it means to be a co-op member;

c) Members are asked to pay asignificant sum for their ownershipshare, perhaps in the region of 10per cent of average local houseprices, and certainly not less than£5,000;

d) The payment to departing membersis based on a clear formula thattracks market values but withoutbecoming unaffordable;

e) Members ought to be able to accesssome of their equity without having toleave the co-op, perhaps by beingable to withdraw interest or dividendpayments;

f) The legal form of the co-op is clearand not subject to costly litigation orchallenge from related property laws;

24Common Ground

g) There are strong and lastingsafeguards against breaking up theco-op for private gain.

However, there is a model that may bemore attractive than the Scandinavianone and one much closer to home. Thecommunity leasehold/equity sharingmodel of Glenkerry House fulfils all therelevant criteria. It locks equity into theproperty permanently, in two ways. First,the freeholder can specify in the terms ofthe lease that the co-operative may onlygrant up to 50 per cent of the equity toits members, and if desirable, that thismust be revalued in a way that lagsbehind house price inflation. This meansthere is no incentive to demutualise theco-operative.

Second, the individual member is a sub-leaseholder for 50 per cent of the equity,and also a co-op tenant on a monthlytenancy for the other 50 per cent. Thismakes the co-op ineligible for leaseholdenfranchisement. Also, since members aregetting a market return on their equity, aswell as saving on management costs bybeing in a co-op, there is little incentive forthem to try to buy more equity.

The freeholder can be any public interest:a local authority, hospital trust, orcommunity land trust. To set up the co-op, a promotional and developmentagency is needed, such as CDS Co-operatives in London. The co-operativemembers are incentivised to participate,and there are no major differences ofinterest between them. Because the 50per cent equity share is simply bought byan incoming member from the outgoingone, the co-op does not have to getinvolved in remortgaging, and so there isno conflict of interest between thosewho stay a long time and those whointend to leave soon.

There is no complicated formula forrevaluing equity – this is revalued in linewith the market. Basing the valuation onthe opinion of a third party such as thedistrict valuer has the virtue of makingfor a cautious valuation that evens outthe peaks and troughs in the market. Ofcourse, co-op members will need to takeout a mortgage on their equity share, andcan either borrow from conventionalmortgage lenders or from a localinvestment agency. The question of howto provide low-cost finance is a separateone that will not be dealt with here.

Glenkerry House has been workingsuccessfully for the past 24 years. It hasnot deformed into individual ownership. If

it had not been for the opposition of theConservative Government of the time, itmight have become the model for a newco-operative form to replace co-ownership. It could still do so.

25 Common Ground

26Common Ground

In any sustainable new model of tenure,the challenges are financial, legal, fiscaland, first and foremost, customer demand.The proposals set out here have beendeveloped with a view to ensuring arobust model design for piloting in high-cost areas of southern England andensuring that all these considerations aremet as comprehensively as possible priorto trial of the model – particularly in viewof the weaknesses previously experiencedin existing co-ownership models.

3.1Co-operative HomeownershipModel: Core Principles andOptions Rejected

A co-operative form of low-incomehomeownership has been investigatedbecause:

a) Historically, mutual housing formshave been good at addressingmarket failure;

b) If managed collectively andcorporately, costs can be controlled;

c) Limited or restricted equity housingco-operatives allow for equity stakesto be built up and repaid under a pre-set resale formula;

d) Tenure can be kept simple, with lowtransaction costs on entry and exitthrough a repairing lease, which canbe assigned.

Consideration of viable co-operativemodels for key workers has been basedon four core principles:

1) The housing provided may not be forthe short term and so must conformto normal standards;

2) The cost must be related to themeans of key workers: no more than30 per cent of net salary for thoseearning under £16,000, rising to amaximum of 35 per cent for thoseearning above £23,000;

3) Any subsidy provided should belocked in for the benefit of futureresidents;

4) The payments made by the occupiershould generate an equity stake,based on both capital repayment and

equity appreciation, to enable theoccupier to gain a foot on thehousing ladder.

A number of options have beenconsidered and rejected as not meetingthese principles:

a) Reduced standards

b) Property investment models

c) Shared ownership

d) Co-ownership societies

e) Capital subsidies

Reduced standardsThe minimum size generally acceptablefor a one-bedroom flat is 45m2. Housingcan be provided at lower spacestandards, for example 30m2 studio flatsor shared housing which requires around25m2 of space per person. An exampleis a 15m2 bedsitting room, which has useof a kitchen/lounge, bathroom and w.c.shared with three to five others. Inshared housing of this kind, there is afurther cost saving on fittings. Studios orbedsitting rooms in shared flats can bebuilt and let for cost rents within themeans of key workers (Appendix 6,Annex 1c indicates affordability).

Low space standard housing is bestsuited to students or those undergoingtraining before taking on a permanentjob. The first experience of many singlepeople is similarly of a room in a houseshared with friends or acquaintances orfamily.

It is important to ensure that enoughshared accommodation is available.Student housing in particular canotherwise exert pressure on the market,increasing the value of cheaper propertiesas shared housing for rent and takingthem outside the means of those seekingto purchase outright. Both RSLs, such asKensington Housing Trust, and privatecompanies like Unite, work to meet thisneed. In university towns especially,providing enough accommodation toavoid additional pressure on the housingmarket is an important goal.

Housing of this kind is not consideredhere, however, as the aim is instead tomeet the needs of those who have takenup employment and may well wish to

remain and build their life in the area.

Property investment modelsAt a time when the stock market hasseen three successive years ofdecline and interest rates arehistorically low, there has beenrenewed interest in property as aninvestment (although the end of aperiod of rapid property inflation isnot the ideal time to begin). Anumber of financial models can bedevised which could be attractive toinvestors, for example:

Seeking investors willing to finance landpurchase for a future return. In thismodel, housing for rent is built on theland and rents repay the constructioncost only, over a period of 15 years. After15 years the investor can realise the landvalue through outright sale of the homesas they are vacated or sell the wholeinvestment. The overall return oninvestment would reflect the rise in valueof the property and not just the rise inland values. It produces rates of return atover twice the level of inflation, a usefulhedge against other investments.

Seeking investors willing to rely on rentplus rises in property value to provide areturn. Realising the return, however,inevitably means outright sale when avacancy arises so the tenure disappearsin the medium term.

Both these models rely on providing theinvestor with the benefit of capitalreturns or repayment. This createsconflict with the core principle in (4)above: the aim of enabling the maximumequity stake to be built up by theoccupiers.

Shared ownershipShared ownership has been a successfultenure, which has usefully met a gap inthe market. Its most common form relieson Social Housing Grant (SHG) to meetthe cost of the part retained by the RSL.RSLs have made large windfall surplusesfrom shared ownership homes whenfurther shares are purchased if thehomes have increased in value since firstsale. The SHG is in effect an interest-free loan for the RSL’s share of theequity. Often, shared owners arrange tobuy the RSL’s remaining equity toachieve 100 per cent ownershipsimultaneously with onward sale rather

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

than just selling their existing share inthe property. In a rising market, thevaluation that determines the price of theremaining share may well be below theprice that can be obtained on onwardsale. This is either as a result of thelapse of time or simply because it ispossible to find a buyer willing to pay aprice above the figure assessed by thevaluer.

Conventional shared ownership alsorequires payment of rent on the RSL’sshare of the equity. In some cases therent charged to cover high management,maintenance, and loan costs has meantthat outgoings are not sufficiently lowerthan outright sale to create newopportunities for the less well off. In veryhigh price areas, shared ownership mayalso fail, as even property sold at 50 percent of its value can remain unaffordablefor lower-paid key workers.

Shared ownership has a place, therefore,but does not lock in the subsidy for thebenefit of future occupiers. It alsorequires relatively high levels of socialhousing grant, the long-term benefit ofwhich accrues to RSLs rather thanoccupiers.

Co-ownership societiesCo-ownership was a successful way ofmeeting the needs of middle-incomehouseholds in the 1960s and 1970s,with option mortgage tax relief as asource of subsidy to make it affordable.Much of the stock has been lost,however, as a result of the right to sell;existing owners benefited from windfallcapital appreciation. Once the windfallswere taken, the housing reverted tomarket cost, as the model includes nomechanism to protect the tenure’saffordability for the future. Having saidthat, some of the co-ownership housingprovided in this way does still exist andsome of the principles of mutualinvolvement in management and repairseem to have proved durable. The mainproblem with the British Co-ownershipSociety model was that the equity sharearrangements were not well designed,and the co-operative practices andstructures were not developed becausethe model from Sweden was not adaptedproperly. The stakeholders were thedevelopers rather than the tenantowners.

Capital subsidiesOne-off capital subsidies have beenused, through reduced land cost orgrants, to bring property costs downbelow value and to make these reduced

value homes available to key workers. Itmay then be a requirement that resale isbased on the same percentage of value,with the remaining equity held by thehousing provider. Depending on thenature of the provider, this may be astable form, but it could run the risk thatthe provider would decide or be requiredto realise the investment by releasing theequity it holds at some future date.

3.2Shared-equity Housing Co-operatives – Proposed Modeland Key Assumptions

Affordability will depend on keepingcosts down. Appendix 6, Annex 1 showsaffordability compared to housing coststhat are reduced in various ways. Itshows that affordability is only possible ifsubsidy is broadly equal to the value ofthe land and is combined with low-costfinance.

The availability of both subsidy and low-cost finance will therefore determine thescale on which key-worker homes can beproduced. The model should lock in anysubsidy for future occupiers and bebased on a structure which can securelow-cost finance.

To achieve this, a new UK tenure model,which incorporates the key features ofthe Swedish Tenant Ownership Co-operative system and the AmericanCommunity Land Trust system, offers aninnovative new approach to establishingpermanently affordable homeownership

opportunities for low and moderate-income households. This model would bea Shared-equity Co-operative system,which protects the land equity or othersubsidy indefinitely. It would be a co-operative which holds the equity in thebuildings and issues tenancies to theresidents who are also its members, andhence its managers and owners. Throughtheir ownership rights, residents wouldbuild up an equity stake in the property,which they can take with them when theyleave. In this context, the Mother andDaughter Society relationships in theSwedish system can indicate how best tostructure the legal relationships.

The following aspects would feature inthis new fully mutual model illustrated inDiagram 3.1 (there is a full description ofcore elements and rationale in Appendix3) of affordable homeownership:

a) A Community Land Trust (CLT) is setup and takes ownership of land;

b) The CLT holds any spare equity intrust to ensure long-term affordability.A standard model would be for theCLT to be gifted land to provide thisequity but the model could workusing some form of subsidy which isused to buy land or by holding landprovided below value through aplanning agreement or planning gain;

c) A Shared-equity Co-operative is setup, to which all occupiers will belongand which will let and manage thehousing;

27 Common Ground

Diagram 3.1 The Proposed Model

d) The co-op builds the homes under abuilding licence from the CLT;

e) On completion, finance is raised forthe building cost (and any residualland cost) using a guarantee from theCo-operative Housing FinanceSociety Ltd, at rates available tosocial landlords. The CLT’s equitywould be required as security for useonly on default, to be realized by amortgagee in possession;

f) The key workers’ payments to the co-operative must first meet the cost ofoutgoings: management,maintenance, insurance, servicessuch as cleaning, and a sum setaside for cyclical maintenanceincluding external painting;

g) The scheme is set up on theassumption of an average level ofpayment e.g. £100 per week.Residents will be required to makepayments equating to 30–35 per centof their salary and, for viability, theaverage level of payment (say £100)must be achieved. To counterbalancepayments by occupiers at levelsbelow the average required to meetthe mortgage payments, there mustbe an equivalent group paying morethan the average. For example, if thetarget payment is £100, and 32.5 percent (net) of a net salary of around£19,000, this could be achieved ifthree of the occupiers earn netsalaries of £15,000, £19,000 and£23,000 respectively. The greater theoccupier’s payment, the greater theequity stake that is built up: thosepaying more would therefore receivea greater share of ownership;

h) Residents may reduce their outgoingsby taking over responsibility formanagement, and for maintenanceand cleaning contracts;

i) When residents leave, they can take anequity stake. The maximum level of thiswould be a sum equal to the equity inthe property that has been repaid as aresult of their payments, plus capitalappreciation in the value of theproperty they occupied based on theirshare of overall value excluding anyequity retained by the CLT;

j) The co-op makes the payments tooutgoing key workers by topping upits total loan to the original level plusinflation, which ideally would includeincreasing the loan above the originallevel if a high proportion of occupiers

leave. The net result is that the co-op,unlike a conventional RSL scheme,would not move into a position wherethere is additional equity to increasefinancial ratios of security. Securityfor its finance will always depend onrental income and any retained equityheld by the CLT, not on any increasein retained equity;

k) Payments by key workers areindexed at RPI + 1/2 per cent whichproduces a surplus contingency fund.This fund might be needed forexample for additional cyclical repairsto maintain the property in future or,subject to a certain level of reserve, itcould be used to provide mortgagesto outgoing key workers;

l) Internal repairing obligations lie withthe occupier so as to reduce runningcosts and help provide appropriateincentives. Other running costs arekept to a minimum by involving theresidents in the management ofrepair and cleaning contracts;

m) The proposed tenure would take theform of a lease which is assigned, sothat the incoming tenant mustpurchase it from the outgoing one,eliminating void losses and keepingsale and purchase costs to aminimum; the aim would be that theprocess would be more akin to thetransfer of a tenancy than theconveyancing normally associatedwith house purchase.

n) The assumption made for the modelis that key worker salaries for thegroups at which the scheme wouldbe aimed are £17–25,000 inLondon, and £15–23,000 in theSouth West. Bringing housing costsdown to an affordable level for thoseon these salaries requires acombination of reduced costs andlow-cost finance.

In consultations in the South West,administration and cleaning staff pointed out that their salaries are muchlower still, at around £11-£14,000including overtime. For single people,even these relatively low salaries takethem outside the scope of housingbenefit and they may be paying as muchas 50 per cent of their salary on rent.The model will still work at lower salarylevels: it simply requires more subsidy. Ifthe salaries of the employees to behoused are much lower, the model willrequire both zero land cost and additionalsubsidy on top.

The model described here has beenfocused on what can be achieved wherethe land value can be used as the mainform of subsidy. This provides a readilyunderstood route to affordability in that itis high land values rather than highbuilding costs, which are the mainobstacle. It also provides an alternative topublic land being sold to secure a cashreturn, when it would make more sense toexchange the equity for a social return.However, in practice the subsidy can takeany form – that of a cash subsidy, freeland, or land substantially below value asa result of Section 106 planningagreements. Where salaries are low orvalues especially high, the land valuealone may not be enough but, as thetable in Section 6.6, Reduced land value orother subsidy input, shows, it usually is.

It is worth explaining why a percentageof salary is proposed as the basis forcalculating the payment charged. Key-worker housing is about housing peoplewho are by definition in employment andon salaries below, or only a little above,the average wage. Any subsidy securedneeds to be used cost effectively:Outgoings must be affordable but at thesame time subsidy cannot easily bejustified to reduce outgoings beyond acertain point. This means that thehousing is affordable, but at the sametime the subsidy is no higher than itneeds to be.

In the flexible model proposed, occupierswill be required to make payments whichrelate to their salary at the time they buyinto the co-operative and which in turnare calculated as equivalent to loanrepayments on a mortgage. The higherthe payment the greater the equity stake.The percentage of net salary used hereis 30-35 per cent as described above.

The saving achieved through residentcontrol of services as compared to anexternal manager is around £1 per week,£50 per annum per occupier. It would bepaid as an annual dividend based onsavings made in the account comparedto the budget. Because it is a relativelysmall amount, this seems a better way ofproviding an incentive. This approach isintended to provide further incentives forresidents to take responsibility formanaging the housing effectively,keeping it in good condition whilekeeping costs to a minimum.

28Common Ground

29 Common Ground

Any potential new approach to meetingthe needs of key workers for housingmust first assess the strengths andweaknesses of current solutions. Further,for a new approach to be successful, itneeds to be cost effective and to findrobust ways of addressing needs notbeing met by current housing models. Todiscover where there might be a niche inthe market for a mutual housing modelfor key workers, interviews wereconducted in both London and the SouthWest with existing providers of keyworker housing and other bodies, whichcould become development partners forpiloting a new model.

Twenty-five organisations agreed to takepart in the research. They includedaffordable housing providers for keyworkers and/or potential developmentpartners. Ten of the interviews wereconducted in the South West and 15 inLondon.

Additionally several group sessions wereconducted to explore in more depth theCommunity Land Trust based mutualmodel and its regional or localapplicability. Two sessions wereconducted in the South West and one inLondon. The London event wasconducted as a focus group in order bothto feed back to housing professionals thefindings of the research and to compareand contrast the features of the mutualmodel with other innovative approachescurrently being developed in London.

4.1 Current Approaches in Londonand Interest in a Mutual Model

Interviews in London were pursued withexisting large-scale providers of keyworker housing and shared ownership, aswell as with local authorities, healthservice bodies, and regenerationorganisations. Additional interviews wereheld with co-operative housingpractitioners and a diverse group ofdevelopers of innovative approaches –each striving in different ways to tacklethe key worker housing problem withcreative intermediate market solutions.Most of the interviews were in EastLondon with a view to the potential ofthe Thames Gateway.

Action on the ground and needsNewham is about the fourth lowest costarea of London, with only Barking andDagenham, Waltham Forest and possiblyGreenwich offering cheaper houseprices. But even in Newham, the problemof a dire shortage of key worker housingis chronic and worsening by the month.There are fears that this process mayaccelerate when its location andregeneration developments, includingStratford and the lower Lea Valley, takeeffect with the result that SharedOwnership as a solution is likely tobecome increasingly unaffordable in itsexisting form. Newham Councillor AlecKellaway, Cabinet Member responsiblefor Business Partnerships and Access toJobs and Training was very supportive ofthe limited-equity co-op model and sawthe attraction immediately of theCommunity Land Trust mechanism tokeep housing permanently affordable. Hecommented “Newham has more spareland than most boroughs” and “I wouldbe very interested in seeing how themechanism would work out.”

Redhika Bynon of Newham’s EducationDepartment has responsibility forassisting teachers find localaccommodation. She described the crisisthis way:

“The need for [affordable housing]schemes is critical. Of the 2200teachers in Newham, we lose 500each year. Forty per cent of thosewho leave say that it is for housingproblems. There are always a largegroup of young teachers, newlyqualified, who come in at age 22plus because there areenhancements offered to comehere. Two hundred or so of thesenew qualified teachers come fortwo to three years, win spurs andthen return to their home area.Some would like to stay butcannot. They have to pay a lot fortheir housing and they think it ispoor quality.”

Newham BC has nomination rights forteachers on 60-70 rental units withPeabody Unite, Toynbee HousingAssociation, Boleyn and Forest and a fewsmaller RSLs. But according to Bynon,this housing is frequently too small and,as social housing, does not meet more

than short-term requirements. Withoutbetter quality accommodation, retentionproblems will worsen. There is littleaccommodation from this source forteachers with families. Most units haveonly one bedroom. Bynon described theaccommodation preferred by mostteachers from an affordable housingscheme in this way.

“Middle class aspirations mean thatinvesting in property is one ofteachers’ expectations. I think theywould prefer two-bed properties,even if they are single becausetheir previous living conditions inthe parental home were relativelyspacious and this allows for eithera lodger or the growth of thefamily unit with partner andoffspring. The rooms andparticularly window sizes must begenerous – pokey rooms are notattractive. Detailing will be veryimportant. Quality says: ‘You areimportant and we value yourcontribution.’”

Bynon felt from her experience withsome of the more popular developmentsfor teachers and other key workersprovided by Toynbee HousingAssociation, that a block developmentwith one- and two-bedroom units wouldbe very popular, if it were spacious. In herexperience, teachers would pay £130per week for two-bedroom flats andpossibly up to £150 per week. She hastrouble finding takers for properties at£160 per week at the moment. Bynonfelt that a limited-equity co-op model thatcould economise on costs would beattractive to teachers if it is “high qualityand within their price bracket”.

Kate Eldridge, senior planner withHackney Council observed that recentresearch by Llwellyn Davies has foundthat London boroughs and the NHSoften lose staff after five to nine years ofemployment, because of the inability ofyounger workers to find larger affordableaccommodation for “having kids”. Thecosts of this loss are enormous for suchwell-trained and experienced staff.

Jakki Moxham, Chief Executive ofSpringboard Housing Association,commented that the Association usesshared ownership as a mechanism for

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

helping people in diverse circumstancesof need. They use it to help older peoplein serious disrepair situations and alsofor mortgage rescue following maritalbreakdown or unemployment, to helpthose in debt and who are equity rich andcash poor to avoid being evicted bybecoming shared ownership tenants.Moxham is very interested indeed in co-housing projects like the Danish model inStroud. In particular, the Associationwould like to pilot a project for women inLondon. Springboard also has some landin Newham which could be deployed fora CLT and mutual housing pilot.

Rachel Power is the Human ResourcesManager at Richard House, a Children’sHospice in Newham. Assisting newlyappointed staff to find affordable housingin the borough is the bane of her life.Some help has been provided byPeabody Unite with studio cluster flatswith shared kitchen and shared loungefacilities. These cost around £340 permonth including Council Tax and utilities.Power felt there was a real need forbigger properties, if possible with moreprivacy, and was attracted to the co-opidea to keep costs down.

“Balancing privacy with the cost ofbuilding and therefore the cost tothe key worker [is fundamental]. Anew build should not have acorridor with just accommodationoff like old-fashioned studentaccommodation. I think a sharedkitchen is ok, but a shared showeris yuk! A co-op for deciding aboutcleaning communal areas, lighting,etc. is good……Key workers withfamilies will need two bedroomsand more.”

Kate Eldridge commented that, for thesereasons, the Peabody Trust wasexperiencing difficulty in some places inletting cluster flats.

Kensington Housing Trust is part ofCatalyst – the Housing Group thatincludes Ealing Family, NorthCote, andtwo other smaller housing associations.Catalyst includes some 8,000 units ofsocial housing for rent, over 2,000 unitsof shared ownership and an additional1,500 units of cluster flats, which havebeen developed for key workers.

Kensington Housing Trust (KHT)specialises in cluster flat developmentwork, some hostel space developmentbut does no development work for familyaccommodation. Thus in the Catalystgroup, it complements the work of Ealing

Family Housing Association andNorthCote, which specialise in sharedownership. KHT has developed itsportfolio by taking over old nursingproperty from the NHS and redevelopingthe housing on site.

Parkside Housing, their cluster flatmodel, is based around two- to three-bedroom cluster units where tenantsshare a kitchen but do not share livingspace or bathrooms. The units can bedeveloped and let for £90 to £100 perweek per bed space. However withrapidly rising prices in London, theconstruction contracts have beenfraught with challenges to control priceinflation problems prior to completionand letting.

The main customer for these flats is theNHS, but KHT also providesaccommodation for the London FireService and Transport for London. Theflats are let to single people astemporary accommodation when theycome to London. The tenancies areshorthold and rent payments arededucted from salary. Theaccommodation is tied to a public sectorjob and the maximum time periodallowable is normally 12 months.Paddington Churches and London andQuadrant are providers of similar bedspace units to public service employers.

Gwyneth Allen, Business DevelopmentDirector of KHT, liked the limited-equityco-op model as there is clearly a chronic need for more permanentaccommodation. Many nurses move onfrom the cluster flats to shared privatesector rental or purchase housing jointly,but at this second stage, overcrowdedaccommodation is equally only a short-term solution.

Kate Eldridge of Hackney BCcommented that the attitude towardscluster flats varies depending on theprofession and she raised concernsabout “key-worker ghettoes”.

“The new housing boards aretaking a regional approach and thismay help get round the key workerghettoes. There is a need for keyworkers to be integrated into thecommunity, rather than clustered.Whereas health workers want tolive near the hospitals they workin, teachers don’t want to live nearthe schools where they work andpolice don’t want to live nearpolice stations. Where the firefighter chooses to live is very

much dependent upon theirpartner’s income.”

New Solutions to key worker housingMike Youkee, a former DevelopmentDirector of Ealing Family HousingAssociation, has developed a powerfulapproach to providing more substantialand permanent key worker housing. Thecompany he has pioneered, Noah, wasfounded in December 2002 and is thefirst Trades Union Housing Company inBritain. The project backers of theventure include the TUC, Unison, theGreater London Authority (GLA), and theBritannia Building Society.

The company is a non-profit companylimited by guarantee with four TUC-appointed directors, four public sectoremployer directors and three directorsdrawn from the ‘great and the good’.

The housing model is a sharedownership system based on very simplerules. Key workers take a 50 per centshared ownership stake and purchaseadditional equity units yearly atincremental steps of one per cent up to amaximum stake of 80 per cent. Therental levels are based upon salary levelswith 30 per cent net salary payments forthose on £20,000 per year ranging up to45 per cent net for those on incomes of£40,000 per year. These rates are fixed,though, so that, as pay increases year onyear, the fixed percentages decline.

To be effective, the system relies ondiscounts or subsidies, so that nothing isbuilt that costs more than 72.5 per centof full market value. Britannia BuildingSociety has agreed to provide mortgagesto shared owners, and UIA, the insurancepartner of Unison, will provide insuranceservices at specially discounted rates tokey workers. The scheme relies uponmortgage protection insurance to be paidby partner employers. ThompsonsSolicitors have designed a cost effectiveconveyancing service.

As Youkee points out, demand for sharedownership massively exceeds supply atpresent with “40,000 plus applicants forthe 1,200 shared ownership units built”yearly across London. Noah wasdesigned on the assumption thatproperty will be developed throughSection 106 agreements and not requireHousing Corporation subsidy (thoughthey may choose in future to registerNoah as an RSL). Charitable status isalso being explored, as is the possibleidea of mutual status. To limitdemutualisation and enfranchisement of

30Common Ground

the unsold equity, Noah is consideringthe new Community Interest Companystructure proposed on 26 March 2003by Government for social enterprises(see Glossary).

Sher Khan, a fund manager withMarathon Asset Management (thoughthe project is not linked to thisinvestment company in any way) hasdeveloped a second interesting approach.Khan’s motivation has been to develop anon-interest-based solution for keyworkers from the Muslim community. Hehas been dismayed at the struggle hissister, a teacher in Newham, has had infinding a house she could afford.

Coincidentally, his solution, a PropertyUnit Trust company called Noah’s ArkLtd, has a similar name to that of Youkee.Based on the Islamic finance principlesof murabahah (cost plus) and musharakah(risk sharing), using institutional funds,Khan believes significant economies canbe made.

In practice, the Property Unit Trust buysproperty and gives a cost mark up of say10 per cent. The property portfolio isthen unitised. For example, a propertydeveloped at £100,000 with a £10,000mark up will be sold at one per cent unitsof £1,100 (or even lower at £550 each).Through rental payments, tenants thusbuy units and acquire homeownershipsteadily. Higher monthly payments canaccelerate house purchase.

In practice the system resembles hirepurchase but the main difference is thatunder hire purchase the final paymentconveys ownership, while under theNoah’s Ark system, purchase isincremental in a similar way to sharedownership. In this system, both tenantsand the ethical investors in the PropertyUnit Trust are part of a joint venture andthus equitably share both risk andrewards, as the ethical principle ofmusharakah requires.

Khan has discussed his system with anumber of banks and has raised venturecapital funds to develop the company. Forsignificant economies to be made andrent levels to be brought down, he seeksto lever in institutional propertyinvestment funds of £100 million. Thesystem has been designed so tenantscan claim housing benefit incircumstances of unemployment.

Noah’s Ark will either commission orestablish a property managementcompany to provide a professional but

low-cost housing management service tothe tenants.

Another system under development byPeabody is a form of modularconstruction being designed by JohnPrewer, a housing systems engineer withSpaceover. This approach tries to blendtwo housing needs in London, on the onehand that of key workers and on theother hand that of business visitors toLondon. The template here is drawn fromthe huge success of Extended StayAmerica, the fastest growing hotel firm inthe US with an annual average rate ofgrowth of 21.3 per cent. The hotel’s‘unique selling point’ is based upon atwo-room hotel suite system with sharedworkspace between the rooms.

Prewer has taken this idea and given it aLondon ‘key worker’ twist. In Prewer’sapproach, Peabody collaborates todevelop the two-room system withanother commercial organisation, butwith the partnership yielding onepermanent key worker room and oneextended stay business visitor room –both sharing a workspace area. With amodular design, each unit could include akitchenette, bathroom and studio with asofa bed. Good design can readily halvethe typical floor area for these units. Thekey worker accommodation rental wouldbe only 50 per cent of the cost of theextended stay rental.

Potential sites for limited-equity co-opdevelopmentsThe outline tenant ownership co-opmodel based on a CLT was shared with anumber of organisations interviewed.Strong interest (as in the South West)was found from both the local authoritiesand the RSLs consulted. In London, twopotential sites emerged from theseinterviews.

Coin Street Community Builders is asecondary housing co-operative and acommunity development trust inSouthwark. Over the past 20 years it hasdeveloped a most impressive mixture ofco-operative housing, workspace andamenity space on its 13-acre site on theSouth Bank. Its award winningredevelopment of the Oxo Tower hasattracted international attention. To date,it has developed 221 units of par valueco-op housing (see Glossary). Priority forhousing has been given to those living innorth Southwark, Lambeth and those inlow-income employment in centralLondon. Over 60 per cent of the co-opmembers are in work and Coin Streetprovides housing for many key workers

including nurses, teachers, fire fightersand the staff of Transport for London.

Christine Czechkowski, Coin Street’sDirector of Housing Service was veryattracted by the limited-equity co-opmodel. She advised that Coin Street isplanning four new developments on theirsite over the next few years. Two ofthese sites could be for key workers, andinclude a 30-storey tower developmentwith some 200 units. This is conceivedas a mixed development of one- andtwo-bedroom flats – including par valueco-op rental, private sector rental, andcost rental specifically for key workers.Czechkowski pointed out that they hopeto put this scheme out to an architecturaldesign competition soon. She could seepotential for a limited-equity model toassist with the key worker element.

Further interest in the key worker modelcame from Peter Elia, chief executive ofWest Ham and Plaistow New Deal forCommunities in Newham. Elia is achartered surveyor working to developthree Community Resource Centres(CRCs) in Newham. These are mixeddevelopments anchored by PrimaryHealth Care Trust objectives andinvolving mainstream and non-mainstream public services on site suchas a GP surgery with a nursery, apharmacy, a job centre, and a mentalhealth service.

Elia has secured outline planningpermission for the largest of the threeCRCs on a site opposite Plaistow tubestation. The proposals include a GPpractice, a pharmacy, a Youth Servicefacility, and a community educationproject with affordable housing above.The planners have required the additionof residential accommodation. Theobjective of the Community ResourceCentre is to secure a lasting communityfacility for community benefit when theNDC completes its work, so Elia wasvery attracted to the CLT ideas and tothe scope for including key workerhousing, which is in very short supplylocally, in the residential element of thedevelopment.

Elia suggested that it would be worthlooking closely at this development oncethe model is available. In addition, theNDC has an acquisition strategy locallyand a building could be acquiredspecifically for a key workerdevelopment. Any plans would need fullcommunity consultation but residentswere aware of accommodation shortagesin the area for key workers, so approval

31 Common Ground

for a mixed development should beachievable so long as the communitybenefits can be demonstrated.

Interest in the tenant ownership co-operative model came from the New Dealfor Communities (NDC) company on theOcean Estate in Tower Hamlets. PeterCorbishley is a consultant to the NDCHousing Sub-committee. He has alsobeen active in housing co-op activity inTower Hamlets for the past 20 years andis the current chair of the Bromley StreetHousing Co-op in Stepney. This is one offive, fully mutual housing co-operatives inthe borough with an asset base of £4million. Corbishley advised that there is ahuge problem of teacher turnover inTower Hamlets linked to housing costs.Similar problems apply to social workersand NHS staff as well as other keyworkers. Corbishley was interviewed withSteve Inkpen, Senior Housing Managerwith Tower Hamlets Council, currently onsecondment to the NDC.

Inkpen explained that Tower Hamletssupports a variety of low-costhomeownership schemes for keyworkers, from Shared Ownership toHomebuy. The Council also allocatessome of its own stock for key workers onthe waiting list. In recent years, withrising house prices in the East End,Shared Ownership has become less andless affordable. Two-bedroom flats in theborough, including former councilproperties, sell for £160,000 and requirea minimum income of £40,000.

Augustina Nyamaah, Home OwnershipHousing Development Officer with TowerHamlets BC, observed that lower entrylevels of Shared Ownership, beginning at25 per cent, have been introduced tomake Shared Ownership moreaffordable. RSL developers have alsosubsidised schemes by paying legalcosts and stamp duty as well as partlyfurnishing properties with white goods.But despite this, Shared Ownership hasbecome too costly for most. In herexperience, even with the maximumequity loan, Homebuy is only suitable forthe better-off key workers and two-income households.

Corbishley and Nyamaah could both seethe potential for a limited-equity co-opmodel to work in Tower Hamlets. Perhapsthis would be a good opportunity toadvance a new agenda. As Corbishleyput it:

“There may be a role for socialenterprise here. I would like to see

the co-operative ethos advancedand this will involve a bigcommitment to training andeducation. New co-ops will needhandholding. It’s amazing howmuch you need to know abouthousing legislation and regulations,Housing Corporation policies,insurance, health and safety andemployment law as well as how tomanage on a democratic basis.Housing co-ops need professionalinput. Secondary co-ops couldhelp to organise building andmaintenance. Co-ops also needsupport and advice on how to winarguments with funding agenciesand how to conduct rent reviews.It’s also important that the co-opsown these secondary co-ops andnot just through representation,co-ops must be on it.”

Steve Inkpen found the Community LandTrust element in the co-op model veryattractive as a way of maintaining long-term affordability.

“Yes it is attractive if it could bemade to be more affordable to keyworkers than Shared Ownership.The proposal under your CLTmodel to enable entry for the lowpaid and better paid key workersalike sounds good – especially if itcan operate to build up equity at adifferent rate of appreciationdepending on income levels.”

Both Inkpen and Corbishley were keento follow up on potential developmentopportunities. Inkpen summed up thechallenges in this way:

“Defining who are the key workersis core. Availability of suitable sitesis a problem. There are not manybid sites in the borough – althoughthere are many opportunities forin-fill developments. Politicalbarriers – councillors appear tohave gone about as far as they areprepared to go in terms ofdeveloping a policy specifically forkey workers, rather than a generalpolicy to promote and supportaffordable housing schemes.”

Corbishley and Nyamaah felt that in-fillsites would be interesting and inCorbishley’s view could work well and “doa great deal to meet both housing needand improve the street environment andcommunity safety”.

4.2Current Approaches in theRural South West and Interestin a Mutual Model

The South West region is predominatelyrural with 80 per cent of the land inagricultural use. Just over half theregion’s population of five million isbased in rural local authorities (ODPM,2003). Moreover, since 1981 thepopulation of the rural authorities hasgrown by 17 per cent compared to onlyeight per cent growth for the region’surban authorities.

Earnings in the South West are 10 percent below the average for Britain(ODPM, 2003). The region has the thirdlowest unemployment rate and has thefourth fastest growing regional economynationally. In 2001, according to theODPM, the new homes built were only70 per cent of the number needed. In2002, the average rural house price forthe South West of £130,300 was thesecond highest for any region of Englandoutside London and the South East(ODPM, 2003). The South West suffersfrom the unfortunate combination of thesecond highest housing price levelsnationally and one of the lowest averageincome levels nationally.

Contact was made with the HousingCorporation to gather a list of key workerhousing providers in areas of the SouthWest ranging across SouthGloucestershire, Somerset and WestDorset. From this list, a range of bodieswas approached. Three high-cost areasin the South West were selected forgathering key worker interviewees –Stroud, Bath and Bridport. The mostinterest was gathered in Stroud and Bathand North East Somerset (BANES) andthese two areas became focal points forthe work. They need separateconsideration as each highlights thehousing problems on the ground for keyworkers in similar but contrasting ways.

Bath and North East SomersetBANES was created following thedemise of Avon as a rural district ofBristol. The new local authority includesboth Bath City and the rural northeastregion of Somerset. House prices in Bathare comparable to many high-costboroughs in London and there is verylittle available building land inside cityboundaries. What land is available istypically very steep and hugely expensiveto build on.

32Common Ground

According to BANES District Council,there are endemic recruitment problemswithin the local authority because of therising costs of housing both within Bathitself but also in many surrounding ruralareas. According to Jane Shaylor in theDistrict Council Housing Strategy Unit,the problem is “grave” and impedes therecruitment of “social workers, housingofficers and administrative staff andmany staff can only afford to work inBath by commuting long distances”.

One of Bath’s largest employers is theRoyal United Hospital with some 3500staff. According to Stephen Hutt andPeter Eley, Round 1 of the Starter HomesInitiative (SHI) for BANES and otherNorth Somerset areas amounted to atotal of only 50 allocated places on thescheme and was totally inadequate. Inany case, as an increasing percentage ofnurses needing help are from overseas,including from Spain, the Philippines, Indiaand Australia, SHI is of no use to them,as foreign workers have to becomepermanent residents and this statuscannot be applied for until they havegained a minimum of four years of workexperience in Britain. To findaccommodation, many key workers shareprivate rented housing and compete withuniversity students for the available stock.

On its site, the Royal United Hospital has284 units of single room accommodationwith shared facilities and common areas.This is available for key workers at rentsfrom £250 to £270 per month –inclusive of utility charges. Rentalagreements are for six months and canbe extended up to two years. Because ofthe shortage of other affordableaccommodation in BANES, some keyworkers have been in this property up tofive or six years and it is hard for thehospital to move them on. Theaccommodation is of poor quality and thehospital is developing a housingpartnership strategy with SomerCommunity Housing Trust.

Somer Housing Group was created bystock transfer of 9,500 homes from BathCity Council in March 2000. Theseincluded 1,600 sheltered housing units.Somer Community Housing Trust is thelargest company in the group, which alsoincludes a direct labour organisation forproperty repairs and maintenance and asubsidiary for the homeless. Somerworks with two hospitals in BANES andis currently developing solutions tohousing need with the Royal United. Thecost and scarcity of land as well asplanning permission are huge barriers to

development. According to Stephen Holtof the Royal United Hospital, a half-acresite in parts of Bath can command aprice of £2 million

Jane Alderman of the Somer HousingGroup commented that SharedOwnership is quite limited in Bath and atpresent “it is hard to make it work wheninterest rates are low. A combination ofrent and mortgage is too high, so it is notan option.” With management chargesrolled into the rent element, SharedOwnership can work out to be morecostly than full homeownership.According to Alderman, Homebuy orsimilar equity share arrangements aremore viable but “need subsidised land” inorder to be affordable.

Given the chronic need for key-workerhousing, Somer is striving to balance thisneed from employers with the needs ofpeople on the Council’s waiting list forsocial housing. Somer has variouspockets of land including over 4,000garages – many disused. Theseparticular sites need an innovativeapproach for redevelopment to helpaddress rising levels of need.

Knightstone Housing Association andSovereign Housing Association wereallocated funding for the Starter HomesInitiative in Rounds 1 and 2, a total of 51units being allocated to Knightstone inboth rounds. Knightstone has 11,000properties for rent or Shared Ownershipand it developed 51 units under the SHIin both funding rounds. Knightstoneoperates in Bristol, Bath and rural areasof the South West. Sue Creasy ofKnightstone commented on their Round1 experience in trying to help NHSworkers in this way:

“Despite a slow start, the responsefrom health care workers haspicked up. When employers werefirst approached, nurses at gradesD and E were targeted as beingthose in most need. Weunderstand that other RSLs didnot restrict themselves to grades Dand E and we quickly realised,following enquiries from otherprofessions within the NHS, thatthe level of need was greater thanoriginally anticipated. The HealthAuthorities were consulted andsupport was given to widen theeligibility to include a much largergroup of workers. We areattempting to target resources atthose in greatest need, although,inevitably, there will be a process

of natural selection because ofaffordability issues; for example aworker on a low income, such as aporter, may not be able to raisethe appropriate level of mortgage.”

Creasey observed that, with theapplication of strict definitions of keyworkers under the SHI, they have hadlarge numbers of enquiries from peoplewho fall outside the definition.Sometimes their Shared Ownershipprogramme can help, but house pricerises in the past two years have causedincreasing problems in terms ofaffordability in most parts of the SouthWest, from South Gloucestershire toPoole.

Knightstone tries to keep leaseassignment costs as low as possible,which it charges at £15 plus VAT andsolicitors fees. For staircasing, sharedowners pay their own valuation fee andsolicitors’ costs. Knightstone of coursedoes the same on its own side. Valuationfigures are generally only valid for threemonths and, in a rapidly rising housemarket, this can be an issue if thetransaction is not completed in time. Therequired new valuation can be higher,resulting in additional costs, butdiscretion is used to extend the periodwhere delays are not the fault of theshared owner.

Stroud District Council areaStroud was a former mill town, andhousing was relatively affordable thereuntil about three years ago, comparedwith the expensive rural areassurrounding it in South Gloucestershireand the nearby Cotswolds. The town hasa high percentage of self-employedpeople – particularly in the arts andcrafts fields. In the centre of Stroud, thefirst new-build co-housing developmentbased on Danish sustainable housingideas has secured planning permissionand is currently under development on asteep site in the centre of Stroud. Thefirst units will be completed in mid-2003.

The development of the prominent Co-housing site has sparked interest inCommunity Land Trust ideas in bothStroud and South Gloucestershire. Thelocal development trust, Stroud CommonWealth Ltd, organised a very successfulregional conference on Community LandTrusts and co-housing in October 2002. Inthe year since this event, the affordabilityproblems of housing in Stroud havebecome more and more acute. Interest inCLTs in the Stroud area has grown as aresult and both district and county officers

33 Common Ground

and the local MP are interested in theoutcome of this research.

According to Stroud District Council,house prices rose by an average of 47per cent in 2002 – almost twice thenational average rate of increase. As aresult, many two and three bedroomproperties priced per year ago at£75,000 are now being sold for£120,000. According to Barry Wyatt andAndrew O’Brien of Stroud District Council,this situation has made recruitment verydifficult indeed and, knowing they cannotafford housing locally, people from otherparts of the country “just don’t apply”.Against this high level of average houseprices, their research for the DistrictCouncil has highlighted just how low keyworker income is in many areas of therural South West:

“We have done our own key workerresearch. We found that in ruralcommunities, 43 per cent had anincome of less than £12,000 peryear. Access to properties on anybasis on those incomes is aproblem, so people just migrateaway. But these figures need to betaken cautiously as we had a poorresponse overall from traditional keyworkers such as teachers andnurses.”

Stroud DC housing stock includes onlyone per cent in shared ownership. Yearon year, the Right To Buy continues toreduce the affordable housing available in

the district. The interview with the DistrictCouncil officers highlighted both newdevelopments and two potential siteswhere a new mutual model could betested. First, Stroud DC is working closelywith Gloucestershire Housing Associationon an affordable housing strategy inrespect to low-income homeownership.Second, there may be developmentopportunities at the Standish Hospital sitein Stonehouse, near Stroud and on landheld by Wynstones School and the StLuke’s Medical Centre in Stroud. Wyattand O’Brien also made reference to therecruitment problems of Renishaws – alarge employer of considerableimportance to the local economy, whichhas severe problems attracting andretaining staff.

Renishaws plc is a multi-national high-tech firm at Wootton-under-Edge, nearStroud. It specialises in machine tools,laser and calibration equipment, encodertechnology, and other electronicengineering products. It employs almost1,000 staff at its New Mills, head officeand at other smaller sites inGloucestershire. The company chiefexecutive, Sir David McMurty explainedthat his staff simply cannot find housingthey can afford locally – both formanufacturing workers earning from£12,000 to just over £20,000 to thosewith degrees earning considerably more.

Personnel manager Peter Bowles,explained that commuting distances forkey staff grow longer each year and “the

travel time and recruitment catchmentarea widens” more and more. Staff spendhours travelling from areas of the countrywhere they can afford to live, such asSouth Wales to the west and Stoke onTrent to the north. As he explained thecrisis:

“There is limited housing stock inthe area and a limited range ofhousing. A salary of £25,000 willachieve at most a mortgage of£100,000 and that is not much inrelation to house prices. Peoplerecruited from the North simplycan’t afford it. Young graduatescan rent, and they often share, butwhen one of them wants to stopwork so they can have children,they can’t afford it.”

One new initiative by Stroud DC to try toassist is a developing partnership withGloucestershire Housing Association(GHA). They cover all of GloucestershireCounty but have most of their 2,500properties in Gloucester City, Stroud andthe Forest of Dean. Just over one in fourof their properties are low-costhomeownership – mainly different typesof shared ownership plus 120 Homebuyunits on a 25 per cent equity loan basis.

Julie Stafford, the GHA SharedOwnership manager, explained thatHomebuy has been on offer for the pastthree years and commented “It is popularbecause it is simpler to understand thanShared Ownership and it is also popular

34Common Ground

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

The Stroud project has been given good press coverage in the national press for its pioneering work. The initiative was takenforward by a group of local people, inspired by the Danish model, who successfully bid for a plot of land on a steep site near thecentre of Stroud. Planning permission was initially refused but following a local campaign it was eventually successful onreapplication. 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, eightflats, four studio units and the common house. Members need to invest £5,000 each as a deposit, and the Co-operative Bank hasprovided finance on a self-build mortgage basis. Members have worked both with the architects and with the builder to designsome features for themselves and to keep the costs down. High ecological standards have been incorporated with assistance ofa 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 theunits have been jointly co-funded by the company owners to be affordable in perpetuity for lower income households. The venturehas interesting participatory planning and environmental sustainability features of interest to any Community Land Trust.

with lenders.” For Homebuy, GHA canprocess an approval in three weeks. Atpresent, Shared Ownership is primarily‘new build’ and the association compilesa list once a new development starts.Among all their Shared Ownership units,resale turnover averages about 10 percent per year and the associationcharges a 0.25 per cent administrationfee for handling these. GHA have hadfew problems with the full repairinglease.

To make Shared Ownership affordable,Gloucester City Council has providedGHA with land at 35 per cent of marketvalue. With house price escalation inStroud and elsewhere locally in the pastyear, the Housing Corporation limits onlow-cost homeownership of £98,600 fora three-bedroom property have made theavailability of discounted land a pre-requisite. Minimum annual income levelsenabling key workers to afford propertiesare £14,500.

GHA is involved with the Gloucesterhousing market package for a number ofSouth Gloucestershire authorities. As withGHA’s work with Gloucester City Council,the plan is based on the availability ofdiscounted land for the development ofnew-build Shared Ownership units. StroudDC is heavily involved with these strategicplans for affordable housing developmentover the next 10 years.

GHA has resisted tied cottage typedevelopments for key workers because“most people prefer to live in a mixedcommunity”. They were successful in a bidfor a site in Tewkesbury but the HousingCorporation made the grant conditionalunder SHI on restriction of the housing tonurses. GHA declined the offer butdeveloped the site anyway with their ownand local authority funds, preferring toavoid such restrictive subsidies.

Stafford has been pleased with thepopularity of their new-build SharedOwnership package on discounted localauthority land. The substantial experienceof GHA staff has been gained overseveral years specialising in low-costhomeownership projects. Staffordcommented on some of the secrets oftheir success.

“Shared ownership new-build hasalways been very popular. Wedon’t have to market it at all andthe applicants all qualify easily. Themain problem is ensuring thepurchaser knows everything theyneed to know. We interview them

and the marketing officers keep intouch throughout the process. Wegive them information aboutlenders and, post-completion,about improvements, moving andadditional share purchaseprocedures… A lot of informationis involved in the lead-up to thetransaction and this is verysuccessful. It means that we donot have the aggravation that otherhousing associations report.”

Stroud – Potential development sitesThe four possible development sites ofnote in or near Stroud were StandishHospital in Stonehouse, the St. Luke’smedical centre, Wynstones School, andKolisko Farm.

Standish Hospital is a small rural hospitaldeveloped in 1922 with funds donatedby the Red Cross of Gloucester fortuberculosis patients and veterans of theFirst World War. The main building wasthe former ancestral home of the Fabiansocialist, Beatrice Webb. The hospital hasfaced closure for the past 10 years andthe plans are to close the entire site in aphased way between mid-2003 andearly 2004. A Save our Standish (SOS)campaign has been striving to preventclosure for many years and to retain thebeautiful 15-acre site for health and careservices for the region. Most of theexisting health services will betransferred to the modernGloucestershire Royal Hospital over thenext twelve months.

The land of the Standish Hospital site hasrestrictive covenants on it for use forhealth service purposes. To explore thescope for a mutual housing developmentfor key workers in the health and careservices field as a core part of a wider planfor retaining the site for regional healthand social services facilities, local StroudMP David Drew, convened a seminar on18 December 2002 at the hospital.

Invitations went out to the senior health,social services and economicdevelopment managers for both thedistrict and the county council. GeraintDay, an expert on Foundation Trusthospitals, was invited along with DavidRodgers of CDS Co-operatives and JoWhite from Co-operative Futures, a co-operative development body, part ofwhose funding comes from the co-operative dividend through which theOxford, Swindon and Gloucester Co-opgives part of its profits to promote,develop and create other co-operatives.The New Economics Foundation was

invited to present ideas on key workerhousing solutions and the potential for aCommunity Land Trust to preserve thesite for the benefit of local people in theStroud District Council area.

Helen Bown from the NHS, withresponsibility for care services, explainedthat there is growing interest in thescope for providing intermediate careservices on the Standish Hospital site.There is a major problem of recruitment,training and retention of key workers inthe county. There is a growing interest inwhat creative social enterprise solutionsmight offer for a high quality provision ofintermediate care services tocomplement existing provision ofresidential care services.

John McLaughlin, EconomicDevelopment Manager for the county,endorsed this view and commented thatregionally there was an interest in EUmodels like the successful Italian SocialCo-operatives operating well in thehealth and social care fields in northernItaly. The County Council has alreadyestablished links with their Italiancounterparts in this field.

Since the seminar, an action group hasraised over £100,000 to conduct a fullconsultation exercise and feasibility studyto develop realistic options for this socialenterprise approach. Keen interest hasbeen expressed in the Community LandTrust idea presented by New EconomicsFoundation – particularly in relation tokey worker housing for health and socialservices staff.

Stroud Common Wealth, the localdevelopment trust, organised a smallerworkshop with several local non-profitorganisations to consider the CommunityLand Trust idea. This event was held onthe site of the St. Luke’s medical practicein Stroud. This is an NHS generalpractice, which also has on site a carehome, Whittington House, with links toBromford Carinthia Housing Association.Those attending the workshop includedthe manager of the GP practice, the carehome manager, a manager of Ruskin Mill(a sheltered workshop for young peoplewith challenging behaviour andbehavioural problems), teachers from alocal school, a local organic farmerdeveloping a community supportedagriculture project with the SoilAssociation and a local architect.

The workshop began with an explanationof the terms of the research by the NewEconomics Foundation, followed by a

35 Common Ground

presentation on the practical experienceof Community Land Trusts in the US andof the ones that are slowly emerging inBritain (i.e. Scotland in particular to date).The St. Luke’s medical practice siteincludes some land that could beredeveloped.

The care service on the site has recentlyattracted Supporting People funding fromStroud DC. Housing for care staff, healthworkers and teachers was raised as anissue and the CLT and mutual housingideas were appealing to Philip Kerwin,manager of the St. Luke’s site. At presentthe site has a staff of three GPs, sixhealth administrators, five part timetherapists, and three care service staff.Three more care service staff membersare being recruited.

Simon Charter, who is developing theCommunity Supported Agriculture (CSA)project near Stroud with the SoilAssociation, was similarly supportive.CSA is a mechanism popular in the US,Canada, and Germany, providing smallfarmers with working capital for growingvegetables and food. The capital is raisedfrom supporters within the communitywho agree to purchase their food inadvance. They buy CSA shares in thefallow and planting period and are thenrepaid during the harvest season withboxes of food from the farmer or a groupof farmers. In the wake of Foot andMouth Disease, which hit the rural SouthWest badly, the Soil Association isrunning CSA pilots and Kolisko Farm isone of its national initiatives.

The farmland is owned by WynstonesSchool, a Rudolf Steiner school andcharitable trust. The farm needs housingfor two to four farm workers. Teachers atthe school earn less than comparablepublic sector teachers (i.e. £11,500 to£17,500 annually) and the school islinked to Ruskin Mill, which provides asheltered workshop and craft centrefunded by Social Services for emotionallydisturbed young people fromGloucestershire. The farm also has atraining and education service that couldbe developed further.

Martin Stott, a teacher at the school,explained that the teaching staff aregetting older and recruiting replacementsis becoming more and more difficultbecause of rising rents and housingcosts locally. The school’s land is under-used and existing housing is poor quality,consisting of bungalows in very poorcondition that use too much land. AndrewBeard, a local architect, is helping with

plans for redevelopment of the site.Martin and Andrew felt that a CommunityLand Trust approach could potentially dothree things:

1) Provide affordable housing forteachers at the school and for careworkers and trainers at Ruskin Mill;

2) Provide affordable housing also foragricultural workers at Kolisko Farm;and

3) Be a vehicle for acquiring moreagricultural land for organic farmingand CSA developments in the Stroudarea.

Discussions on how to develop affordablehousing for the needs of teachers andfarm workers are ongoing with bothStroud DC and Gloucestershire HousingAssociation. The current plan developedby Beard is for 25 units of housing on theWynstones School site. Of this number12 would be sold on the open marketand 13 maintained for affordable housing.Of these latter units, seven would berented to teachers and six would beshared ownership units for longer-termaccommodation. Additional discussionsare underway with the CharityCommission. These units would greatlyrelieve the chronic housing issue forteachers at the school. Additional housingis needed to help meet the needs ofagricultural workers for the farm.

The workshop thus identified two sitesfor potential application of a mutualhousing model involving a CommunityLand Trust. Another old mill at Thrupp,which is owned by the County Council,had potential for both affordable housingand workspace and Stroud CommonWealth was exploring this with localplanners as a potential CLT pilot.

Other areas of the rural South WestTwo rural housing associations wereinterviewed for their views on the modeland how they thought it might compare toShared Ownership and Homebuy. The twoRSLs were the South West Foundationand Hastoe Housing Association.

South West Foundation was founded inrecent years with funding from Right ToBuy capital sales receipts realised by theSouth West Co-operative Society. This isan RSL whose history involved apartnership between the Elmhurst familyand Dartington Trust in Devon, whichreceived funding from the Co-operativeWholesale Society to co-develop

affordable rural housing. Today, the RSLand South West Foundation, a charitabletrust, operate in partnership on ruralhousing and rural community projectneeds.

The RSL has 400 units of housing –including 50 in shared ownership. Thebalance sheet is very strong with £12million in assets, no debt liability at alland £5 million in cash invested – theincome from the latter funds the work ofthe charitable foundation. Areas in whichit provides rural housing are spreadacross the South West from SheptonMallet to Caan in Wiltshire and to high-cost areas of Devon, such as Totnes,where property prices have increased by100 per cent in some parts of the townover the past 18 months.

Jane Emanuel, Chief Executive of theSouth West Foundation, commented that,in the current environment of low interestrates, Shared Ownership does notoperate to provide a path intohomeownership and is very burdensome.Thus she failed to see the advantage –particularly with a full repairing liability –of, say, 60 to 80 per cent equity stakes.

“Objectively, Shared Ownershipdoes not work. It is ok wheninterest rates are high, but whenthey are low, payments are notmuch less than outright purchase.One advantage is that people maybe eligible for Shared Ownershipwhen they wouldn’t be given a bigenough mortgage for outrightpurchase, but shared owners are100 per cent responsible forrepairs, which I think is onerous.”

The South West Foundation is notcurrently developing new housing but isconsidering providing it in the future.Jane Emanuel expressed interest in alower-cost model than Shared Ownershipfor key workers but also felt that, withcurrent house price rises set against verylow rural wages in the South West, there“really is a need for people to get out ofthe ownership psychology”. Otherwiseshe said that we may soon move into aJapanese style approach where, to beaffordable, the term of mortgages willhave to be extended to an entire lifetime.

Hastoe Housing Association has a trackrecord in the South West of developingschemes of mixed shared ownership andrented units to meet affordable housingneeds in villages. Schemes typicallyconsist of six houses, with up to three ofthe units are sold on shared ownership

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leases. Whilst in recent years Hastoe hasconcentrated more on building houses forrent, it is now developing more sharedownership schemes because it hasrecognised a significant need among themiddle-income group earning too much toaccess subsidised rented housing, butcurrently priced out of the market for fullhome ownership. The RSL’s recent bid forfunding for a development of 25 units ofkey worker housing in Dorchester wasunsuccessful, as funding support in theregion was targeted solely at major areasof regeneration like Bristol, Bath andSwindon.

Shirley Evans-Jones, regional manager ofHastoe’s South West office, commentedthat one problem with shared ownershiplies in restricting the cost at a time ofrapidly rising house prices. Whereas inthe past, RSLs sold shared ownershipwith reference to the cost of construction,they are currently encouraged to discounton the basis of open market valuations.This ensures that the subsidy is notrestricted to first sale only.

“We have to sell at open marketvalue rather than cost, and varythe percentage of equity we sellaccording to what we perceive asaffordable, bearing in mind that italso has to be financially viable forus. This at least avoids thesituation that recently arose in onearea locally, where two subsidisedhouses were sold below marketvalue and then sold on withinweeks at a large profit for theinitial purchaser.”

Evans-Jones is also concerned aboutsome of the hidden costs of sharedownership like Stamp Duty. Stamp Duty iscurrently payable on any property costingmore than £60,000, even if the share tobe purchased comes to less than thatamount. For some prospective purchasersit is “the straw the breaks the camel’sback” and prevents them taking on aproperty. She thought it unjust that apurchaser should have to pay Stamp Dutyon the whole of a property when onlypurchasing, say, a £50,000 equity stake.

Evans-Jones felt that the limited-equityco-op model could be helpful if it couldsucceed in driving down the costs ofpurchase, but also commented thatkeeping the management costs lowwould be a challenge.

Hastoe has recently set up the RuralHousing Resource Unit, which includes inits membership staff from the Housing

Corporation and the Countryside Agency.The purpose of this initiative is toformulate ambitious strategies fortackling the shortfall in provision ofaffordable housing in rural areas acrossthe country. (Research has shown thatthere is an annual need for 10,000 newaffordable housing units in rural areas,but even with the recent boost in publicfunding the provision is only likely toreach around 3,500 per annum.) Evans-Jones was particularly interested in howa Village Property Trust could provide amechanism for securing permanentaffordability solutions – not just forhousing but for workspace also.

“We are currently reviewing ourshared ownership model. We arealso looking at the feasibility ofRSLs acting as developers of mixeduse village schemes, which couldinclude houses for rent, sharedownership, self build and outrightsale, but could also includebusiness, workshop and communityfacilities. A Village Trust could becreated to own the land.”

Evans-Jones could see “an overlap interms of objectives” with respect to theCommunity Land Trust approach to alimited co-operative model and was“keen to see that ideas are pooled”.

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38Common Ground

Our initial approach was to ask housingdevelopment partners to identify keyworkers willing to be interviewed and tohelp with the research. A number ofRSLs agreed to forward a letter toapplicants for their Shared Ownership orHomebuy schemes, explaining the natureof the project and inviting them to beinterviewed.

We asked employers of key workers inthe health and public transport sectors tocirculate information to their employees.As the project developed, otherdevelopment partners emerged, such asseveral local authorities, whose assistancewas also sought. In most cases, aninterview fee of £10 was offered.

This initial approach met with somesuccess; however, while developmentpartners invariably wanted to help, somewere clearly too busy to follow through.This was a disappointment, but keyworkers were themselves helpful, and aword of mouth approach enabled the fullnumber of interviews eventually to becompleted.

Sixty-one in-depth interviews wereconducted with workers in the health,education, social services, housing, andtransport sectors. Of those interviewed,about 10 per cent were in part-timework, the remainder being in full-time

employment. The diagrams shown as 5.1and 5.2 below show the spread ofoccupations in the South West andLondon respectively.

Sixty per cent of those interviewed werewomen. Over 90 per cent were Britishcitizens. While the age range was from21 to 61, most interviewees were youngand in their twenties and thirties (72 percent).

Of interviewees in both regions, 87 percent were white European, and 13 percent were members of ethnic minorities.However, all of those interviewed in theSouth West were white European. InLondon, 20 per cent of intervieweeswere members of ethnic minorities and80 per cent were white European.

5.1Interviews in the South West –Main Findings

Household sizeOver half of those interviewed weremembers of families with children, one-third were single people, and 14 per centwere couples with no children. Of thosewith children, the average number ofchildren was two.

Tenure patternAbout half (52 per cent) of thoseinterviewed were living in houses, andhalf (48 per cent) in flats or a room intheir parents’ house or a hostel. Only twointerviewees in the South West wereliving in public sector accommodation. Ofthose who were renting privately, mostwere doing so on the basis of six-monthassured shortholds.

Affordable rent assessmentNo one was receiving any help with theirhousing costs in the form of benefits(one was about to apply for HousingBenefit). Many also expressed anxiety atthe high level of their rent and the factthat it seemed to represent “money downthe drain”. Forty per cent were payingover £400 per month. Low rents usuallyarose where interviewees were still livingwith their parents.

A comparison of maximum rents thatinterviewees felt they could afford withtheir net monthly household incomeshows the pattern shown in Table 5.1:

Teacher in StroudI have my graduate loan to pay, I need a car to get to work, and my rent is high. Itake home £830 per month. I can’t tell you how many houses I’ve lived in, I don’teven unpack my boxes anymore. I teach in a Waldorf school, so my salary is very lowand I am not eligible for schemes like the Starter Home Initiative. I have joined theschool as a Class I teacher, so I am committed to staying as class teacher until thechildren finish Class 8. But even if I worked in the state sector I wouldn’t be able toafford a house locally. I live with two other women. Leases are always for six monthsand then we often have to move on. Sometimes I then have to hunt for newhousemates. I wish there were some kind of adaptable space for people’s needs astheir lives change, as they have children, grow old.

5. Fieldwork Interviews with Key Workers and Development Partners

Figure 5.1

The average result is an assessment ofmaximum affordable rent to be 32 percent of net household income.

Level of savingsOver half of those interviewed had nosavings at all, and only about one quarterhad over £2,500. The highest level ofsavings held by interviewees in rentedaccommodation was £10,000; one otherhad £7,000. The first had been living withher parents for many years, paying tokenrent and saving steadily. The second hadreceived the savings from the proceedsof the sale of her former matrimonialhome on divorce. Of the two intervieweeswho said that they were saving on aregular basis to buy their own home, onewas the example just given with savingsof £10,000, and the other gave a figureof £150 per month, but had total savingsof only £750. In this case, currentmonthly rent was relatively low at £245,and the net monthly income was £1,100.

Debt repayment problemsThirty-eight per cent of those interviewedhad no regular debt repayments at all,but 24 per cent were making monthlypayments of between £150 and £300,and 14 per cent had payments of over£300. Most frequently, payments relatedto or included car payments, but youngerinterviewees also referred to student orcareer development loans, or credit cardand overdraft debts incurred whilestudying, as a significant outgoing.

Present accommodation typeA significant number of intervieweesfound that their existing accommodationwas inadequate; a particular concern wasthe lack of security of tenure. Most hadsix-month tenancy agreements, andseveral were interested by the invitationto attend an interview because, forvarious reasons, they were likely to haveto move on in the near future. By far thegreatest consensus, however, related tothe cost of housing and mostinterviewees readily and forcefully agreedwith the proposition that the cost ofhousing was a major problem.

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Table 5.1 Maximum affordablerent relative to net monthlyincome

Maximum Net monthly Affordableincome (£) monthly rent (£)

1,300 350

1,000 285

1,040 400

1,100 400

830 250

1,100 400

1,000 400

800 200

1,000 250

1,290 500

1,345 450

2,100 600

1,400 400

840 300

Averages

1,153 370

Student Debt ProblemsMy partner and I are both pharmacists; I work part-time and he is training as atherapist. I was fortunate that, when I was a student, fees had not yet beenintroduced, and I also had a small grant. It wasn’t enough to live on, though. I wasalways very careful with money and I kept my debts reasonably low. The student loansare not enough to live on, so I had to rely on overdrafts and credit cards as well. I owealmost £5,000. The student loans can wait until my income increases, but instalmentsfor the other debts have to be paid now.

Agricultural Labourer in West DorsetMy husband is a herdsman and I work full-time in an estate agency in Bridport. Mysalary is £9,000 per year, and my husband earns £21,000. We were living in a tiedcottage, but we now have a one-year lease on the adjacent property. I have to driveto Bridport to work; my husband wants to change jobs, although not his occupation.We want to live in Bridport, where the children go to school; otherwise we will haveto have two cars so that we can both get to work. We applied for a Homebuyscheme purchase, but the maximum it would allow was £123,400 and the minimumprice we could find for a three-bedroom house (we have a teenage boy and a girl)cost £130,000. I thought that we were on good money now and we could afford tobuy, so we were very disappointed. We have always lived in the area and want tostay. I worry about our children’s future. Where will they live when they get married?And we don’t have much of a pension. A house offers more security. I’m notenvisaging an early retirement.

Transport and commuting timeAll but two interviewees in the SouthWest owned a car. The great majority(over 80 per cent) drove, only five percent used public transport and 14 percent walked or cycled. A considerablenumber (38 per cent) spent between oneand 21/2 hours-a-day travelling to work.Two interviewees said that they spentmore that 21/2 hours-a-day commuting.

The impact of travel costs on householdbudgets varied widely. While almost halfspent less than £50 per month, 14 percent spent over £150 per month and oneinterviewee gave a figure of £330.

Home ownership aspirationsOnly one in 10 of those interviewed saidthat they would not wish to own theirown home. This finding is consistent withthe national home aspiration surveyresults of the ODPM. One of thoseinterviewees not aspiring to own propertythought that she “probably now didn’thave a choice” because of the need forfuture security and the high levels ofrent. Some interviewees had concluded,however, that the aspiration to outrighthome ownership was unrealistic. Allinterviewees thought that ownership ofan equity stake would be attractive.

Ninety per cent of interviewees in theSouth West responded positively to thelimited-equity idea proposed; theremaining 10 per cent expressed someuncertainty and a desire to know more.None of those asked ruled the idea out.

Only one in four of those interviewed inthe South West had considered anyother low-cost home ownership schemes.

When asked how long they wouldenvisage staying in the scheme, someinterviewees felt that there were toomany imponderables to give ameaningful answer. However, none feltthat they would only want to stay thereon a short-term basis; on the other hand,almost two in three felt that, if everythingworked out well, they would like toremain there long-term.

Attitudes to co-operativemanagementTwo interviewees expressed concernabout the scheme being taken over by‘difficult’ people or reservations about thepractical purpose and outcome of suchinvolvement. The remainder however,took a positive view of having a say indecision-making and of building up afeeling of community and felt that itwould interest or reassure them. Oneyoung interviewee (24) commented thatinvolvement in the process might makehim feel that he would want to stay on apermanent basis because of the sense ofcommunity that might develop.

Overall, while the interviews showedclearly that almost everyone we spoke toin the South West felt that homeownership was their aspiration andimportant for their sense of financialsecurity, most interviewees’ overridingpriority was given as somewhere secure,affordable and pleasant to live, wherethey would feel at home. Another factormentioned by several interviewees wasthat they would like the freedom to altertheir accommodation to suit their owntaste and requirements. But as oneinterviewee put it, “It is a roof over myhead I am looking for, not an investment.”Several were keen to be kept informedand to be considered for any pilot.

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Stress of CommutingI work in Stroud for the District Council; my salary is quite good. I live inNewport, in South Wales, and I commute every day. I am married and I havetwo young children. My wife is a teacher. We did consider moving to Stroudat one point, because I have to commute for three hours a day and I spend£4,000 per year on travel. But when we saw what kind of house we couldbuy in Stroud, as opposed to Newport, there was no contest. We havebought a nice house and we now intend to stay in Newport. I won’t stay inmy job in the long term, because of the commuting; I’ll have to findsomething in a local authority in South Wales.

Right To Buy AssistanceI was lucky, I took over my mother’s council tenancy and I was able toexercise the Right To Buy. I always wanted my own home. I am separatedfrom my husband now and I have moved house, but that was how I got ontothe housing ladder. The most important thing for me is to be able to leavesomething to my children. They are now teenagers. Where will they live whenthey grow up and get married?

5.2Interviews in London – Main Findings

Household sizeThe family composition of key workersinterviewed in London was very differentfrom that in the South West. Sixty-nineper cent of interviewees were single,living either with their parents, sharingaccommodation with other adults, or livingalone. Only 18 per cent were living as afamily (both couples and lone parentswith children) and only 13 per cent wereliving as childless couples (sometimesalso sharing with other adults).

Tenure patternThe picture in terms of housing tenure isalso quite different. In London, 47 percent were renting in the private sector,and 35 per cent were living in localauthority or registered social landlordaccommodation.

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Nurse – Starter Home Initiative UnaffordableI am a nurse and I have worked in the Health Service in London for 12 years. I intend tostay 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 towhere I worked. It wasn’t very private and the standard of accommodation was poor. I nowlive in private rented accommodation, sharing with others. My rent is £450 per month and Ispend £105 on other housing costs. In addition I pay £180 for a car loan and I use my carto drive to work. My monthly housing costs are roughly half of my take home pay. I wouldlove to have my own place, but I simply can’t afford it. I have looked at all the otherschemes and have registered for Shared Ownership and have been accepted for a StarterHome 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 schemesare helpful. I would be very interested in any scheme that could help me have a home at aprice I could afford and would like to know more about the key-worker co-operative.

Teaching Assistant – Hostel and Temporary AccommodationI am 25 years old and a teaching assistant. My take home pay is £650 per month. I wasliving in a hostel for the unemployed, but I had to move out, because I was assaulted andhad my credit card and possessions stolen by other housemates. I was paying £62.28 perweek, 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 atemporary basis and hoping that a council property will materialise. Haringey hasnominated me for re-housing, but I was born, bred and work in Islington. I would like to livenear 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.

Affordable rent assessmentTwenty-five per cent of those interviewedwere receiving some form of subsidy fortheir housing costs in the form of HousingBenefit or reduced Council Tax. The rangeof rents paid was wide; while 44 per centwere paying under £250 per month, 23per cent were paying over £400, and fiveof those were paying over £500.

A comparison of the maximum monthlyrents that interviewees felt they couldafford with their net monthly householdincome shows the pattern in Table 5.2.

In London, interviewees accordingly felton average that they could afford tospend about 31 per cent of their nethousehold income on rent.

Level of savingsOver half of interviewees in London had nosavings at all; on the other hand, of the 35per cent with more than £2,500 in savings,two had between £6,000 and £7,000, onehad £10,000, and one had £15,000. Only43 per cent said that they were saving tobuy their own home, and only 18 per centwere saving a regular monthly amount,ranging from £30 to £500.

Debt repayment problemsAlmost one-third of those interviewed inLondon had no regular expenditure onservicing debts, but, at the other extreme,15 per cent were making payments inexcess of £300 per month. Of those, twowere paying £500 a month, three werepaying £600 a month, and one waspaying £870 a month. As in the SouthWest, student loan payments of about£100-150 per month and car loansfigured prominently.

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Housing Managers – Two Kids and OvercrowdedAccommodationI work as a housing officer in Brent. I live with my husband and our twochildren. We have a housing association flat and we are fair rent tenants,which means our rent is capped at £330 per month. We have lived there forsix years. However, I really don’t like the flat, it’s far too small, it’s in poorcondition and not really suited to my family’s needs, but as a fair rent flat Iwould 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 the morewe save, the faster house prices go up.

Housing Worker – Can’t Move from Family HomeI’m a Housing Support officer, taking home £1,150 a month. Although I’m 23I still live with my parents, and I can’t imagine being able to move out. Helpingwith 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 tostart a family but I’ll never be able to afford children.

Table 5.2 Maximum affordable rent relative to net monthly income

Maximum Net monthly Affordableincome (£) monthly rent (£)

1,160 400

1,485 600

2,800 480

2,000 400

1,430 120

1,480 400

1,200 500

960 500

2,500 500

1,100 500

2,900 600

1,125 500

1,150 650

1,400 250

1,400 100

1,000 600

1,000 500

1,750 200

1,350 400

1,800 750

1,200 500

1,200 500

1,200 675

1,200 250

700 400

1,500 500

1,300 200

1,125 600

1,500 600

650 280

1,800 500

2,500 600

Averages

1,480 455

Present accommodation restrictionsOne in four (26 per cent) of thoseinterviewed were living in a bedsit orhostel. Just under one in two (41 percent) were sharing accommodation withother adults (not partners).

A major concern expressed by Londoninterviewees was lack of space (45 percent), but, as in the South West, asubstantial majority of interviewees feltthat the cost of housing was a majorproblem (69 per cent).

Transport and commuting timeHalf of those interviewed owned a car ormotorbike. One-third lived within walkingor cycling distance of work, and 41 percent used public transport. Travel times,however remained high, with 59 per centspending between one and 21/2 hourseach day commuting.

The cost of commuting to work reflects therelatively large number of people able towalk or cycle, and only less than one in 10said that they spend over £150 per monthon travel to work. As in the South West,about half spent under £50 per month.

Home ownership aspirationsAs in the South West, the aspiration tohome ownership was almost universalamong those interviewed; only five percent said that they did not want to owntheir own home. Ninety per cent thoughtthat ownership of their home wasimportant to their future financial securityand 92 per cent thought that ownershipof a stake would be attractive if it was amore affordable option.

Only one interviewee did not like the ideaof the limited-equity model; two otherswere unable to say whether it would beattractive. The vast majority therefore feltthat it would be an option well worthconsidering and all said that they wouldlike to be able to increase their stake astheir circumstances improved.

Forty-eight per cent of interviewees hadconsidered other shared ownershipschemes. Some commented that theywere too restrictive; others had foundthem too expensive.

Twenty-seven per cent of those askeddid not agree that an equity stakeequivalent to outright ownership in alower cost area of the country wasrelevant to them – usually the reasongiven was because they did not want toleave London.

Attitudes to co-operativemanagementOnly one interviewee said that he wouldnot be willing to invest some of his timeon a regular basis in governance of theco-operative. Fifty-one per cent said thatthey would be reassured by the ability toparticipate.

5.3Summary of Findings from Key Worker Perspectives

The cost of housing was a preoccupationof virtually all those we interviewed. Evenfor those who were not facing highaccommodation costs at the time of theinterview, most expected to be affectedby such rising costs in the future. Manywere able to afford their rents becausethey were sharing, but felt that they werein a temporary situation with no clear wayof moving on, except by moving away.

While five people sharing a house canafford market rents, a couple withchildren reliant on two or less incomescannot. It was apparent that intervieweeswere generally unnerved by theescalation in house prices in recent

43 Common Ground

Foreign Key Worker – London Costs v. Australian AlternativeI am 44 years old and I came from Australia a few months ago to work as a housingofficer. I have three children who I would like to join me. In Australia I lived in a StrataManagement scheme. This is a low-cost ownership system and includes access tocommunally owned swimming pool and other facilities. I was shocked when Idiscovered the cost of housing in London. I now share a room with my partner in ahouse with five other people. Our rent is £480 per month. I am presently looking fora home to rent in St Albans, so my children can be with me. I like the idea of a key-worker co-op, because I like the idea of having privacy, my own bathroom, but don’tmind sharing other facilities with others.

Neighbourhood Regeneration Worker – Commuting from the Essex CoastI am Neighbourhood Warden Co-ordinator responsible for community safety on housingestates in North West London. I live on the Essex Coast, 55 miles away – a dailyjourney of at least one and a half hours each way. I didn’t want to live out in Essex, butthis was all I could find. I am living with friends, because right now I can’t afford to livein London. I would like to own my own home, but I would be very worried about gettinginto debt. I like the idea of owning a stake in a co-op that I could use for a deposit, if Iwanted to move on. I wouldn’t want to stay in London forever.

months, and many were pessimistic thatthey would ever be in a position to owntheir own home.

Some interviewees volunteered that theydid not see how they would ever be ableto afford to start a family. Olderinterviewees expressed concern aboutthe future for their children in terms ofwhere they would live and, again,whether they would ever be able toafford to marry and have children.

While some key workers interviewedwere intent on leaving their jobs, mostwere committed to remaining in theiroccupations for the foreseeable future or“for life”. Those living in London mostlywanted to stay there; similarly, whilealmost half of those living in the SouthWest said that they did not positively feelpart of a community, nevertheless morethan four in five liked where they livedand wanted to stay.

The concept of ‘key worker’ was almostuniversally viewed negatively; people feltthat it was divisive and those who mightnot qualify as being a key worker feltunder-valued and resentful.

Overall, the response to the idea of alimited-equity co-operative was verypositive indeed and some intervieweeswere keen to know whether and when adevelopment might be ready in their area.Many asked if they could have furtherinformation and be kept informed ofprogress. Without doubt, a promotionalleaflet circulated to interviewees wouldbe read with interest.

5.4Shared-equity Co-operativeModel – Focus GroupFeedback

All interviewees were asked, in thecourse of their interview, whether theywould be prepared to take part in a focusgroup session to provide feedback on theproposed housing model. Mostinterviewees indicated that they would.

Two focus group sessions were arrangedwith interviewees, one in London and onein Stroud. The London session was heldat the offices of London RebuildingSociety on 18 March 2003; the focusgroup in Stroud met at Standish hospitalon 19 March 2003. Both sessions tookplace in the evening.

The London focus groupSix key workers attended the meeting.There was an informal discussion oversandwiches at the outset, and a numberof interesting points emerged about theparticipants’ current housing problems. Inparticular:

a) One nurse explained the problems heis currently facing in commuting fromSouth Ealing to Walthamstow. As aresult of closure of the Central Line,he said he was spending 11/2 hourscommuting each way.

b) The same nurse said that he hadbeen offered an interest-free loan of£30,000 towards the purchase ofaccommodation, provided that hefound somewhere suitable andcompleted within three months. Hefelt that this was impossible and wasunable to take up the offer.

c) An education welfare officer said thatshe had been gazumped three times.She had been house hunting for fiveyears and the furniture she hadbought anticipating completion onone of her abortive purchases was instorage in her parents’ cellar.

d) The same welfare officer said thatshe had been offered a mortgage of£86,000 by a building society on thebasis of her salary, but this was farfrom sufficient to buy a flat. She hadrecently looked at a flat on the thirdfloor of a tower block, formerly localauthority accommodation; it was inpoor condition (she described it as a“dump”) and it was being offered at£130,000 on a take it or leave itbasis.

There was an introductory presentationof the general aims and objectives of theresearch and of the findings from theLondon interviews. The proposed modelwas then presented and there wasdiscussion of each slide in turn.

There was general consensus on thefollowing points:

a) All participants felt that the idea thatthose on higher incomes would paymore and build up equity more rapidlywas understandable and acceptable.

b) All felt that deductions from salarywould be acceptable in principle, butone participant pointed out that hisemployer was holding onto uniondues deducted from pay and paying

them over six months late.

c) All agreed that the suggested levelsof management and insurance costsseemed reasonable and realistic.

d) All viewed participation inmanagement as positive andreassuring.

e) All agreed that a deposit of five percent would be acceptable, but allwere highly sceptical that theiremployers could be prevailed upon tocontribute to it.

f) All said that they would consider arelated savings scheme, but that itwould depend on their circumstancesat the time and what they couldafford.

g) There was general discussion aboutwhat level of equity stake would beacceptable and general agreementthat this would depend on how longthey intended to stay and what wouldbe needed for a down payment onaccommodation in the open market.One was worried that they could facea huge mortgage when they movedlater on, with less working life to payit off.

h) All liked the idea of a regularstatement showing how much theyhad paid and the value of their stake.

i) There was general agreement that ascheme like this would encouragethem to stay in their job and inLondon.

j) One participant wondered whetheragency nurses and teachers wouldqualify and all were reassured thatthey would not be forced to leave thescheme if they ceased to be a keyworker for any reason.

In conclusion, all participants expressedenthusiasm for the proposed schemeand indicated that they would activelyconsider it if it were available.

The Stroud focus groupBecause interviewees in the South Westwere more scattered and fewer innumber, the pool of potential participantsfor the focus group was smaller; in theevent, six invitees confirmed that theywould attend but, unfortunately, onlythree did so. Nevertheless, there was aninteresting discussion and a number ofrelevant points and observations

44Common Ground

emerged. Two attendees worked at thehospital itself, a third was a teacher atWynstones Rudolf Steiner School.

The format was broadly the same as forthe London focus group. There was ageneral introduction, followed by apresentation of the fieldwork findingsand then the same slides setting out the model.

The participants made the followingcomments:

a) The assumptions as to salaries weretoo high; all three were paidconsiderably less and they all felt thatsuch salaries were not typical locallyfor people who were in need of long-term housing solutions.

b) It was agreed that house priceslocally varied enormously accordingto area, but it would be difficult tofind a one-bedroom house in Stroudfor under £95,000 or a two-bedroomhouse for less than £110,000. Two tothree-bedroom former council housesoutside Stroud were selling atbetween £150,000 and £200,000,and they are in fact very goodhouses.

c) The cost of using agency staff in thehospital was considerable and aserious problem, but agency nurseswere paid much more that thepermanent staff.

d) There was agreement that it wouldbe acceptable if those on highersalaries paid more in return for ahigher equity stake which wouldaccumulate more rapidly.

e) All felt that involvement in themanagement of the scheme wouldbe a positive feature. Onecommented that it would be “lovely tocut through all that red tape” involvedin dealing with a landlord over repairsand other issues.

f) There was no objection to deductionof payments direct from salaries.

g) All felt that the ability to carry outimprovements and alterations wouldbe an advantage.

h) Proposed levels of payment formaintenance and insurance wereconsidered reasonable.

i) One person commented that a largescheme would alienate local people,but that a development of 30 to 40dwellings would be acceptable.

j) All were very keen on a developmenton the Standish Hospital site and thehospital staff said that there wasgeneral and considerable concernamong their colleagues, many ofwhom had worked there for manyyears, about what would happen tothe site and that it should remain inhealth-related use.

k One person was reassured that itwould not be possible for othermembers of the co-operative to buyher out and that she would havesecurity of tenure.

l) One participant commented that thescheme was more realistic thanoutright home ownership for those onlow pay. She said that she had beenpaying rent for 17 years and “didn’town so much as a door knob”, so anypercentage stake would be a positivedevelopment.

m) All liked the idea of regularstatements showing payments madeand the value of their equity stake.

n) None felt that their income wassufficient for them to participate insavings schemes and none had anysignificant existing savings. Again,there was considerable scepticism forthe idea that their employers mightcontribute to a deposit on theirbehalf.

As in London, all participants showedconsiderable enthusiasm for theproposed scheme. All felt that they wouldconsider it if it were available and thatthe idea of a housing co-operativeproviding a stake in equity and a role inmanagement was attractive and workablein practical terms.

45 Common Ground

46Common Ground

The study has postulated housing inthree locations: Newham as a lower pricepart of London, Milton Keynes as acheaper area within range of London,and Stroud as fairly typical of much ofthe South West. These have beenselected as representing areas whereaffordability is an issue to be tackledrather than those areas of inner Londonwhere it is at its most severe.

Within these areas, prices varysignificantly by property type and area sothat there are no generally acceptedfigures for prices by size and type in aparticular location. The Proviser websiteproduces figures at a local authority levelbut not split between new homes andolder homes, or by size, or by any moreprecise location. The Nationwide websiteis more general, providing an averageand an index for each region. An exactassessment of house prices in each areais beyond the scope of this study.(Appendix 5, Annex 2 shows house pricelevels recorded by Nationwide andProviser for each location and the costsof housing provision that have been usedin the model are based on these figures).

Appendix 5, Annex 3 shows theestimated construction costs assumedfor the three areas. Again, these are notbased on substantial evidence but areintended to be of the right order toillustrate the model. The land componentof the value has then been calculated bydeducting build costs from propertyvalues: in broad terms, land for a two-bedroom home should cost around 50per cent more than land for a one-bedroom home. Again, the study is notaiming for an exact calculation but theconclusions do depend on these figuresbeing broadly representative of thesituation in some part of each localauthority area.

Government and Housing Corporationrequirements are that key worker homesbe constructed using techniques whichtake on board the Egan agenda, usingon-site or off-site prefabrication as a wayof keeping costs down and making costseasier to forecast, achieving goodenvironmental standards and providinghomes that are economic to maintain.Carefully specified timber-frameconstruction has environmental benefitsin terms of the materials used and thestandards of insulation of the finished

housing. The EcoHomes designationshould also be used: the good standardis readily achievable if the necessaryprior investigative, specification anddesign work is carried out. Somecommon approaches to key workerhousing design incorporating local andregional design components could helpto keep costs down and standards high.

As an aside, Newham includes somelarge housing sites and can be seen aspart of the Thames Gateway where largenumbers of new homes are planned.There is a great opportunity here for theuse of the shared-equity co-operativemodel, not just in helping to achieveaffordability in the present, but locking itin for the future as well.

6.1Legal Structure Requirements

The historic review in Section 3 identifiedboth the Glenkerry House co-operativeShared Ownership model and theSwedish Tenant Ownership Co-operativeas the two most relevant limited-equitymodels from which to draw criticallessons. Such models could be updatedand work sustainably, to volume and toscale, providing subsidy can be locked infor several generations, underpinned by aCommunity Land Trust. Thus the modelproposed includes the following legalfeatures (see Diagram 3.1):

a) The Community Land Trust owns thefreehold and the spare equity.

b) A co-operative society takes a leaseon the land, builds the dwellings andborrows the finance needed to meetboth build costs and any residual landcosts (or may receive some subsidyfrom the CLT in return for equity inthe buildings where subsidy exceedsland cost).

c) Lower cost finance can be securedvia the collective mortgage and theuse of the guarantee mechanismprovided to any housing co-opapproved by the Co-operativeHousing Finance Society Ltd.

d) The lender takes a charge over theequity held by the CLT to provideadditional security but only in theevent of default.

e) Individual occupiers are members ofthe co-operative and pay rents, whichcollectively cover the mortgagepayments. When they leave, they maytake with them an equity stake equalto their share of the loan repaymentsmade from their rental payments plustheir share of capital appreciationbased on the fixed resale formula.

f) Individuals are also, as members ofthe co-operative, responsible for itsmanagement and the managementand maintenance of the buildings.

In addressing the legal requirements forthe scheme, the focus has been onachieving the core objectives of providingaffordable housing, protecting the publicsubsidy involved from enfranchisementand becoming a source of privateenrichment, and simultaneously enablingresidents to participate in the equitygrowth generated by their owncontributions.

The scheme is based on innovativeprinciples and detailed consideration hadtherefore to be given to its operationwithin existing statutory provisions, inparticular in relation to welfare benefits(notably Housing Benefits and IncomeSupport) and tax (Stamp Duty, CapitalGains Tax and Income Tax). Discussion ofthese issues and the solutions proposedcan be found in Appendix 3 below.

6.2 Investment FinanceRequirements

The current base rate at the time ofwriting is 3.75 per cent. Variable ratelending is available to RSLs from variousinstitutions at 65-85 points over base, inother words, around 4.5 per cent. Theaim will be to enable the co-operative toborrow at similar rates so that the benefitof collective lending can be passed on tothe occupiers.

Conventional RSL mortgage financeinvolves payments that are unchanged byinflation (but which change when baseinterest rates change) over the period ofthe loan, often 25 years. Rents, on theother hand, rise with inflation whilemaintenance costs rise with propertycosts, or possibly above inflation becauseof wage increases reflecting growth as

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

well as inflation. Under the conventionalmodel, rents generate a surplus overtime, which, in a rental model, can be setaside for cyclical maintenance andrenewal or simply used for furtherschemes.

To keep costs to a minimum and deliveraffordability from the outset, the mostsuitable mortgage profile is provided byindex-linked finance, which balancesrental income and loan repaymentsthroughout the loan period. Index-linkedfinance has not been on offer recently,nor have RSLs shown interest in raisingit, but Nationwide Building Society didmake such finance available in the1980s.

Real interest rates are the differencebetween inflation and actual interestrates: index-linked loans operate on thebasis of charging the real rate butincreasing the mortgage payment andthe outstanding debt each year in linewith the Retail Price Index. If rents riseby RPI + 0.5 per cent, surpluses will stillbe generated.

The longer the period of the loan, themore affordable the starting position willbe, as Table 6.1below shows. However,finance for more than 30 years is notreadily available.

Index-linked finance differs fromconventional finance in allowing the debtto rise in the early years, which is thenpaid off as the rent rises. Conventionalfinance at 4.85 per cent can be treatedas a 2.35 per cent index-linked loan, withlong-term inflation assumed to be 2.5 percent if an additional unsecured loan ismade available to cover the deferred part.

For example, an additional loan from anemployer on a second charge, equal toaround 12 per cent of the loan, couldprovide bridging finance to enableconventional finance to be treated as if itwere low-start index-linked. In duecourse, rising rentals will enable thesupplementary loan to be paid off aswell. This route could be explored ifindex-linked finance is not otherwiseavailable.

A supplementary loan might also be theroute to resolving the problem of payingequity stakes to outgoing key workers.This is discussed in more detail below.

6.3 Co-operative Housing – LoanGuarantee Society Services

The borrowing needs to be on thebalance sheet of the co-operative orpossibly the CLT, and since they have noprior track record, this would meanrelying solely on the security offered bythe property. CDS Co-operatives havedeveloped a national model whichenables several relatively small co-operatives to come together to achievelow rates A half per cent charge on themortgage debt premium on the mortgagepaid into a guarantee fund held by theCo-operative Housing Finance SocietyLtd (CHFS), and an annual 0.25 per centfee enables CHFS, the guarantee societyset up by CDS Co-operatives, to provide12-month interest guarantees to lendersbacked by the Co-operative Bank. Thishas enabled low margins to be achieved,even though there is little spare equity.An overall rate of 4.85 per cent (3.75 percent + 0.85 per cent + 0.25 per cent)has therefore been assumed.

Canadian Housing Co-operatives havesuccessfully raised commercial fundingusing an index-linked model, which is avariation on this and includes a ‘tilt’ toreduce reliance on inflation. For examplewith inflation of 2.5 per cent and a tilt setat one per cent, the payments start off ata level (roughly) 1.5 per cent belowconventional but (roughly) one per centabove full index-linked finance. Becausethey rise at a rate below inflation though,there is more allowance for risingmaintenance costs in future years andless risk if inflation were to take off. Themodel is also based on a monthly ratherthan annual interest calculation, whichhelps to accelerate repayment in lateryears. Nationwide Building Society hasexpressed interest in the model in thepast.

At the time the loan was made inCanada, the interest rate available on

housing finance was 4 per cent plus anallowance of 2.5 per cent for inflation towhich a 1 per cent tilt was then applied,resulting in a rate charged at between 5and 5.5 per cent (information supplied byCDS). In the UK at present this shouldequate to a 4.5 per cent rate brokendown into two per cent real interest and2.5 per cent long-term inflation.Payments are obviously higher than in afull index-linked version but if this meantthe finance would be more readilyavailable, clearly it would be the bettermodel to apply, and it does mean a lowerlevel of risk.

6.4 Other Forms of Finance andFunds for Financing EquityStakes

Consideration has been given to whetherother forms of finance might be raisedon the scale needed. Interest-onlyfinance, using withdrawable shares (i.e.through an Industrial and ProvidentSociety legal structure) and variousforms of ethical low-coupon finance,have been discussed. Time would beneeded to develop such sources offunding in any volume. However, theycould well assist where there is a strongcommunity or local business interest inproviding affordable homes and theseoptions need pursuing further. (SeeAppendix 6 for how a start could bemade in developing such finance througha partner community developmentfinance institution such as LondonRebuilding Society or the WessexReinvestment Trust.)

The other major issue that will have to beaddressed when raising finance to buildthe homes is that of enabling occupiersto take an equity stake with them whenthey leave equivalent to their contributionto repayment of the loan for constructionof the building. There would be sufficientequity in the property to secure such atop-up loan, but this makes for complexadministration for the funder if the loan profile cannot be monitoredstraightforwardly over the period ofrepayment.

Alternative approaches might be:

a) A more flexible arrangement forfunding which is not based around aset repayment period, whichtherefore allows additional funds tobe drawn down whenever needed topay off equity shares.

47 Common Ground

Table 6.1: First year payment on a three per cent index-linkedmortgage of £100,000

Years 20 25 30 35 40

Year 1 repayment (£) 6,722 5,743 5,102 4,654 4,366

48Common Ground

b) To arrange a separate loan for thispurpose as a second charge which isdrawn down whenever one occupierleaves with the equity stake they havebuilt up. In the end this loan wouldgrow to a level determined by theaverage length of occupation of theresidents: it would never be paid off.

Until this is tested with a lender it will beuncertain whether the aspirations set forthis tenure model can be achieved. In theUS, some limited-equity co-opsunderpinned by CLTs cap the capitalappreciation which accrues to theoccupier at 25 per cent of the actualfigure which would mean that muchlower equity stakes are paid out and indue course the loan could be repaid or atleast substantially reduced. Theseoptions need to be explored further asthe model is worked up with potentiallenders and social investors.

6.5 Making the model easy tounderstand: unitisation

Dividing the property value into a numberof ‘units’ may provide a way of explainingthe model.

The value of, for example, a £140,000property would be divided up intoconvenient equity units of say £100,£500 or £1,000 of value per unit (for thesake of simple illustration let us say into140 x £1,000 units of equity). The unitsrepresenting the land value (say£70,000) would be taken out and heldby the CLT. Members would come inwith a deposit (say 5 x £1,000 units =£5,000) leaving £65,000 to be fundedas part of the common mortgage loantaken out by the co-operative. The costof financing the mortgage paymentswould be met by the member throughtheir monthly lease payments. Themember would therefore be financing 70x £1,000 units of equity. When a memberleaves, they would be entitled towithdraw, from the value of the co-operative’s commonly held propertyassets, the amount by which difference inthe value of the 70 units of equity hasgrown during their tenure, that growthhaving two components:

1) the mortgage principal on the 65units of equity they have beenfinancing out of their monthlymember payments; and

2) the growth in the value of the wholeof the 70 units of equity they have

funded, calculated in accordance withthe equity sale formula in their lease(which will include a (say) 10%deduction to build-up the commonassets of the co-operative).

So if they have paid off £1,100 ofmortgage principal during their tenureand the value of their property hasincreased by, for example, 10 per centthey will take out the following equitypayment:

Their initial equity deposit £5,000

The mortgage principal repaid £1,100

The growth in the value of the 70 units of equity funded by their deposit and monthly payments less 10 per cent contribution to common equity £6,300

Total end of tenure equity withdrawal £12,400

Under a unitised model, the repaymentsof principal could be regarded asincreasing the number of shares ownedoutright by the member so that, in theexample above, the occupier would ownsix shares outright valued at £1,100 eachand would benefit from appreciation inthe value of a further 64 shares on whichthey are paying the mortgage. To enablethis to work smoothly over the course ofthe mortgage, greater unitisation wouldbe required, for example as 1,000 units ofvalue £140 each. This more complexunitised approach is illustrated inAppendix 6, Annexes 5b and 5d. In theindex-linked example in Annex 5b, theproperty value would be treated as 1,000units. The CLT would hold 213 worth£29,820. Of the remaining 787, theresident would have to buy 40 units(£5,600) as a deposit, and the remaining747 (£104,580) are held by the co-operative but subject to a mortgage. Asthe loan is paid off over 30 years, theresident would acquire more units, so thatafter 10 years they would own 230 unitsand, after 20 years, 505 units, and themortgagee would have a reducing shareaccordingly. In the case of a conventional

mortgage, the subsidy would have to begreater so that the CLT would own 412units: because the loan would be paid offfaster, the resident would own 240 unitsafter 10 years but only 436 after 20years.

For those making higher or lowerpayments than the norm in the model(based on 32.5 per cent of net salary forsomeone earning £19,000 or £21,000,or 35 per cent of net salary for someoneearning £23,000), the number of unitspurchased after 10 and 20 years isshown in Table 6.2 (below).

Unitisation could therefore be a way ofhelping to explain how the scheme wouldwork for different salary levels.

A refinancing mechanism, enabling theresident to cash in their units will beneeded. If it is only possible to secure apartial refinancing mechanism (forexample, 90 per cent), the number ofunits owned after 10 or 20 years in thetable would be reduced correspondingly(having first excluded the 40 unitspurchased at the start which would bereturned in full, subject to revaluation byproperty inflation).

Whether the ‘unit’ description assists inexplaining how ownership of the home isdivided or, through the more complexdescription, how it is changing over thecourse of time, will need furtherdiscussion and market-testing.

6.6 Reduced Land Value or OtherSubsidy Input

Tables 6.3 and 6.4 show the subsidyneeded to achieve affordability in thethree locations chosen.

The first table is based on 30-year index-linked finance, assuming it is available at2.35 per cent with inflation at around 2.5per cent. Interest has been calculatedannually. (An example can be found atAppendix 5, Annex 5a/b).

Table 6.2: Number of units purchased on the basis of resident’s income

Net Salary Initial units After 10 years After 20 years

£19,000 40 193 428

£21,000 40 230 505

£23,000 40 309 659

Tilted finance on the Canadian modelrequires a higher percentage of landvalue but the subsidy required remainsless than the land value. (An examplecan be found in Appendix 5, Annex 6).

If the only finance available isconventional repayment finance, highersubsidy is needed and the land valuealone may not be enough to achieveaffordability unless low-start finance isavailable. However, Table 6.3 shows, onthe basis of the land and build costsassumed, that the land value wouldprovide sufficient subsidy in all caseseven with conventional finance (save for

two per cent shortfall in the Stroud two-bed case – see Appendix 5, Annex 5c/d.)

Low-cost finance is a requirement for themodel but only at levels already generallyavailable to RSLs if the land equity canbe gifted.

Low-start finance would mean that themodel will work even where land isavailable at around half open-marketvalue rather than at no cost; or where thesubsidy available is quite low.

Free land would make affordable housingviable in all cases for index-linked

finance or tilted finance; and 50 per centdiscounted land would suffice in manycases if index-linked funding can besecured. In higher cost areas it is landcosts rather than construction costswhich are higher and this calculationshould still hold true, but the land equityto be foregone – or the subsidy if low-cost land is not available – iscorrespondingly greater.

Some of the routes to reduced land costmight be:

a) Land available at no cost to providefor the employer’s own workers:

49 Common Ground

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 £17,000salary 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 £17,000salary 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

l Where the employer of the keyworkers owns land which they areprepared to make available tohouse their employees;

b) Land below full market value:

l as a result of a Section106agreement requiring affordablehousing to be produced as part ofa development;

l where the employer of the keyworkers (or a group ofemployers) owns land which theyare prepared to make availablebelow value;

l through exception planningschemes where land will costsomething above agricultural valuebut much less than housing value.

The model provides an effective way oftaking land value out of the equation andcould assist planning authorities inproviding a consistent Section 106requirement or clear justification for anexception approval.

6.7 Tenure Requirements

The proposed basis for occupation wouldbe that the occupier is responsible forinternal maintenance but occupies underan agreement, which must be passed toan incoming occupier so that no voidperiod arises. The agreement wouldspecify the payments and how increaseswill be calculated and how the equitypayment is calculated when the occupierleaves. It will require the occupier to be apar value shareholder in the CommunityLand Trust.

The agreement will say that theappointed managing agent may firstdeduct from payments the agreedoutgoings for management, maintenance,cleaning, future maintenance, mortgagerepayments, and buildings and contentsinsurance. It will explain how savingsmade in the costs of cleaning androutine maintenance throughmanagement by the CLT itself, or bykeeping costs down, will come back toresidents on an annual basis. Particularareas of savings and economies in co-operative housing (in contrast with RSLhousing) are secured by self-management input in respect of lettingsand repairs management, although co-operative members may elect to pay forprofessional management if they so wish.

The initial capital cost will need to allow asum of around 0.5 per cent of costs toprovide for training for the residents intheir management responsibilities and thebenefits that can accrue from mutuality.This has been assumed to be containedwithin a 15 per cent on-cost to coverfees, interest, insurance and other costs.

6.8Risks and Sensitivities toEconomic Changes

If land values fall, no equity stakes will be provided.24 For the CLT, the risk isthat rents will fall in line with values andit will no longer be possible to chargerents at a sufficient level to cover costs.However, so long as land has beenobtained below value, there shouldremain a margin with market rent – sincethis is the whole intention of the scheme– that will provide a cushion against a fallin rents.

Where variable rate finance is used andrates go up as a result of increases ininflation, rents will also go up and theintention that charges will rise by RPI +0.5 per cent means the increase in rentswill cover the increase in mortgagepayments. In the short term, this mightnot happen because the Bank ofEngland might be applying interest rates at an unusual margin aboveinflation in an attempt to reduceinflationary pressures. It is unlikely that this will continue for more than alimited number of years and contingencysums should generally be sufficient.However in any event, shared-equityhousing co-operatives must haveflexibility to increase rents if increases in interest rates have an adverse impacton them.

In the event of deflation, an index-linkedmortgage would not increase, but itwould be on a ratchet so it would not falleither, whereas rents would be fallingwith a falling RPI. To protect against this,the CLT could similarly say that rentscannot fall even if RPI + 0.5 per cent isa negative figure: this would provideshort-term protection, but the CLT wouldstill get into difficulty if market rent levelsfall sharply. Deflation has not yethappened for significant periods exceptin Japan, so the risk is low.

6.9Community DevelopmentFinance Partnership – InterestFree Finance Service

As a supplementary objective, the mutualhousing finance system could beadapted to encourage tenant owners tosave, which would enable them toacquire furniture cheaply and to carry outinternal improvements and repairs. Oneavenue might be a zero-interest savingsand loans mechanism where the chargesmade for the loan are administrative onesonly. The JAK Bank in Sweden operatessuch a system, which is similar to creditunion savings and loan operations.

In Britain, a Community DevelopmentFinance Institution partner, such asLondon Rebuilding Society or WessexReinvestment Trust, could attract socialinvestors to develop the funds. This JAKstyle co-operative savings system, basedon fees instead of interest, could beinitially established as a simple facility forrecycling funds. Within an expandingshared-equity co-operative system, thissystem could have enormous potential forreducing repair and maintenance costsfor an increasing number of CLTdevelopments in a region (see Appendix6). In due course, there might be scopefor developing interest-free funds for newconstruction and development as well.

6.10 Cost Benefit Comparisons with Shared Ownership andHomebuy

Shared Ownership and a simplifiedversion of Shared Ownership, Homebuy,are existing schemes that have beendevised to make home ownershipaffordable. Like the model describedhere, they are aimed largely at people inwork who can qualify for a mortgage butwho cannot secure, or afford to pay, amortgage at the level required to buy aproperty in the open market.

The Social Housing Grant is available toprovide Shared Ownership. It enables apurchaser to buy, say, 50 per cent of theproperty equity with a mortgage and payrent on the remaining 50 per cent (with aservice charge in addition where theproperty has common areas to bemaintained). The problem has been thatcompetition between RSLs (to show thatthey can produce affordable homes withthe least possible Social Housing Grant)has led to higher rents and management

50Common Ground

costs and hence diminishing advantagesin comparison with the cost of outrightpurchase.

Homebuy simplifies the model byproviding an interest-free loan, with norent charged on the element of equitynot purchased and no continuingmanagement involvement from the RSL.The attraction of Homebuy is also thatthe average amount of subsidy has beenlower – frequently only 25 per cent.

The model described here achievesaffordability by proposing that finance israised by the co-operative and notthrough individual mortgages. This meansthat repayment can be spread over alonger period – 30 years rather than the25 typical of an individual mortgage. Theassumption has also been made thatindex-linked or other low-start financewill be used. Low initial paymentsincrease with inflation, not quite keepingpace with rising rents if a deferredinterest mortgage is used (which rise byRPI + 0.5 per cent).

The effect of both of these is that equitycreated through repayment of the loanbuilds up very slowly in the initial yearscompared with Shared Ownership orHomebuy (or may even go into reverse ifproperty prices do not rise). But as Table6.4 shows, the tenure is affordable topeople on lower salaries for the sameinput of subsidy. (It has generally beenproposed here that the land value shouldbe taken out of the equation using aCommunity Land Trust but a capitalsubsidy has an equivalent effect.) The costof services has also been assumed to bearound 25 per cent less as a result oftenant management. The main economieshere are feasible because a) individualresidents carry out routine repairs and b)there is far less management timeinvolved in repairs or lettings.

The model is more flexible than SharedOwnership or Homebuy in allowingdifferential payments for an equivalentproperty and in relating payments tosalary rather than offering only limited-equity share options such as 25 or 50per cent. (Some RSLs sought to makeShared Ownership more flexible but havebeen discouraged from doing so becauseof the costs involved in purchases ofsmall tranches). The model also differs inmaking a direct connection betweensalary levels and payments. In SharedOwnership and Homebuy, it is left up tothe purchaser to calculate what they canafford. As each person’s lifestyle placesdifferent demands on their salary, it can

be argued that it is better to leave themto decide. On the other hand, for thoseon low incomes, housing benefit is fixedwith reference to salary alone, and acounter-argument is that, where publicsubsidy (or free land as a communitybenefit) is involved, there has to be aconsistent and fair approach relatingpayments to salary through a formula.

Shared Ownership provides forstaircasing so that further shares can bepurchased if salary rises orcircumstances change – or forstaircasing down to a lower share ifsalary falls. Some consideration has beengiven to basing payments in this modelon a percentage of salary with deductionat source by the employer, so thatpayments could rise or fall. However, forsimplicity, it is proposed that the paymentshould be fixed when the lease is signedbased on current salary. The model doesallow, however, for further optionalpayments to secure a larger equity stakeif the resident wishes; subject to cashflow, the co-op could have a discretion toagree to allow payments to be reduced,with a corresponding reduction in theresident’s share of the co-op’s equity.

The other negative consequence ofstaircasing is that it means the tenurehas only a limited life. Shared ownersquite often choose to make back-to-backtransactions: obtaining a resale valuation,buying the remaining equity at this priceand seeking to sell on the basis of 100per cent ownership at a marginally higherprice, especially in recent marketconditions where valuations rapidlybecome out of date. Homebuy alsogenerally ends on the first resale. Theshared-equity co-operative modeluniquely maintains each unit aspermanently affordable for futuregenerations: any subsidy is retained andused over and over again.

In theory, staircasing releases equity toenable a low-cost home to be providedagain, but there are other demands onthis RSL income, such as winningcompetitive bids for Social HousingGrant elsewhere. In any case, it mayeliminate affordable homes in the originalhigh cost area where an intermediateform of tenure was needed.

The shared-equity co-operative modeldescribed here thus compares veryfavourably with the Shared Ownership orHomebuy options in terms ofaffordability. It compares extremely wellin its ability to lock in the value for futuregenerations.

Against these advantages, it is legallyand financially more complex. Forexample it works less transparently inrelation to the purchase of extra, orfewer, shares. But this should beovercome by tenant ownership and co-operative education. As the Focus Groupfindings in Section 5 show, potentialresidents have not found the shared-equity co-operative model hard tounderstand. Most importantly, theincreases in affordability and long-termsustainability of the model, deal withmajor criticisms that have been levelledagainst Shared Ownership and Homebuy.

51 Common Ground

52Common 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 modelsubsidy 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 salary2 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:l slightly lower payments as a result of longer mortgage period and marginally lower ratel reduced management costsl no requirement to have both an individual mortgage and pay rent/servicesl greater share of equity appreciationl equity locked permanently into CLTl more flexible affordability calculation

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

53 Common Ground

In 2002, as the stock market continuedto fall, the national housing marketincreased in value by over 25 per cent. Asa consequence, housing prices in Londoneven for small flats in most boroughsjumped in value by more than the level ofthe average wage for key workers. Thismarket increase is clearly unsustainableand, since February 2003, house prices inLondon and the South East have begunto fall. According to some experts, this islikely to lead to a repeat of the negativeequity crisis of the early 1990s. In anyevent, most experts agree that we haveseen the end of the huge explosion inhouse prices. However, in London, theSouth East, and the East of Englandthere is now a serious mismatch betweenhousing supply and housing demand.

The size of the deficit in housing supply iscontroversial. The Joseph RowntreeFoundation estimates it to be at least100,000 units per year. The Governmenthas recognised the gap as about 60,000.Part of the gap can be addressed byreleasing some of the more than 700,000empty properties for housing. But many ofthese are in areas of low housing demand.

As far as the supply of new housing isconcerned, the pattern is mixed. In theNorth of England, supply has outstrippeddemand in many areas and theGovernment has concluded thatclearance will be needed in some placesto balance this. In the West Midlands,supply and demand are closer toequilibrium. In the South West, populationgrowth is twice as fast in rural areas asin urban centres, and the location ofhousing supply is a problem. Here, morecreative intervention is needed in coastaland market towns and in villages toincrease supply sensitively in order totackle the lack of affordable housing.

To compound problems for key workersin the South West, while house prices aresimilar to London and the South East,average wages are 10 per cent belowthe national average despite very lowlevels of unemployment. There is onlylimited and patchy provision of StarterHomes Initiative funds for key workers –mainly in the northern areas of the regionsurrounding Bristol and Bath.

The Government has decided toconcentrate its efforts on London and infour growth areas in the South Eastincluding the Thames Gateway, Ashfordin Kent, Milton Keynes, and the South

Midlands, and the London-Stansted-Cambridge corridor. In his London Plan,Ken Livingstone is seeking to securehousing development of 23,000 per yearover the next 15 years. In 2001, only1,200 low-income homeownershipproperties were constructed in Londonagainst applicant demand of 41,000. Thechallenge is enormous.

The Government’s SustainableCommunities Plan sets out a bold newvision for more inclusive, mixedcommunities with better amenities,improved local public transport andhealth facilities. The objective over thenext three years has shifted fromLabour’s initial focus of tackling a hugebacklog of council housing disrepair to anew agenda of affordable housingdevelopment, with lower costconstruction methods and highecological standards. Over the next threeyears, £5 billion will be spent on this newhousing strategy and £1 billion on keyworker housing. The Government wouldlike to secure two units of key workerhousing for the same subsidy as one unitof social housing, and John Prescott’sHomeownership Task Force has beencharged with developing a soundimplementation strategy.

This research has sought to explore thepotential for reintroducing the forgottenlimited-equity co-operative model,popular in Britain before the First WorldWar in the form of tenant co-partnershipand co-ownership in the 1960s and1970s. It was a model that was lostbecause, as a tenure form, it wasunstable, poorly adapted from Swedenand had no design features preventingdemutualisation.

The limited-equity housing co-op modeloperates extensively in other countries –including Sweden, Norway, Denmark, andthe US. Land price inflation inScandinavia has led to unaffordability forthe low- and moderate-incomehouseholds it was designed for. In boththe US and Canada, Community LandTrust mechanisms have been developedto maintain the permanent affordability oflimited-equity and par value rental co-ops. To date, this mechanism has beenlimited in application, but it demonstratesthat a sustainable solution can be found.

The Joseph Rowntree Foundation LandInquiry report recommended that theGovernment adopt three main measures

to address the housing supply problem.The first two were to increase supply in astrategic way in areas where it is needed,and to modernise and regionalise theplanning system in ways proven to workbetter and more efficiently in otherEuropean Union countries. But thirdly, thereport called for the Community LandTrust model to be applied to secure long-term affordability in order to meet housingneeds. The Greater London Authority hashighlighted the potential for mutualhousing solutions to be developed morecost effectively in order to deliver housingsolutions for key workers.

In its Sustainable Communities Report, theGovernment has implemented the first twoof the Joseph Rowntree Foundationrecommendations, but not the third. Thisreport has researched and tested themarket feasibility for a new mutualhousing solution, a shared-equity housingco-operative. Using the CLT structure tounderpin this form of mutual housingprovides a permanent means of locking inany required subsidy in the form of free ordiscounted land (or an equivalent sum ingrant aid) in ways that other low-costhomeownership schemes do not.

In addition to the CLT mechanism, thisnew model draws on effective elements ofthe tenant ownership co-operative model,which has been successful in Scandinaviasince the 1920s in providing housing forbetween 20 and 25 per cent of allhouseholds. The research concludes thatthe shared-equity housing co-operativecan operate in Britain as a sustainablelow-cost form of key worker housing.

Moreover, the research team has testedthe specific elements of the shared-equity co-operative model in focus groupdiscussions with key workers in bothLondon and the South West. The modelhas proved to be highly attractive tothem. It also appealed to the housingprofessionals we consulted, from co-oppractitioners to RSL developers, localauthorities and key worker employers.

In the Sustainable Communities Plan, theGovernment has announced that it isconsidering widening the delivery of low-cost home ownership schemes to non-housing association bodies. As anexperiment to test this potential, it isrecommended that a pilot project be fundedto test the shared-equity co-operative modelon at least three sites in London, MiltonKeynes and the rural South West.

7. Conclusions and Next Steps

1 The symbiotic nature and scope of thesepractical reforms along with some of thiscorrespondence is reproduced inChapter 11, ‘Comparison of CommunityLand Trusts and Co-operative LandBanks’ in Building SustainableCommunities: Tools and Concepts forSelf-Reliant Economic Change, a bookedited by Ward Morehouse based oncontributions by Bob Swann, ShannTurnbull and C. George Benello.

2 This research builds upon recent studiesfunded by the Housing CorporationInnovation and Good PracticeProgramme into the design andimplementation of Community LandTrust solutions for affordable housingneeds, which in turn were led and co-ordinated by Robert Paterson at theCentre for Community Finance Solutionsat the University of Salford. Many ofthose involved with these earlier studies,including Robert Paterson himself, havebeen involved in the fieldwork for thisproject, particularly in the South West.

3 The financial terms here are explained indetail in the Glossary.

4 See Section 6.

5 This could be applied to limited orrestricted equity housing if establishedthrough new social enterprise deliveryagencies as suggested by the JosephRowntree Foundation Land Inquiryreport. However, extension of such taxcredits would require a shift in Treasurypolicy. Social enterprise investmentsqualify for tax credits but housinginvestments are currently excluded.

6 This represents more than a six-foldincrease in 20 years; in 1982, theaverage house price in London was£38,500. Average prices vary widelyfrom the five main tracking bodies, whichinclude HM Land Registry, Halifax,Nationwide, RICS and Hometrack.Consequently the ODPM will beintroducing in autumn 2003 an officialGovernment index to be compiled by theTreasury and the Bank of England(Collinson and Stewart, 2003).

Oswald has forecast that up to half amillion homeowners are now in danger oflosing their properties. Martin Ellis, chiefeconomist, for both Halifax and the RoyalBank of Scotland, has said “There is nodoubt there will be pockets of negativeequity in the capital and the South Eastover the next year”. (Hill, 2003).

7 The prevalence of a widespread diversityof leases with varying clauses in eachleads to higher legal costs and tofrequently low standards for occupiers interms of legal rights.

8 At the end of the Second World War,156,000 prefabricated houses wereerected to deal with the acute housingshortage (Hetherington, 2002a). Thesewere of poor quality, designed to lastonly 15 years and only about 500remain today. Modern day equivalentsare of much higher quality and will lastfar longer. Moreover, construction timeon site can be cut by up to two thirds –only six weeks, compared toconventional site building time of 16-18weeks. At present only about one percent of housing construction is modularand factory built – but major housebuilders like Westbury and Barratts haveset up factories to expand operationsdramatically in the years ahead.Registered Social Landlords in theSouth East have been encouragedunder the Government’s new ChallengeFund to use modern, off-site methodsfor new provision. Increased demand bydevelopers and Registered SocialLandlords should lead to furtherinvestment in production facilities. Aswell as quality control improvements,modern methods of provision easilymeet the Egan agenda to rethinkconstruction, and will help with thevarious aspects of sustainabledevelopment.

9 The Greater London Authority wasinterested in limited-equity or shared-equity models beyond conventionalShared Ownership and including lessonsfrom limited-equity co-operative modelsoverseas.

10 See Glossary for explanations of parvalue (non-equity) co-operatives andcommonhold in respect to LeaseholdEnfranchisement.

11 According to the Institute for CommunityEconomics (the American nationalassociation body for CLTs), “This isregarded as fair by CLT owneroccupiers, who are educated, asmembers, to understand the socialpurpose of housing.”

12 CLBs mitigate the problems of shared-equity co-operatives discussed above bycombining a number of innovations,including the principles of modern USReal Estate Investment Trusts (REITs),duplex tenure, dynamic tenure and self-governance control architecture. Duplextenure is fundamental to a CLT and isdelivered by the resale formula, whichallows the value of improvements onland to be separated from the value ofthe site so that these values can beequitably allocated on a sustainablebasis. Dynamic tenure allows ownershipto transfer from non-users to users atthe depreciation rate of capital; thisfeature serves to eliminate alien

ownership and control of communitiesand to avoid overpaying investors. It isby capturing over-payments to investorsthat CLBs provide a more efficient andequitable tenure system, which in turnavoids the need for continuous subsidyto provide low-cost housing. Dynamictenure also provides a formal frameworkto legitimise squatter settlements andprovide a systemic improvement in landtenure. CLBs accordingly are moreambitious than CLTs and the precisedifference between both forms of landstewardship is set out in a sequence ofpapers by Turnbull (1977, 1983, and1986) listed in the Reference section.

13 The generalisations made here draw onsubstantial research undertaken in 1984by J Birchall for his PhD. This consistedof qualitative interviews with activemembers of four co-ownership societies,a quantitative interview survey of allmembers of one society, interviews withkey informants such as Harold Campbelland Housing Corporation officials, anddocumentary analysis of Corporationdocuments and the archive of theCouncil of Co-ownership HousingSocieties.

14 Its magazine the Co-owner and minutesof its meetings are a valuable source ofinformation.

15 In the sense of an autonomous group ofpeople who identified with it and wantedto make it work.

16 Figures supplied by the HousingCorporation.

17 At first the Greater London Council wasthe relevant local authority, then theLondon Borough of Tower Hamlets.

18 Amortised means the gradual reductionof the outstanding balance of a loan.

19 See Glossary.

20 The actual percentage will need to betested and developed in piloting workand through experience in projectsgained through working with financiers.

21 Rent paid by co-operative membersincludes maintenance of the fabric ofthe building, hence the assumption thatthe element of payments applied torepaying borrowings for constructionand acquiring units equates to a valuewith no depreciation factors. In otherwords, the depreciation element iscovered as part of the service charge.

22 However, there is a danger with thismethod that building costs can riseeither much faster or much slower than

54Common Ground

Endnotes

market valued generally. As a result ofperiodic shortages in skilled labour,inflation in building costs above a long-term average is common and there arealso significant regional variations inbuilding costs from time to time.

23 Coventry Churches Housing Associationdeveloped a mutual mortgage schemefor housing for retired people in 1980s.Mortgage Interest Relief up to £30,000was then available and this was used aspart of the incentive package for atypical 12-unit development. Thescheme was called the Sundowner Planand co-owner members paid a £1member share and took responsibilityfor their share of the group mortgagewhich was based on a fixed charge plusan additional payment to hedge againstan increase in interest rates. TheHousing Association developer retainedfive per cent of any increase in marketvalue and Sundowner members couldsecure 95 per cent. However thescheme became problematic whennegative equity emerged in the early1990s and the properties could not besold. Sundowner is still in operation andnow part of Touchstone HousingAssociation.

24 Such as the Co-operative HousingFinance Society Ltd, the loan guaranteesociety established by CDS Co-operatives. The principle is that the co-op has to borrow to maintain its mutualadvantage; the CHFS can provide a loanguarantee at low cost. It would take asecond charge over the asset (the land)and provide a 12 month interestguarantee to offer the main lendercontinuity of payment in the event that aco-operative project becomes insolvent.This has the effect of reducing interestrates and making more funds available.If, on the other hand, the CHFS couldact as a wholesale lender and advance,say, 15% of the amount borrowed, therewould be no need for a guarantee andthe loan could be even cheaper. Thiswould be contingent on CHFSbecoming a Community DevelopmentFinance Institution. At present, Treasuryrules focus on community finance forenterprise and tax credits for housingfinance are not yet available.

25 As income from members’ monthlypayments rises over time, tracking openmarket rents, the co-op’s ability toborrow will also rise and it will be in aposition to borrow additional sums at alevel which takes into account increasesin expenses over the same period.

26 This is defined as “a scheme underwhich the dwelling is let by a housingassociation and the tenant or hispersonal representative will under theterms of the tenancy agreement or ofthe agreement under which he becamea member of the Association, be entitled

on his ceasing to be a member andsubject to any condition stated in eitheragreement to a sum calculated byreference directly or indirectly to thevalue of the dwelling.”

27 To ensure that either Housing Benefit orIncome Support is available, the schemeshould be cleared with HM Treasury andthe Department of Work and Pensions.

28 The scheme needs to be cleared withthe Inland Revenue to ensure that itaccepts that it should be treated in thesame way as Shared Ownership.

29 If the lease is assignable at a nil price,the 1% payment would only be payableonce; it is important that assignments becompleted through the co-op, however,which would contract to assign thetenancy on its existing terms, to avoidinformal ‘deals’. Thus a provision forassignment at a nil price addscomplexity for relatively small gain.

30 Again, the scheme should be clearedwith the Inland Revenue.

31 It was the Great Depression in the1930s and the mortgage foreclosuresby banks and evictions of poor farmersin Denmark that stimulated creativeaction to avoid this calamity in the futurefrom reoccurring.

32 This was crucial in Scandinavia as,unlike in Britain and Ireland, where creditunion loans are for small sums toservice basic consumer needs, mostJAK loans in Denmark and Sweden arefor housing finance. Thus today, JAKbanking in practice more closelyresembles the financing action of smallto medium-size building societies.

55 Common Ground

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Kampfner, J (2002) ‘Frit on the home front’,The Guardian, 31 July 2002.

Kintrea, K and Munro, M (1985) ‘Housing co-operatives in Norway’, in Clapham, D, Kintrea,K, Millar, M and Munro, M, Co-operativeHousing in Norway and Sweden, Glasgow:Centre for Housing Research.

Lew, A (2001) Land: a Community Resourcefor Community Building, unpublished paperproviding information on Canadian HousingCo-operatives and Community Land Trustpractices.

Livingstone, K (2001) ‘Homes for all’, PublicFinance, 2-8 November 2001.

Local Government Association (2002) KeyWorkers and Affordable Housing, 20 June2002.

Lundquist, L, Elander I and Danermark, B

(1990) ‘Housing policy in Sweden; still asuccess story?’ International Journal of Urbanand Regional Research, 14: 445-467.

Lydall R, Bar-Hillel M, and Atik, N (2002)‘Housing Crisis – So many ideas but few realanswers’, Evening Standard, 15 October 2002.

MacFadyen, D (1970) Sir Ebenezer Howardand the Town Planning Movement, Manchester:Manchester University Press.

Martin, G (2001) Swamps and alligators: Thefuture for low-cost home-ownership, JosephRowntree Foundation: York PublishingServices.

Massingham, H J (1942) The EnglishCountryman, London: Batsford.

McCurry, P (2002) ‘Community Investment –Enough of an incentive?’ The Guardian, 3 July2002.

Merkley, J (1996) Discussion of IssuesAssociated with bringing Housing into a LandTrust, unpublished report prepared for theCommunity Housing Land Trust Foundation ofBritish Colombia.

Midwest Association of Housing Coops,www.mahcco-ops.org.

Mills, M (2003), ‘Spending on the home front’,The Guardian, 29 January 2003b.

Minton, A (2002) ‘Past points the way’, TheGuardian, 11 December 2002.

Morehouse, W (editor) (1989) BuildingSustainable Communities – Tools and Conceptsfor Self-Reliant Economic Change, New York:Bootstrap Press.

National Association of Housing Co-operatives website, www.coophousing.org.

National Housing Federation London (2001)Mind the Gaps: Housing London’s Workers,London Housing Federation, 2001.

Nationwide Building Society (2003) HousePrices – Monthly Review, atwww.nationwide.co.uk.

O’Hara, M (2003a) ‘Have I got the house foryou’, The Guardian, 16 August 2003.

O’Hara, M (2003b) ‘North/south house pricegap shrinks’, The Guardian, 27 September2003.

ODPM (2002) Quality and Choice: a decenthome for all – the way forward for housing.

ODPM (2003) Starter Homes Initiative (KeyWorkers), Housing Factsheet No. 6.

ODPM (2003) Sustainable communities:building for the future.

ODPM (2003) Sustainable communities inLondon – Building for the future.

ODPM (2003) Sustainable communities in theSouth West – Building for the future.

Oswald, A (2003) ‘Your boom is nigh: thegreat housing catastrophe’, The Times, 3January 2003.

Papworth, J (2003) ‘First time buyers pricedout of the market’ and ‘Who will help you intoa starter home’, The Guardian, 9 August 2003.

Paterson, L (2003) ‘UK property boom rollson’, The Times, 8 August 2003.

Pickering, P, Parry, E, Jenkins, K and Joliffe, A,CoHousing for Older Women, Blue Star House,Autumn 2002.

Reicher, A (Oct 2002) personalcommunication.

Richman N (1995) ‘From worker co-operativesto social housing; the transformation of thethird sector in Denmark’, in Heskin and Leavittop cit.

Ridley, M., Origins of Virtue.

Rodgers, D (1999) The New Mutualism: theThird Estate, London: Co-operative Party.

Rohe, W and Stegman, M (1995) ‘Convertingpublic housing to co-operatives: lessons fromNashville, in Heskin and Leavitt, op cit.

Royal Commission on Housing in Scotland(1917).

Salman, S (2002) ‘Looking abroad for thesolution’, The Guardian, 20 February 2002.

Scott, K (2003) ‘Mark in the soil’, TheGuardian, 13 August 2003.

Senior Cooperative Foundation, www.seniorco-opnet.org.

Shelter and Joseph Rowntree FoundationCommission on the Private Rented Sector(2002) Private renting: a new settlementShelter.

Slavin, T (2002), ‘From zero to green hero’,The Observer, 4 August 2002.

Spackman, A (2002) ‘Trading places 1: buyersforce prices up by 30%’, The Times, 9November 2002.

Stewart, H (2002) ‘House boom, economicbust’, The Guardian, 20 November 2002.

Stewart, H (2003) ‘Property cash-in soars asincome growth slows’, The Guardian, 5 July2003.

Svensson, K (1995) ‘Not the middle way butboth ways: co-operative housing in Sweden’, inHeskin and Leavitt op cit.

Swann, R (1972) The Community Land Trust: aGuide to a New Model for Land Tenure inAmerica, Center for Community EconomicDevelopment, Massachusetts.

Touchstone Homefinder, All about theTouchstone Sundowner plan, informationleaflet, Touchstone Housing Association.

Turnbull, S (1975) Democratising the wealth ofnations from new money sources and profitmotives, Sydney: The Company DirectorsAssociation of Australia.

Turnbull, S (1976) Land Leases withoutLandlords, presented at the United NationsHabitat Forum, 8 June 1976, Vancouver,Canada. <http://cog.kent.edu/lib/Turnbull-LandLeaseWithoutLandlords.pdf>.

Turnbull, S (1977) ‘A Peaceful Path to RealReform: Self-financing suburbs’, RoyalAustralian Planning Institute Journal, 15:3, pp.81-84, August 1977, Sydney.

Turnbull, S (1983) ‘Co-operative Land Banksfor Low Income Housing’, contribution to: Landfor Housing the Poor, pp. 81-84, Angel,Archer, Tanphiphat, and Weggelin Eds., SelectBook: Singapore.

Turnbull, S (1986) ‘Co-operative Land Banks’,contribution to: The Living Economy: a NewEconomics in the Making, Paul Ekins (editor),Routledge & Kegan Paul: London.

Turnbull, S (1986) ‘Community Land Bank: theWay Forward’, Town & Country PlanningJournal, September 1986, 55: 9, p. 237 andeditorial comment, Ideas from Down-under, p. 236, Town & Country Planning Association:London.

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Tyrell, E (2003) ‘In search of common sense’,The Guardian, 1 February 2003.

Urban Homesteading Assistance Board(1984) Where You Stand – a ShareholdersGuide to Co-operative Ownership, UHAB andDepartment of Housing Preservation andDevelopment, City of New York.

Urban Homesteading Assistance Board(1996) Homesteaders Handbook Volume 1 –A Guide to Organisation and Governance,UHAB and the Department of HousingPreservation and Development, City of NewYork.

Urban Land Fill Institute (2001) Urban InfillHousing – Myth and Fact, Urban Land FillInstitute: Washington, DC.

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Walker, D (2002) ‘Livingstone unveils blueprintfor subsidised housing’, The Guardian, 27February 2002.

Walker, R (2001) New Deals for Leaseholder,London: Mutuo, March 2001.

Watson, G (1997) The Wisdom That BuildsCommunity, Seventeenth Annual Lecture ofthe E F Schumacher Society, Williams College,Williamstown, Massachusetts, October 1997,E F Schumacher Society, 1999.

Weatheralls (2002) Innovation & Good Practice– Affordable Rented Housing for Key Workers,report for the Housing Corporation, May 2002.

Weaver, M (2002) ‘Fears over cash foraffordable homes – Key stroke’, The Guardian,18 September 2002.

Weaver, M (2003) ‘Streets ahead’, TheGuardian, 12 February 2003.

White, K (1994) Managing the Money Side:Financial Management for Community-BasedHousing Organizations, Institute for CommunityEconomics, Springfield, Massachusetts.

Wintour, P (2002) ‘“New Ken” looks to City forLondon success’, The Guardian, 22 June2002.

Wimbourne L and Hare L (2001), Through theKeyhole, London Housing Federation reporton Key Worker housing needs in London.

Witt S and Swann R (1995) Land: Challengeand Opportunity, E F Schumacher Society, May1995.

Yerbury, J (1913) The Story of Co-operativeHousing, London: Tenant Co-operators Ltd.

Community Interest CompanyThis new company form is still subject toconsultation. It is intended to be anappropriate vehicle for social enterprisesthat aim to use their profits and assetsfor the public good. They should be easyto form and flexible, but have certainspecial characteristics designed toensure they operate for communitybenefit. CICs will report to anindependent regulator, and beaccountable for how they benefit thecommunity and for the involvement oftheir stakeholders in their activities. A keyfeature is an asset lock.

Community Land TrustTrust for holding land for communitybenefit; distinguished from conservationland trust or environmental land trustbecause its purpose is the developmentof the land for social or communitypurposes, as opposed to the preservationof its environmental integrity.

Egan constructionPrinciples developed in response to the1998 report Rethinking Construction bySir John Egan’s Construction Taskforce.Principles included targets relating toproductivity, profits, defects and reducedaccidents and it aimed to encourageRSLs (see below) to take opportunitiesfor standardisation, pre-fabrication andmodularisation into account.

Equity-linked mortgagesSimilar to Shared Ownership, but thelender takes a stake in the equity of theproperty directly rather than the RSL andlends less than the full amount requiredto buy the home. Interest is only chargedon the amount of the loan and not on thefull value of the property. When theproperty is sold, the lender receivespayment in proportion to the amount ofequity that they own, and therefore alsobenefits from any increase in the price ofthe property.

HomebuyA government-backed scheme, fundedby the Housing Corporation andoperated by Registered Social Landlords(RSLs). It is available only to existingRSL tenants and those on local authoritywaiting lists for housing. The buyercontributes 75 per cent of the price ofthe housing through personal savingsand a mortgage, and the RSL lends theremainder. There are no repayments onthe 25 per cent typically funded by theRSL; it is repaid when the property is

sold, and the amount repaid in thesecases is 25 per cent of the value of theproperty on resale. If the purchaser dies,the arrangement may be transferred to afamily member/partner, who then takesover the payments and repays theelement owned by the RSL when theyeventually sell.

Housing AssociationHousing associations are non-profitorganisations that build, regenerate andmanage social housing. They are usuallyregistered with the Housing Corporationand aim to house people on low incomesand those who are homeless or living inpoor conditions. Many housingassociations rent most of their housing tofamilies and people nominated by localauthorities; most will therefore not acceptapplications direct from single homelesspeople. Some also manage hostels andhousing projects and lease buildings tovoluntary organisations providingaccommodation, care and support tohomeless people and other groups.

Housing CorporationA government body operating under theOffice of the Deputy Prime Minister,responsible for public investment inhousing associations.

Index-linked mortgageBoth the annual mortgage payment, andthe outstanding debt at the year end, areincreased annually by the rate ofinflation. The interest rate charged shouldnormally be the interest rate on aconventional mortgage less the rate ofinflation (e.g. if the conventionalmortgage rate is 4.5 per cent andinflation is two per cent an index-linkedmortgage would be at an interest rate of2.5 per cent). Where this formula is used,an index-linked mortgage repays a debtover the same period as a conventionalmortgage. Payments start at a muchlower level than the fixed payments of aconventional mortgage but increasethroughout the term and will beconsiderably in excess of the annualconventional mortgage payment by thefinal year. Index-linked mortgages are aform of low-start mortgage and provide away in this model of matching loanrepayments to rental income throughoutthe period of repayment. A conventionalmortgage by contrast will result insurplus income as rents rise with inflationbut needs higher initial rents to cover thecash flow.

Glossary of terminology

Innovation and Good Practice GrantA revenue programme managed by theHousing Corporation; its aim is to helphousing associations, tenants and othersdevelop new ways of managing housingand related issues and disseminateinformation among social housingproviders.

Intermediate and sub-market housingHousing whose cost falls between openmarket and social housing levels either inthe rented sector or the area of low-costhome ownership

Islamic Finance (Unit Trust Funds)The main objective of an Islamic UnitTrust is to invest in a portfolio of ‘halal’stock that complies with the Islamicprinciples of the Shariah. Such ‘halal’stocks will exclude companies involved inactivities, products or services related toconventional banking, insurance andfinancial services, gambling, alcoholicbeverages and non-halal food products.The returns of the Islamic Unit Trust willalso avoid the incidence of ‘riba’ or usuryinterest through the process of cleaningor purification by the removal of suchamounts representing the interestelement which has unavoidably accrued.Such proceeds are normally donated tocharities. For a brief description of theapplication of this principle to thepurchase of housing through an IslamicProperty Unit Trust as set out in Section 4.1.

Land poolingA process in which landowners offragmented parcels of land collaborate topool land for major development or re-development schemes. Landowners mayretain a stake in the land ownership. Aplan sets out the procedure for landassembly, servicing and disposal, andmay involve some form of compulsion.

Leasehold enfranchisementUnder certain circumstances,leaseholders of a house or flat have theright to purchase an extension to theexisting lease or to purchase the freeholdfrom the existing freeholder.Leaseholders of flats can exercise theright to enfranchise by purchasing thefreehold collectively. The right wasintroduced by the Leasehold Reform Act1967 and originally applied to housesonly. It was then extended toleaseholders of flats by the LeaseholdReform Housing and Urban DevelopmentAct 1993, and then further extendedunder the The Commonhold andLeasehold Reform Act 2002.

Low-start mortgageSimilar to a repayment mortgage but withan interest-only or discountedintroductory payment period. Repaymentsof capital and interest are thenintroduced and sometimes phased in.The total amount of interest andrepayments over the life of the mortgageare higher than with a normal repaymentmortgage, but payments during the initiallow-start period are reduced.

Mother-daughter co-operativestructureA system of co-operative developmentespecially strong in the field of mutualhousing where a secondary co-operative,or ‘mother society’ in a geographic regionprovides development expertise for newhousing and helps arrange finance aswell for founding new primary housingco-operatives, or ‘daughter societies’. Themother society also provides training fornew members and arranges or directlyprovides other core services at low coston behalf of all daughter societies.Accountability is to the daughtersocieties as each daughter societymember democratically elects the boardof the mother society.

Par-value co-operativeMembers take out a nominal share whichis returned ‘at par’, or for the same cost,when they leave. May also be referred toas a ‘non-equity’ or, in the US, a ‘zero-equity’ co-operative.

Planning Policy Guidance Note 3:HousingSets out government policies forplanning in relation to housing.

Regional Planning GuidanceSets out government regional planningpolicy.

Property Unit TrustProperty unit trusts invest in real propertythrough a pool of funds with exposure tothe property market. Returns aregenerated from the rental income, plusany capital appreciation over the periodthe units are held. Most property units arelisted on a stock exchange to ensure thatthe fund manager has sufficient fundsover the life of the Trust to maintain asufficient level of investment without theneed to maintain a pool of liquidity tohandle redemptions/sales of units.

Real Estate Investment TrustsPrimarily a US phenomenon, althoughthey do exist in other countries. They areregulated under general US corporatelaw. Unlike banks, they do not offer anyspecial protections. They function inmuch the same way as a mutual fund orunit trust for real estate, in that investorsobtain a diversified portfolio underprofessional management. Its shares arefreely traded, usually on a major stockexchange. It has special status under theUS tax code, allowing it to pay nocorporate income tax provided itsactivities meet certain statutoryrequirements, including requirements asto number of shareholders, restrictionson its business to certain commercial realestate activities and certain otherownership limitations. REITs mustdistribute 90 per cent of net income.Most American states also exempt REITsfrom state income tax. Shareholders paytax on the income they receive.

Registered Social Landlord (RSLs)Registered Social Landlords (RSLs) areindependent housing organisationsregistered with the Housing Corporationunder the Housing Act 1996. Most arehousing associations, but they alsoinclude trusts, co-operatives andcompanies.

Rental purchaseThe resident has a lease of the dwellingand pays rent for a specific term, at theend of which ownership is transferred tohim or her. Used in the past to avoid FairRent provisions under the Rent Acts (nolonger in force), but now applied inIslamic finance instruments to enablehome purchase over time withoutapplication of interest. Rent is acceptableas a payment for a real benefit and takesthe place of interest, which is prohibitedunder Islamic law as usurious.

Re-sale formulaFormula for calculation of the price to bepaid to homeowner residents or limited-equity co-op leaseholders on departurefrom a community land trust.

Section 106 AgreementSection 106 Agreements are a type of‘Planning Obligation’ authorised bySection 106 of the Town and CountryPlanning Act 1990. A planning obligationis a legal agreement between theplanning authority and theapplicant/developer, any successiveowners and any others who may have aninterest in the land. It either requires thedeveloper to do something or restrictswhat can be done with land following the

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grant of planning permission. Planningobligations tend to apply to majordevelopment schemes. They shouldrepresent a benefit for the land and/orthe locality; they are registered as LocalLand Charges and are normallyenforceable against the people enteringinto the obligation and any subsequentowner of the site.

Section 236 fundingUS legislation enacted in 1968 (Housingand Urban Development Act). It providesa subsidy to housing projects to reducemortgage interest payments. Themaximum subsidy was set at thedifference between the monthly paymentfor principal, interest, and mortgageinsurance premium on the outstandingmortgage at the market rate of interestand the monthly payment, which wouldbe required under a mortgage bearing aninterest rate of one per cent.

Shared OwnershipShared Ownership schemes areadministered by Housing Associations.They provide for the purchase of part ofthe value of housing (conventionally 50per cent) by the prospective resident,with the option to ‘staircase’ up to ahigher percentage of ownership in thefuture; the registered social landlord(RSL) retains ownership of the remainderof the equity, for which it then chargesthe leaseholder rent. The rent charge isset as a percentage of the affordablerent the RSL would charge for a similarrented property; the percentagereflecting the percentage of the equityretained by the RSL.

Social Housing GrantA capital grant provided by the HousingCorporation to fund housing associationsand develop social housing.

Starter Home InitiativeThe Starter Home Initiative (SHI) is aHousing Corporation scheme to help keyworkers, primarily teachers, healthworkers and the police, to buy a home inareas where high house prices areundermining recruitment and retention.The scheme is available in London, theSouth East and housing hot spots inEastern and South Western England.

Tilting mortgage financeA tilting index-linked mortgage works inthe same way as an index-linkedmortgage, but applies a lower annualincrease to both loan repayments andthe outstanding debt. Where inflation is2.5 per cent and a one per cent ‘tilt’ isapplied, the mortgage profile will be

similar to that for an index-linkedmortgage based on inflation of 1.5 percent. The tilt means that where theincome to pay the mortgage comes fromrents, which rise annually with inflation, asurplus will arise which is smaller than fora conventional mortgage but larger thanfor an index-linked mortgage. In the caseof an index-linked mortgage, the surplusis eliminated in favour of the lowestpossible starting payment.

Unitary Development PlanContains the planning policies governingdevelopment in an area and controlsdevelopment in unitary authorities suchas London boroughs at both strategicand local level.

1. Research Title: Mutual Solutions toMeet Housing Need for Key Workersin London and other Higher CostRegions of England – MarketFeasibility Study

2. Project Purpose: To research thefeasibility of developing anintermediate sub-market form oflimited-equity housing co-operativefor key workers who are currentlypriced out of the market in highhousing cost areas and to markettest the model to assess the likelydemand.

3. Project Objectives:

The research will seek to developinnovative funding mechanisms thatcreate an attractive way of enablingkey workers on low to middleincomes of investing in their homeswithout some of the costsattributable to other forms of low-cost home ownership with subsidylevels that are attractive togovernment;

The model developed will be markettested with key worker focus groupsto test likely demand and to verifythat the limited-equity model is anattractive sub-market form;

Exit routes from the investment willalso be considered and tested;

A report will be produced detailingthe research methodology, the modeldevised and the results of the marketresearch to test likely viability andlikely demand;

A key desired outcome from theproject is to create a viable modelthat can be subsequently be piloted,with local authority support, inLondon and the South West.

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Appendix 1: Research Terms of Reference with the Housing Corporation

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London

1. Rachel PowerRichard House Children’s Hospice

2. Jakki MoxhamSpringboard Housing Association

3. Cllr Alec KellawayCabinet Member, London Borough ofNewham

4. Redhika BynonLondon Borough of Newham,Education Department

5. Bridgette OsakuniLondon Borough of Newham,Housing Partnerships

6. Peter EliaWest Ham and Plaistow New Dealfor Communities

7. Mike YoukeeNOAH Ltd.

8. Sher KhanNoah’s Ark Ltd

9. Peter CorbishleyBromley Street Housing Co-operative

10. Steve InkpenLondon Borough of Tower Hamlets,Housing Department

11. Christine CzechowskiCoin Street Community Builders

12. Fiona AustinCoin Street Community Builders

13. Gwyneth AllenKensington Housing Trust

14. Stephen HillCapital Action

15. John PrewerPeabody Housing Trust

16. Jenny GoodwinThe Housing Corporation

17. Adrian TommsBoleyn & Forest Housing Association

18. Kate EldridgeHackney Borough Council

19. Augustina Nyamaah, Tower Hamlets Borough Council

20. Alex GipsonRoyal Bank of Scotland/NatWest

The South-West

21. Martin LargeStroud Common Wealth Ltd

22. Max ComfortStroud Cohousing Ltd

23. Andrew BeardArchitect

24. Gabrielle KayeWynstones School

25. Philip KerwinSt. Luke’s Medical Centre

26. Simon CharterKolisko Farm Ltd

27. Sir David McMurtryRenishaw plc

28. Peter BowlesRenishaw plc (Personnel Manager)

29. Jane EmanuelSouth-West Foundation

30. Julie StaffordGloucestershire Housing Association

31. Stephen HoltRoyal United Hospital, Bath (Directorof Facilities)

32. Peter EleyRoyal United Hospital, Bath (HumanResources Manager)

33. Kathrin LuddeckeOxford Swindon and Gloucester Co-operative Society Ltd

34. Jane ShaylerStrategic Housing Department, Bathand North-East Somerset DistrictCouncil

35. Lizzie CoxBath and North-East SomersetDistrict Council

36. Jane AldermanSomer Housing Group

37. Barry WyattHead of Development Services,Stroud District Council

38. Andrew O’BrienHead of Planning, Stroud DistrictCouncil

39. Sue CreasyKnightstone Housing Association,Weston-super-Mare

40. Shirley Evans-JonesHastoe Housing Association

Appendix 2: List of Third Party Interviewees

1. Legal structure

The two core objectives of the schemeare the protection of the element ofpublic subsidy (the commons) for futuregenerations and the opportunity foroccupiers to participate in equity growth.The central mechanisms for this are aCommunity Land Trust, to protect subsidyin the form of land, and a co-operative asa vehicle for providing occupation rightsand equity participation.

1.1 Community Land TrustThe CLT owns the freehold of the land,of which it grants a lease to the co-op.The value of the land is used to assistthe co-op to provide security forborrowings to fund construction in thesame way as a shared ownership lease;with the chargee retaining the right tosell the whole if the project fails. Therewould also be scope for a potentialsecond charge to a guarantee society25

(relevant in the context of a guaranteemechanism for the purposes of reducingthe cost of borrowing).

Issues arisingPrevention of leasehold enfranchisementand protection of subsidy (in the form ofthe land)

Membership and governance of the CLT;who will be the stakeholder members? Inthis context, a separate area of concernis control of the subsidy held by the CLT.Likely stakeholders would be:

l The local authority

l Key worker employers

l The occupiers/leaseholders.

Proposed solution to enfranchisementconcernThe model will always be at risk ofstatutory measures, which is to someextent therefore a political issue. As thelaw stands at present, the land would beprotected if the CLT were to grant alease to itself and the co-op on the basisof a joint tenancy, so that it could vetoany application against itself forenfranchisement.

The recitals should make explicit that theland is intended to be preserved as anasset to maintain the availability ofaffordable housing in the future and thatthe intention of the lease is to create

obligations of mutuality to that end. Thiswould help address the possibility of anil/nominal valuation of the freehold inthe context of enfranchisement (thevaluation being a multiple of the rent,which would probably be nil or very low).

A further possible solution would be anotional full rent relating to the subsidyelement, which would not be payablewhile the asset was being applied to itsintended purpose. It would be calculatedas a percentage of the value of the landat the relevant time, and would thereforefall due on enfranchisement. The sumpayable on enfranchisement would be amultiple of the rent, and the financialadvantage would be lost. In this scenario,the CLT would still grant the lease toitself and the co-op jointly.

Otherwise there would be nothingparticularly unusual about the lease.

To ease administration, a power ofattorney could be granted by the CLT tothe co-op on closely defined terms.

1.2 The Co-operativeThe co-op would be fully mutual;occupiers would be members, each withone vote. The co-op would raisemortgage finance collectively, andtherefore cheaply, and the co-op wouldbenefit from tax advantages available tofully mutual co-ops. These relate to thetax status of repayment of the principaldebt. While payments of interest aretreated as expenditure for tax purposesin the case of conventional landlords,repayment of the principal is not allowedas an expense and is therefore taxed.However, if the co-op is fully mutual,repayment of the principal is treated inthe same way as it would be in the caseof an individual homeowner, the co-opbeing the expression of its members’identity, and is not subject to tax. Thus,there is a saving of 30 per cent oncapital repayments.

The function of the co-op would be toraise finance on a wholesale basis,manage the mutual home ownershipmortgage scheme and control the termsunder which rights of occupation couldbe transferred.

The CLT and the co-op would grant anunder-lease to the CLT, the co-op andthe occupier jointly (again, to preventenfranchisement). It would be a long

lease, so that responsibility formaintenance of the internal parts couldrest with the occupiers and so that theycould jointly raise mortgage financethrough the co-op.

The lease would be drawn up on a quasi-shared ownership basis, and allowoccupiers to ‘staircase’ their equityparticipation up and down within certaindefined limits.

1.3 The Occupiers – Equityparticipation and “Deposit”“Deposit” – may be affordable initiallyfrom occupiers’ savings/unsecuredborrowings but, if their stake is based ona percentage of the open market valueof the properties, there is a risk that theamount would rise steeply as aproportion of average public sectorearnings, and affordability may become aproblem for future occupiers without thepossibility of raising a secured loan. Thelevel of deposit would initially be set at5%, but should be kept under review bythe co-op. For fully developed schemes,this percentage may be reduced in lateryears in order to maintain its affordabilityin relation to earnings.

Equity release mechanism – equitywithdrawal should be related to thecapacity of the co-op to borrowadditional funds based on a transparentformula agreed at the outset. It should beswift and flexible in releasing smallcapital sums to occupiers as the needarises, and not confined to restrictedpurposes such as a deposit on anotherproperty on exit.

Mutual mortgage contribution scheme– set at a percentage of current openmarket rent (possibly one-third on thebasis of the one-third rule of thumb inrelation to land, construction and profitcosts), or the co-op’s ability to meet itsdebts, whichever is the greater (to coverthe risk that the proportion would finditself out of step with open market rentsin a volatile market). Thus, payments bymembers would principally support theconstruction costs (as well as majorrepairs, maintenance and administration).The co-op’s capacity to borrow26 wouldrise in line with the rise in monthlyreceipts in the form of member paymentsand it could use the borrowings to buyout departing occupiers and releaseequity to occupiers (see above).

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Appendix 3: Legal Advice Summary of Key Issues

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Income – within that aggregateframework, mortgage contributions wouldbe set for individual occupiers on thebasis of a percentage of their income atthe time of entry. It would not then varyup and down as their income changedsubsequently, but they would have theopportunity to ‘staircase’ up or down.

2. Significant ancillary issues

2.1 Housing BenefitUnder current legislation, HousingBenefit may be excluded by operation ofthe 1987 Housing Benefit Regulations,para 2(1), because the scheme may beheld anomalously to fall within thedefinition of co-ownership.27

In the event of unemployment or long-term illness, occupiers as mutualhomeowners would therefore have to relyon Income Support and claim a paymentto cover mortgage interest, servicecharges and Council Tax rebate. Underexisting regulations, benefits to covermortgage interest would not be availableuntil after a period of six months’unemployment, so consideration shouldbe given to a collective insurancescheme arranged by the co-op for itsmembers to cover payments for thatperiod. The equity release provision (seeabove) will also be available to covershort-term member payment problems ofthis nature.28

2.2 Stamp DutyStamp Duty is payable by the co-op onthe lease granted by the CLT. If it were abuilding lease at a nil premium and a nilrent containing an obligation for the co-op to construct the dwellings and letthem, no stamp duty would be payable.However, the value of the building couldbe treated as consideration for the grantof the lease, giving rise to stamp duty onthe cost of construction.

Stamp Duty is payable on a weeklytenancy at a rent of more than £5,000per year. It is also payable on surrenderor assignment on capital value only,currently if the value of the transaction ismore than £60,000. In SharedOwnership schemes, it is possible toelect to be treated as having bought theproperty in its entirety at the outset, sothat Stamp Duty is payable on the fullpurchase price at a rate of one per centbut not the lease. As Stamp Duty is 12per cent of annual rent, this election islikely to be more advantageous.29 Thiswill require careful drafting of thelease/equity participation agreement.30

2.3 Capital Gains Tax ExemptionThe current annual taxable threshold is£7,700. An ‘interest in’ a dwelling housebenefits from the “only or main residenceexemption”, which appears to be taken asa legal or equitable interest. Occupiersunder the proposed scheme should,therefore, benefit from the exemption.31

2.4 Income TaxAccommodation provided at a discount byvirtue of the occupier’s employment issubject to income tax on the differencebetween the discounted price and themarket rate. This would therefore be aproblem for, say, health workers entitledto live in the scheme because of theirwork. Further, the co-op would be liable topay National Insurance on the same sum.

It is therefore essential to ensure that thepurpose of the housing is expressed tobe to provide housing to people unableto afford to purchase in the open market,and that members are chosen by the co-op, and not by an employer. If a localemployer wished to have nominationrights, this would be expensive as theywould have to underwrite the costsinvolved.

However, indirect arrangements arepossible. For example, if occupation ofthe property is determined through aSection 106 planning consent, the valueof the accommodation is itself limited bythe planning restriction and this alsoavoids the problem. Another solution maybe for, say, a health workers’ club to formthe co-op and then to develop thescheme.

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

Financial and Leasehold Structure:

1. Land asset value (and/or other subsidy provided) not tobe owned by individual co-op members or through limited-equity shares but retained as a permanent social asset for‘Community Benefit’ in a tax exempt Community LandTrust, with the co-op holding a 99-year minimum headlease.

2. Development to be undertaken by the co-op and the CLT;the CLT to grant a charge over its land to the co-op’smortgage; completed homes to be leased to the co-op.

3. Mortgage finance for individual equity stakes to becollective, not individual, and to be raised on either a low-start basis over 25 years, where repayments rise accordingto a formula (e.g. index-linked or Canadian Tilting mortgagefor co-ops) based on inflation or else as conventionalrepayment finance with a supplementary facility allowingdeferment in the early years.

4. Equity stakes to start with an initial payment of five per centof the mortgage finance required. In future as housingprojects developed mature, this deposit might be lowered atthe discretion of the co-op.

5. Equity stakes to be unitised through a Property Unit Trusttype system to provide highly flexible tenure, permittingincremental staircasing – down as well as up whennecessary.

6. Rights of occupation are governed: (i) by a sharedownership lease structured to provide maximum securityof tenure and rights to income support and (ii) by themembership shareholding in the co-op

7. All routine internal servicing and repairs to be theresponsibility of occupying members

8. Units acquired by outgoing members to be purchased at aprice based on an agreed resale formula, based on eitheran agreed index of local property market values orpossibly an index of building costs.

9. Co-op to have a charge or lien over members’ equitystakes

10. When members leave, they will assign their lease to theincoming member through the co-op

Reason

to lock in subsidy in robust ways which preventsdemutualisation through privatisation and thus retainshousing as a permanently affordable social asset for futuregenerations

to enable the lender to have access to the securityprovided by the CLT equity

to achieve more competitive rates, avoid mortgage set-upcosts for mutual homeowners and to keep outgoings within30-35 per cent of net salary levels

to provide a reserve to limit negative equity problems for theco-op and to demonstrate commitment to the model

to enable close gearing of asset acquisition to income andthus allowing lower income key workers to becomemembers

(i) to permit limited-equity interest to be assigned underLandlord and Tenant law rather than sold – thus saving onlegal and other transactional costs of buying and sellingproperty and (ii) to provide a share in accumulated equitythrough a mutual mortgage scheme

to encourage care for property and reduce collective repaircosts

to minimise valuation fees and legal costs

to avoid mortgage payment arrears and losses from non-payment

a) to ensure that units are traded at their proper value andnot at a premium, b) to enable the co-op to re-distributesome of the equity units to other resident members, toallow them to increase their investment and to permit aperson on a lower salary than the outgoing member tomove in and c) to enable the co-op to ensure thatincoming members meet the ‘key worker’ criteria imposedthrough the lease granted by the CLT.

67 Common Ground

Reason

to ensure a board which represents a balance of local andcommunity interests, levers expertise from professionalspro bono, and can maintain the mission of permanentaffordability in the local areas served by the CLT in theurban area or rural region

to preclude the granting or assignment of occupationrights to persons other than members

to ensure that co-op is bona-fide co-op to ensure fullaccountability to all members

to ensure genuine ownership of the co-op, decisions andmanagement issues, by members and to ensure thatmembers control the assets in which they are investing

because existing lending institutions will be persuaded toprovide finance on the terms proposed in the model with asecondary finance provider sharing any sensitivity risk

to provide a savings account facility to members that atthe same time accelerates debt repayment and also buildsadditional reserve funds for refinancing exit of members

Governance Structure

11. Community Land Trust to be a non-profit Industrial andProvident Society for Community Benefit or similarCommunity Interest Company with a three part directorateinvolving one-third leaseholders (ie. members of the co-operative who occupy units in buildings located on CLTland), one-third local authority and the local communityinterest, one-third key worker employers and volunteerprofessionals (e.g. lawyers, surveyors and finance experts).

12. Co-ops to be established as fully mutual housingassociations under the law, with membership restricted toresidents or prospective residents of the association.

13. Operation of housing co-ops in accordance with the seven Co-operative Principles (to be written into theorganisation’s rules) and management committee electedby members.

14. Effective control of day-to-day decisions about therunning of the housing co-op to vest with members with abudget for training and educating mutual homeowners.

Member Social Investment – SecondaryFinancing Features

15. Second mortgage finance to be made available through aregional CDFI partner and with either key workeremployer or Government ‘social investment’ of five percent (i.e. matching the key worker down payment) in orderto enable a conventional mortgage to be treated as index-linked (if index-linked finance is unavailable) and to enableequity stakes to be paid as residents leave and the loandebt needs to be increased.

16. Members can also assist the co-op to reduce its debt levelby purchasing co-op IPS shares (beyond an agreedminimum entry level up to the legal maximum of £20,000)at a low and variable dividend/interest rate of say one totwo per cent which enables the co-op to swap this fundfor the debt balance on the properties.

68Common Ground

Appendix 5 Annex 1: Affordability of property compared tohousing costs

69 Common Ground

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

70Common Ground

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

71 Common Ground

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

Cost/m2 Cost/m2 Cost/m2Size Newham Milton Keynes Stroudm2 £ £ £

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

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, Q4Outer Metropolitan Outer Southeast Southwest

Average 189,738 150,505 136,698

First time buyer 144,843 117,850 106,260

East Anglia125,645

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

72Common Ground

Rate Type Period (years)

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

Capital costsNewham Milton Keynes Stroud1-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 £63,635Assumed land value £51,520 £72,274 £42,100 £59,395 £29,455 £41,365Sweat equity potential £12,696 £14,545 £10,580 £12,121 £11,109 £12,727Kitchen 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 £79.23Indexlinked (20 year repayment) £63.24 £103.63Indexlinked (30 year repayment) £46.83 £76.73 £98.22Interest only (conventional), no repayment £48.50 £48.50 £48.50Interest only (ethical), no repayment £37.50 £37.50 £37.50

RevenueCosts - based on cooperative shared ownership

Per week Per annum

Management £2.80 £146Planned maintenance inc external painting £1.10 £57Buildings insurance £1.20 £62Routine maintenance £2.20 £114Services £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 4,21432.50% 5,060 5,554

35% 6,513 7,045

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

30% 3,285 3,74132.50% 4,586 5,080

35% 6,040 6,572

Appendix 5 Annex 4: Assumptions made in the model

73 Common Ground

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

Full cost/value 145,000 Income 21,000Subsidy 30,708 Payment 32.5%Deposit (4% value) 5,800Debt 108,492 Affordable payments 5,554

% to equity stake 0%Finance rate 4.85%Real interest rate 2.35%Years 30Mortgage 5,080Mortgage 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/ Reservevalue 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

Appendix 5 Annex 5 Examples of the model with differentfinancing options Annex 5a

74Common Ground

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Appendix 5 Annex 5a (contd)

75 Common Ground

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

Full cost/value 145,000 Income 21,000 UnitsSubsidy30,885 Payment 32.5% Number Value £Deposit (5%) 5,800Debt 108,315 145,000 Affordable payments 5,554 1,000 145

% to equity stake 0% CLT 213 213Finance rate 4.85% Occupier 40 40Real interest rate 2.35% Mortgagee 747 747Years 30 1,000Mortgage 5,072Mortgage indexation 2.50%

Above RPI byInflation 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/ Reservevalue 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 30Value of property at leaving date 160,764 190,937 226,774 269,336 319,887 379,925Original 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 30Value of unit 145.00 155.33 184.48 219.10 260.23 309.07 367.08Initial units 40Total units - mortgagee 747 693 557 420 282 142 0Total units - CLT 213 213 213 213 213 213 213New units purchased 54 136 137 138 140 142Total units purchased 0 54 190 327 465 605 747Total units owned - occupier 40 94 230 367 505 645 787

1,000 1,000 1,000 1,000 1,000 1,000 1,000

Appendix 5 Annex 5b

76Common Ground

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

Full cost/value 145,000 Income 21,000Subsidy 59,743 Payment 32.5%Deposit (4% value) 5,800Debt 79,457 Affordable payments 5,554

% to equity stake 0%Finance rate 4.85%Real interest rate 4.85%Years 30Mortgage 5,081Mortgage indexation 2.50%

Above RPI byInflation 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/ Reservevalue 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 30Value of property at leaving date 160,764 172,215 190,937 226,774 269,336 319,887 379,925Original 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 0Repaid equity at leaving date 5,846 11,743 22,537 47,109 82,833 134,340 208,191

Appendix 5 Annex 5c

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Appendix 5 Annex 5c (contd)

78Common Ground

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

Full cost/value 145,000 Income 21,000 UnitsSubsidy 59,740 Payment 32.5% Number Value £Deposit (5%) 5,800Debt 79,460 145,000 Affordable payments 5,554 1,000 145

% to equity stake 0% CLT 412 412Finance rate 4.85% Occupier 40 40Real interest rate 4.85% Mortgagee 548 548Years 30 1,000Mortgage 5,081Mortgage indexation 0.00%

Above RPI byInflation 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/ Reservevalue 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 30Value of property at leaving date 160,764 190,937 226,774 269,336 319,887 379,925Original 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 0Repaid 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 30Value of unit 145.00 155.33 184.48 219.10 260.23 309.07 367.08Initial units 40New units purchased 80 120 105 91 81 71Total units purchased 80 200 305 396 477 548Total units owned - occupier 120 240 345 436 517 588Total units - CLT 412 412 412 412 412 412

468 348 243 152 71 0

Appendix 5 Annex 5d

79 Common Ground

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 11.69Years 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 202.30Mortgage indexation 2.50% Monthly payment per £1 0.0049432Tilt 1.00% Annual payment per £1 0.0593Inflation 2.50% Annual payment per £1,000 59.32Prop. 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/ Reservevalue 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 14,724 145,48016,579 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 15Value of property at leaving date 125,664 133,317 145,679 168,881Original debt as % of value 74.5% 74.5% 74.5% 74.5%Debt at leaving date 79,380 75,813 69,111 53,608Repaid equity at leaving date 14,208 23,474 39,383 72,166

Appendix 5 Annex 6

80Common Ground

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4,5

01

14

4,8

69

-6,6

00

32

,49

01

,272

,378

7,9

51

32

,30

48

,45

93

22

,44

81

,62

4,5

01

38

,176

15

3,7

89

40

,61

31

,54

9,5

00

14

9,2

15

-4,5

742

7,9

16

1,2

10

,62

27,

578

32

,84

38

,06

13

05

,24

51

,54

9,5

00

36

,41

31

56

,14

93

8,7

38

1,4

68

,50

11

53

,69

1-2

,45

82

5,4

58

1,1

43

,971

53

60

,83

17,

173

33

,39

57,

63

16

47,4

85

1,4

68

,50

13

4,5

10

15

8,5

52

36

,71

31

,742

,00

31

58

,30

2-2

50

25

,20

81

,072

,157

1,74

2,0

03

40

,93

71

63

,30

84

3,5

50

1,6

63

,18

21

63

,05

1-2

572

4,9

51

99

4,8

99

1,6

63

,18

23

9,0

85

16

8,2

074

1,5

80

1,5

75,6

39

167

,94

3-2

65

24

,68

69

11

,90

01

,575

,63

93

7,0

28

173

,25

43

9,3

91

1,4

78,8

04

172

,98

1-2

732

4,4

13

82

2,8

50

1,4

78,8

04

34

,75

21

78,4

51

36

,970

1,3

72,0

741

78,1

70-2

81

24

,13

272

7,4

22

1,3

72,0

743

2,2

44

18

3,8

05

34

,30

21

,25

4,8

15

18

3,5

15

-28

92

3,8

43

62

5,2

721

,25

4,8

15

29

,48

81

89

,31

93

1,3

701

,12

6,3

55

18

9,0

21

-29

82

3,5

45

51

6,0

41

1,1

26

,35

52

6,4

69

19

4,9

99

28

,15

99

85

,98

41

94

,69

1-3

072

3,2

37

39

9,3

49

98

5,9

84

23

,171

20

0,8

48

24

,65

08

32

,95

62

00

,53

2-3

16

22

,92

12

74,7

99

83

2,9

56

19

,574

20

6,8

742

0,8

24

66

6,4

81

20

6,5

48

-32

62

2,5

95

14

1,9

726

66

,48

11

5,6

62

21

3,0

80

16

,66

24

85

,72

52

12

,745

-33

62

2,2

60

43

24

85

,72

51

1,4

15

21

9,4

731

2,1

43

28

9,8

10

21

9,1

27

-34

62

1,9

14

-15

0,2

84

28

9,8

10

6,8

11

22

6,0

577,

24

577

,80

92

25

,70

1-3

56

21

,55

8-3

10

,65

977

,80

91

,82

92

32

,83

81

,94

5-1

51

,25

62

32

,472

-367

21

,19

1-4

81

,20

2-1

51

,25

6-3

,55

52

39

,82

4-3

,78

1-3

98

,41

52

39

,44

6-3

782

0,8

14

-66

2,4

44

-39

8,4

15

-9,3

63

247

,01

8-9

,96

0-6

64

,757

24

6,6

29

-38

92

0,4

25

0-6

64

,757

-15

,62

22

54

,42

9-1

6,6

19

-95

1,4

26

25

4,0

28

-40

12

0,0

24

0-9

51

,42

6-2

2,3

59

26

2,0

62

-23

,78

6-1

,25

9,6

32

26

1,6

49

-41

31

9,6

11

0-1

,25

9,6

32

-29

,60

12

69

,92

4-3

1,4

91

-1,5

90

,64

82

69

,49

8-4

25

19

,18

60

-1,5

90

,64

8-3

7,3

80

278

,02

1-3

9,7

66

-1,9

45

,81

62

77,5

83

-43

81

8,74

80

-1,9

45

,81

6-4

5,7

27

28

6,3

62

-48

,64

5-2

,32

6,5

50

28

5,9

11

-45

11

8,2

970

-2,3

26

,55

0-5

4,6

742

94

,95

3-5

8,1

64

-2,7

34

,34

02

94

,48

8-4

65

17,

83

3-2

,73

4,3

40

00

00

30

3,3

23

30

3,3

23

32

1,1

56

Appendix 5 Annex 6 (contd)

81 Common Ground

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 59,948 47,787

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

82Common Ground

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 modelsubsidy 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 salary2 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:l slightly lower payments as a result of longer mortgage period and marginally lower ratel reduced management costsl no requirement to have both an individual mortgage and pay rent/servicesl greater share of equity appreciationl equity locked permanently into CLTl more flexible affordability calculation

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

Appendix 5 Annex 8 Comparison of the model with SharedOwnership and Homebuy

83 Common Ground

In Sweden, the Tenant Ownership Co-operative System has been developedextensively for decades through linksbetween regional secondary housing co-operatives (referred to as ‘mothersocieties’), which provide developmentsupport to enable new local housing co-operatives (referred to as ‘daughtersocieties’) to become established. Furthersupport has been provided by specialistfinance mechanisms.

With the steady growth of CommunityDevelopment Finance Institutions(CDFIs) in the past 10 years, there isnow scope for development of suchspecialist finance to help support andsustain the development of mutualhomeownership projects in the UK. Insome English regions, there are also asmall number of secondary housing co-operatives that can act as ‘mothersocieties’.

Secondary finance – a role forCommunity DevelopmentFinance Institutions

In the US, from where British CDFIs havegained inspiration and guidance, low-income equity housing co-ops aresupported by Community DevelopmentLoan Funds in many New England states.Additionally, the Institute of CommunityEconomics (ICE) is an accredited CDFIand operates a national revolving loanfund to assist Community Land Trustssecure primary bank finance for newprojects. In New York City, CommunityDevelopment Credit Unions such as theLower East Side Peoples’ Federal CreditUnion and the Homesteaders FederalCredit Union specialise in providingsecondary sources of finance for limited-equity housing co-op members to meetneeds such as deposits, furniture andinternal repairs.

During the course of this research,consideration was given to the scope fordevelopment of innovative, low-cost‘interest-free’ loans to co-op members tosupport mutual homeownership. Such aloan system has been developed by theJAK Bank in Sweden since 1965 tomeet housing finance needs.

The JAK system was pioneered by theDanish Christian Socialist and co-operative farmer, Christian

Christiansen.32 Christiansen’s co-operative lending system developed wellin Denmark until the 1970s, when theoriginal co-operative bank was takenover by a traditional bank. Since then theJAK system has revived again inDenmark and has also becomesuccessful in Sweden.

In Sweden, initial capital was provided bya handful of co-operative savers aided bya wealthy philanthropist who providedboth helpful start-up capital and matchedfunds to incentivise savings efforts. Theinitial legal structure in Sweden was aco-operative loan fund similar toCommunity Development FinanceInstitutions (CDFIs) such as LondonRebuilding Society or the WessexReinvestment Trust in the rural SouthWest. The first loan was made in 1970.Today JAK in Sweden has over 25,000members with savings of 660 millionSwedish kroner (£47 million) and loansoutstanding of 560 million Swedishkroner (£40 million). JAK securedregulatory authorisation and graduated toa co-operative bank in 1998.

JAK Saving-Point BasedInterest Free Lending Systems– Operational Description

JAK, like other co-operatively basedlending systems, uses a save and borrowmethodology similar to those traditionallypracticed by credit unions. Like the earlyRaiffeisen credit unions in nineteenthcentury Germany, and as is still practicedin Britain and Ireland today, membersmust save regularly to build up the co-operative lending funds from whichmembers can then borrow. In Sweden,support from an ethical investmentphilanthropist assisted fund developmentin the 1970s and, as a result, a greatermultiple of savings was allowed for loansfrom the very beginning than is normallyavailable from credit unions.33

JAK’s savings point-based interest freesystems differs significantly from ordinarybank, building society, credit union orCDFI lending. There are three maindifferences:

No net interest is paid by theborrower: Accordingly, the provider ofthe credit does not charge the borroweranything for comparable earnings on

capital, but only for the administrativework involved in the loan and theestimated proportion of risk taken. Thus,a loan-fee payment for administrationand risk can be charged in the form offund management charges in a similarway to a managed collective investmentfund (i.e. a unit trust or investment trust),and an average marginal loss of principalpredicted in respect to bad debt losses.Based on the size of the loan, typical feecharges in Sweden by the JAK Bank area 3.5 per cent set up fee and an annualmanagement fee of one per cent.

No interest is paid on savingaccounts: instead, the saver receives asaving points total, whose cumulativepurpose is to spread the specific savingsamong individual member contributionswhich balances loans drawn down byindividual borrowers on a medium to long-term basis. Six per cent of the size of anyloan taken out is required as an equitydeposit in JAK share capital. This iswithdrawable once the loan is fully repaid;

A publicised set of operational rulesis agreed by the members andperiodically reviewed and updated. Theseprovide an equitable means for allocatingloans and are needed to ensuresufficient liquidity by encouraging andmobilising collective savings to keepsavings and investment funds in balance.

Prudent lending practices are followed inrelation to security for credit providedand in assessing an applicant’srepayment abilities. In this respect,‘interest-free’ finance is precisely thesame as interest-based lending byconventional mortgage lenders. The maindifference lies in the calculation of thelending costs, risks and charges.

Savings points are issued by JAK inproportion to the savings time and thesavings amount. A multiplier (i.e. a Savingfactor ranging from 0 to 1) may beadded to reflect how usable the savingsare for the system. As a result, currentaccounts in JAK banks generate fewpoints by comparison to long-term,interest-free savings accounts. Thus,current accounts are rated near to zero,as they are hard to use for on lendingbecause of instant access requirements.

The savings factor in the JAK systemmay also differ over a period of time. This

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

can be calculated to reflect time-dependent fluctuations of the lendingsystem’s capital requirements:

Savings points = Savings time xSavings amount x Savings factor

Savings points are exchangeable for aninterest free loan on an equal 1:1 pointbasis. For example, 10,000 savingspoints derived from the multiple of ‘£ xmonths’ can be traded against a loan of£10,000 for a one month term or£5,000 for two months. A shortage ofmatching savings points at a specificborrowing time can be compensated forby the flexible JAK loan-saving contract. This unique two-way contract stipulatesnot only the interest-free repayment ofthe loan, but also future mandatorysavings agreed in the contract toreplenish the fund (known as ‘after-savings’). These are used in due courseto cancel out any shortfall in savingspoints prior to drawdown of the loan andrepayment of the sums borrowed. Thissolidarity savings to replenish the mutuallending fund is crucial as, without thecontributions in the form of after-savings,the interest-free system could operatefor a certain period, depending on loandemand and lending criteria, but would ofcourse in due course malfunction as aresult of unpaid IOUs.

This is the fundamental fundmanagement technique that must bemastered by any CDFI provider of suchloans. Credit unions in Britain forexample normally start with arequirement of three months pre-savingsin order to qualify for a first loan of nomore than double the amount of savings.JAK works on similar principles butbecause of the after-savings feature, canin fact lend on higher multiples then withcredit unions – 5 to 10 times savings notbeing uncommon.

Interest–free lending forrepairs and maintenance – a JAK system

Given the predictability of the futureneed, it would be relatively simple toestablish an interest-free repairs fund forhousing co-op members to cover periodicinternal and external repairs. Thestandard JAK loan model readilyaddresses this need. Where a member ofthe system intends to take an interestfree loan in the future (clearly, thisforward planning for repairing andmaintaining property is prudent andessential for development of the

daughter co-ops in the mutual housingsystem). In principle, the same need forplanning in relation to internal repairs(and household furnishings) appliesequally to the co-op membersthemselves. To acquire this access tocredit, individual members and thedaughter co-operative need to beprepared to engage in a specified periodof interest-free saving.

This need for repair finance is readilytackled in through standard JAK loans,and numbers and figures can easily beadded to provide quantitative informationabout how much the individual orcorporate member will have to save, andfor how long, in order to secure periodicaccess to regular interest-free loans totackle both cyclical, emergency and otherperiodic repairs to the properties in thefuture. A JAK system can deliver thisfinance very flexibly indeed as and whenit is required for both minor and majorrepairs and for modernising andrenewing the properties internally andexternally, from bathrooms and kitchensto common areas and additions.

The crucial issue for the individualmembers and daughter co-ops is formembers to make decisions mutually inadvance as to how to deal most cost-effectively with the global dynamics ofthe repairs and maintenance system thathas been devised and agreed. From anindividual member’s point of view, anagreed model giving accurate guidancefor loan-saving sums is vital, so thatadvance planning about the necessarysavings amount is established, enablingthe funds required in the future to bemade available for anticipated capitalrequirements. Clearly, for these futuresums to be available interest-free, thereis a need in general for the system to beable effectively to match credit sumsneeded against the pre-agreed savingsamounts for the purposes of cash flowforecasting on a monthly basis. Thesemonthly sums should be indicated tomembers when joining the mutual repairslending service.

The following example is indicative of aMutual Aid Fund for interest-free repairsthat both the London Rebuilding Societyand the Wessex Reinvestment Trustcould operate for CLT members across aregion.

We assume that there are 30 residentsin a given co-operative development. Halfof them opt to participate in the ‘interest-free’ lending scheme. It is assumed thatall participants will have saved 10% of

the expected loan in advance of theborrowing. During the next six monthsfive of the tenants borrow on average£500 with repayments set at 24 months.During the subsequent six months fivemore tenants borrow on average £750with repayments set at 24 months.During the following six months fiveother tenants borrow on average £1,000with repayments set at 24 months. Thecosts involve an up-front fee of 3.5 percent of each loan and an annual fee ofone percent of the amount borrowed. Asix per cent share purchase is taken onthe value of the loan. After the loans arerepaid it is assumed that each tenanttakes a new loan of double the value oftheir initial loan with the repayments setat 48 months. The co-operative pumpstarts the project by saving for regular(three-yearly) two to three years, which isavailable to cash flow the earlier loans.

84Common Ground

85 Common Ground

Availability of co-operative funds for individual property improvements

No. oftenants 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

Current priorities include international debt, transforming markets, global finance and local economic renewal

One of the other things we do

Access to finance: Access to basic financial services is a vital part of living and working in the mainstream of society. Gaps in financial service provision in Britainexclude many people and communities from fulfillingtheir potential. nef is working to change policy and pilotnew financial products and services to ensure properaccess to financial services for all.

Appropriate and affordable financialservices should be available to all –whether it be individuals looking for abank account, a social enterpriselooking for a loan or an inner-cityenterprise looking for equity. This iscurrently not the case. To address thegaps in financial service provision nefare advocating reform to develop aconducive policy environment thatensures access to affordable financialservices for all, particularly the mostdisadvantaged.

The programme aim to stimulate anddesign more effective and sustainableapproaches to investment for localeconomic development purposes,including social investment vehiclessuch as the Adventure Capital Fund.

We develop and pilot innovativefinancial products and deliverymechanisms, including the FactorFour approach to ending fuel poverty,community development credit unionsand a wholesale fund for communitydevelopment finance institutions inthe UK.

For more information please call020 7820 6300

Common Ground – for Mutual Home OwnershipSoaring mortgage costs for first-time buyers in the South of England mean that those worst affected are workers onaverage incomes of between £15,000 and £25,000 per year, who are neither poor enough to rent from a social landlordnor rich enough to rent or buy in the open market. This problem is having huge effects on retaining public sector workers insuch high cost areas and current government schemes to tackle this issue have proved inadequate. Common Ground setsout a radical approach to securing permanently affordable housing for key workers (and also potentially for others onsimilar income levels) in areas that would otherwise be unaffordable. The housing model proposed includes a CommunityLand Trust, designed to take land out of the market and keep it as a public asset so that affordability is preserved on along-term basis, and co-operative tenure.

The Mutual State in Action 3The Mutual State in Action is a series of publications which build on the ideas presented in The Mutual State – the report of acollaborative programme by the New Economics Foundation and Mutuo which invited contributions from a broad range oforganisations to explore the potential for the mutualisation of public services. The Mutual State aims to put the public back intopublic services. Through user participation, accountability to the local community or recasting public services as self-governingsocial enterprises, a new mutuality could refresh and invigorate our public services. The first book in the series was A MutualTrend: How to run rail and water in the public interest by Johnston Birchall and the second, The Mutual Health Service: How todecentralise 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.

Registered charity number 1055254© 2003 The New Economics Foundation, the Housing Corporation, and CDS Co-operatives.

ISBN 1 899407 75 8

new economics foundation3 Jonathan StreetLondon SE11 5NHUnited Kingdom

Telephone: +44 (0)20 7820 6300Facsimile: +44 (0)20 7820 6301E-mail: info@neweconomics.orgWebsite: www.neweconomics.org

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Telephone: +44 (0)20 7397 5700Website: www.cds.coop