Traditionally, there are 4 main approaches to tackle unaffordable housing, namely:
- Right-to-Buy: the government builds (or buy from the markets) and sells the housing units at an affordable price level to the eligible households;
- Public Rental Housing: the government builds (or rent from the markets) and let the public housing units at an affordable rental level to the eligible households;
- Mortgage Policy: the government or the central bank sets a higher loan-to-value (LTV) ratio, or provides a concessionary mortgage rate, or allows a longer repayment period, or an easier means test, etc. for the eligible households to apply for the mortgages; or
- Financial Subsidy or Control: the government provides subsidies/allowances/coupons for eligible households to buy or rent their homes at the private housing markets, or enact regulations (such as rent control, tax, and stamp duty) to manage housing demand.
However, there are very few successful cases by means of these approaches. The most commonly cited success story is the Singaporean HDB, which can be classified as the Right-to-Buy approach. But its success relies on an overwhelming proportion (>80%) of HDB in residential markets and the choices of housing tenure are limited.
In view of the failure of the traditional solutions to the unaffordable housing problem, the Labour Party of the UK has put forward a new proposal, titled “Land for the Many” in June 2019 (Figure 1, Monbiot et al. 2019). In principle, it bears a strong resemblance to the Cooperative Housing Scheme, which separates the land ownership from the structure’s ownership. Occupants do not own the land, but the community trust does. In other words, the occupants are only responsible for the construction costs, maintenance, and management fees, thus it becomes much more affordable. It separates accommodation use and investment use of a property, thus discouraging speculations and immuning from housing price crash. Some of the ideas of the Community Land Trust (CLT) are quoted in the Appendix, for full details please refer to the reference.
The viability of this CLT scheme can refer to the experience of Cooperative Housing in Europe, which has been practiced smoothly for decades. Berlin, for example, has some interesting cases of Cooperative Housing. Occupants are members of the Cooperatives, rather than owners or tenants. The land is owned by the Cooperative, and not by the occupants. Members have to sell the membership back to the Cooperative when they want to leave.
For example, I have visited the Coop Housing at River Spreefeld, Berlin in 2016, as shown in Figure 2. It provides occupants an option not to participate in the investment game of housing property, as opined by Robert Shiller’s (1998) Macro Markets.
It also helps solve some of the conflicts in property management as members with similar preferences and values would join together, members can participate in the design and construction process of the building, which can help reduce complaints after moving in. The common areas will also be managed by a democratic management board elected from the members themselves.
“The Trust would take the form of a commons, where the land is controlled by a community of members, working within a constitutional framework.
People (including housing co-ops) could approach the Trust when they had found a house they wanted to buy and ask the Trust to purchase the land. They would then purchase only the bricks and mortar. Since bricks and mortar account for 30% of the price of a property on average, this would allow people to put down much lower deposits and take on much lower mortgage debt than is currently the case, particularly in high land value areas. The new buyers would sign a lease that would make them members of the Trust, and entitle them to exclusive use of the land in return for paying a land rent. When moving house, members would sell their bricks and mortar, while the Common Ground Trust would retain the title to the land. Although the Trust would be non-profit, it would aim to accrue a surplus which would be pooled and used to fund a Rainy Days and Retirement Discount for members. This would help to improve the attractiveness of the scheme, compared to both renting and the mainstream model of mortgaged homeownership, as it would improve the security of tenure for members who had fallen on hard times, or were unable to work any longer.”
Monbiot, G., Grey, R., Kenny, T., Macfarlane, L., Powell-Smith, A., Shrubsole, G. and Stratford, B. (2019) Land for the Many — Changing the way our fundamental asset is used, owned and governed, The Labour Party, UK, June. https://labour.org.uk/wp-content/uploads/2019/06/12081_19-Land-for-the-Many.pdf
Shiller, R. (1998) Macro Markets — Creating Institutions for Managing Society’s Largest Economic Risks, Oxford University Press.