A Subversive Housing Cooperative

Here’s a scheme for getting out from under the jackboot heel of the Big Banks and their criminal managers. It ain’t easy, and it takes time, but the banks are not even in the picture. Something like this should not be necessary, but Big Banks and Wall Street have proven again and again that they are enemies of the people.

This plan won’t work without a bunch of families who have money to save. As a simplistic example, take ten families who agree to invest $2,000 a month each. Each family earns a 10% interest in the co-op. The co-op’s investments need to grow rapidly, thus the requirement for $2000 monthly. The money is put into a credit union savings account (see this about credit unions) or some other un-Big Bank place. At the end of three years, the co-op will have $720,000. With this money, the co-op buys one housing unit, say a 2BR condo. It will already have been decided which member wants to live in it. In San Francisco $720K provides a pretty decent place to live. They buy it cash, flat-out, no mortgage involved, no interest payments. (At a 6% interest rate, that already saves in excess of $720,000 in interest payments over 30 years. In addition, a cash payment without dealing with banks gives the co-op some bargaining leverage for a lower price.)

The co-op now owns outright one $750,000 property, which they must pay tax on and maintain. All members continue to invest the monthly amount of $2,000. The member who lives in the new co-op unit now pays a below-market rent to the co-op, as well as continuing to invest $2,000/month in the co-op. If the market rent value is, say, $2,000/month, his rent might be $1,000. This amount pays tax, maintenance, and administrative costs. He also pays a $1000 “acceleration fee” to the co-op as compensation to those who don’t have a co-op unit yet. So in essence his budget hasn’t changed. The $1000 acceleration fee boosts the co-op’s fund accumulation, so that the next $720,000 accumulates in a shorter time. With each added unit, the time required to buy the next unit decreases. If a building with, say, six units were bought, the time it would take to put everyone in a unit would be decreased still more. In essence, all are saving for cash payment on a home, but without doubling the price through mortgage interest. This takes time.

When all members are living in a co-op unit, the co-op might choose to close membership and continue collecting only enough money for taxes, maintenance, insurance, and administrative costs, roughly $1000 per member per month. Members would each own 10% of the value of the co-op’s holdings, and the process could stop there. Each member’s investment would therefore be worth $720,000 or more, which is a quite significant nest egg, and not one penny has gone to banks for loan interest. The co-op could also choose to dissolve, each member now the owner of a home, rather than 10% of the co-op.

Or the co-op could choose to continue expanding by adding new members and accumulating additional voluntary investments from the original members. A number of further possibilities present themselves, including formation of a much larger non-profit corporation for the purchase of many additional housing units.

The co-op might also buy some units specifically for rental to low income workers. In this case, the renters would receive a favorable below-market rental rate, but would not own shares in the co-op. If they were able, they might provide in-kind services to the co-op in lieu of part of their rent. The co-op owners’ investments would continue to grow because of continued investment and equity increase (assuming a rising market), and they too would continue to pay below-market rent.

The plan would also work with other assumptions. For example, the co-op could look for less expensive units, which would allow it to charge a lesser investment amount each month if they chose. But these higher amounts are more realistic for high-value markets like San Francisco, and co-op members are more likely to want to live there long term.

In summary, the entire scheme is a long and difficult way to provide housing without paying a cent of interest to banks. It would not work except with members who could afford to invest a significant amount of money every month. However, each member would accumulate a significant investment in the co-op. Because mortgage interest at 6% or higher costs more than the housing unit itself, the savings would be huge under the usual market conditions. Unfortunately, the immediate payoff can occur for only one family at a time, so at least one family must be patient enough to wait ten years or so to move into their new place. That might be quite satisfactory for a young couple who have a comfortable income and no kids. By the time everyone was living in a co-op unit, every family would also have a sizeable investment equal to the average cost of a unit.

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