by Hope Horton
Hart’s mill family home prototype
The purpose at the heart of Hart’s Mill is to help heal the brokenness in our social, economic, ecological, and cultural systems. We are doing this at a time when the need is great but the pathways are not clear or easy. Money and ownership matters are among the most complex and convoluted for members to face. Yet we persist and remain determined to realize our regenerative vision and guiding principles.
In this spirit, 18 members gathered for the February Last Saturday event, hosted by the Financial & Legal Circle. Together, we absorbed and confronted the realities, myths, and opportunities surrounding home ownership in today’s out-of-whack economy. We also came to some clarity about how to move forward on some key issues.
Paul began the session with a review of the limited equity housing cooperative (LEHC) model, which was consented to by the General Circle on January 28, 2016. (Click here to view Paul’s complete presentation.) In brief:
- A cooperative is an enterprise formed by a group of people to meet their own self-defined goals. It is owned and run by members to serve its members (not its remote stockholders).
- Members buy a share in the cooperative at a price set by the members. Members also pay a portion of the monthly carrying costs to cover the blanket mortgage, insurance, maintenance fund, etc.
- An LEHC owns and operates housing exclusively for the benefit of its members, who voluntarily—and with a sense of purpose—agree to limit the resale value of their equity holdings (e.g. share value) to promote long-term affordability (rather than short-term, market-driven gain).
Next on the docket, Katy set about busting the myth of traditional home ownership as a great financial investment. This model is a deeply embedded in our culture; it’s an essential promise of the American Dream. But does it really pan out when you look more closely? Consider the financial meltdown of 2008 when millions of people lost their homes as a result of unscrupulous lending practices. Even setting tumultuous economic downturns aside, a good financial investment is usually defined as one that provides stable and consistent growth that exceeds the rate of inflation where assets retain value, have low maintenance costs, and are easy to buy and sell.
While this can be the case in hot housing markets such as San Francisco (and Durham, at the moment), the data tell a different story overall. You may be surprised that the personal finance blog, Observations, reports that the average annual home appreciation adjusted for inflation from 1900-2012 in the U.S. is only 0.1% Moreover, treating housing as an investment has led to a widespread and unsustainable shortage of affordable housing, and ensuring long-term affordability is one of Hart’s Mill’s core values.
So how much is a share in Hart’s Mill going to cost? (Remember, we’re talking about a share in EVERYTHING—112 acres of land, a farm, outbuildings, low energy costs, shared resources, community support, etc.) Paul looked at this from a lot of different angles and results have been strikingly similar: we need something like 60 shares of $40,000 each to raise enough of a down payment to secure financing to build the village. While this is as yet preliminary and uncertain, it’s a place to start.
Here’s where we asked for help from the group. Remember, a share is an equity investment in the entire community. And the larger the share payments are, the lower the monthly carrying costs will be per member. Even so, the share price will be a chunk of change. Can we live with this? And if so, how should we set the basis of a share? Per adult? Per square footage? Per living unit? Something else?
We broke into small groups to wrap our heads around these questions. People understood how this preliminary, per-share cost was calculated and generally considered it to be fair and reasonable—even a “bargain” in one member’s words. But is this going to be affordable, particularly considering the diverse spectrum of members that we want to attract?
As for how to set the basis for a coop share, Making it “per adult” seemed as if it had the most support overall. Several ideas for promoting affordability were put forth, such as adding a surcharge for those who can afford it, offering a share discount or giving partners a break. How about assessing a lower basic share cost for everyone and working out how to raise the rest in some other way? Or, could people buy more than one share to lower carrying costs? Can we set up an internal, low-interest fund to help members purchase a share? As you can see, it was a lively and creative discussion.
The next question concerned the “limited equity” part of the equation. Are members willing to put a cap on the amount of return on their investment rather than allowing the housing market to dictate price? It was Hope’s turn to speak about why she supports a LEHC. First of all, she stated that how we structure ourselves matters because this will dictate how our community behaves over time. Our current economic systems are set up to maximize profit, benefit individual interests, and avoid responsibility if others are harmed. Hart’s Mill, on the other hand, seeks to be financially self-sustaining over the long term by genuinely serving our relationships with each other and the land.
Citing the book, Owning Our Future, by Marjorie Kelly, Hope summarized two conflicting architectures of ownership:
- Extractive Ownership has a financial purpose: Maximize profit and minimize risk for short-term gain to benefit individual interests. Owners are absentee, disconnected from the life of the enterprise, and trading focuses solely on price and profits controlled by capital markets on autopilot.
- Generative Ownership has a living purpose: Create the conditions for life over the long term with ownership rooted in human hands and controlled by those who are dedicated to a social/ecological mission. Profits are permitted but not maximized, thus balancing fairness and responsibility.
Hart’s Mill’s values place us securely in the Generative Ownership category, and the LEHC is a generative financial model. Hope concluded by expressing the vision that Hart’s Mill could break this ground in North Carolina and inspire other communities near and far to do the same.
We again broke into small groups to consider two more questions:
- How committed are you to the limited-equity approach?
- How do you feel about rentals?
Limited equity received unanimous acclamation in the group. As one person put it, “we’re not in this for the money.” As for rentals, people felt that this should be an option, especially for visitors checking us out, for new members who wish to get to know the community before making a commitment (and vice versa) and for others who want more mobility and flexibility. We could generate income as a guest house. Might it even be possible to set up a rent-to-own arrangement?
How to structure rentals was a more complex question. Would we allow absentee ownership? What if the co-op managed all the rentals (no landlords)? We’d need a cap on percentage of rentals vs. owner-occupied units for financing purposes. And what voice would tenants have in governance and decision making?
Bob the builder
This 3-hour gathering was anything but dry! Everyone was engaged in the topics and time flew by. As usual, some felt that there wasn’t enough time to fully absorb the complex issues and offer useful feedback. But overall, members reported being grateful for all the great information, the clarity of presentations, and the creativity of participants.
The Financial & Legal Circle greatly appreciated the attention, input, and ideas received on these crucial questions. Much acclaim was given to Paul for organizing this session, to the presenters, and to other Circle members for their support. Want more? The Financial & Legal Circle wants YOU! Please contact Paul at Voss[at]hawkweed.net if you’d like to get involved.