Lime Legal

Mutual respect

Published 06 May 2023

The collapse of the market highlights the need for a fresh approach to housing supply. Adrian Coles and David Rodgers argue that co-operatives and mutual organisations offer a way out of the crisis.

Adrian Coles

Housing is taking a hammering at the moment. But rising repossessions, the fall in house completions and mortgages drying up for first-time buyers may make the search for a fresh approach to housing even more timely.

The Commission on Co-operative and Mutual Housing is exploring the potential for a ‘new mutualism’ in housing, which could offer more sustainable ways of providing affordable housing while strengthening community-focused values.

Independent research by the Human City Institute and the University of Birmingham’s Centre for Urban and Regional Studies set in motion by the commission provides evidence to support housing co-operatives and mutual housing organisations offering more than good quality, affordable housing. Mutual support and enhanced self-reliance of residents are among the desirable benefits we have identified.

Our research notes that these added-value aspects of the work of mutuals are usually not identified in formal audit and inspection, but have a major bearing on community sustainability and cohesiveness. Mutuals offer solutions to problems of low esteem and aspiration, higher than average mortality and morbidity rates, mental health problems, crime, community safety and antisocial behaviour, often associated with poor housing and community alienation.

Our study of mutual lettings during the past six years illustrates that one-quarter of lettings were made to homeless households, one-third to people living in poor or overcrowded housing conditions, one fifth to lone parent families, and one tenth to people with disabilities. The 34 per cent of lettings to BME applicants was double that made by a comparable group of small, mainstream social landlords, so mutuals cater well for all parts of the community.

Furthermore, our early case studies suggest these locally focused and neighbourhood-based organisations can offer a distinct advantage in meeting the needs and demands of the communities they serve.

For example, Preston Community Gateway, Redditch Co-operative Homes and Work for Change in Manchester have all achieved positive effects on the employability and health of residents and enhanced community wellbeing and belonging.

There is considerable potential for culture and values transfers to mainstream housing to extend the reach of the ‘new mutualism’ in housing.

Mutuals are competent housing managers and their rent arrears, vacancies and re-let times are all lower than national social housing norms. They compare favourably on repairs performance and housing ‘indecency’ is dramatically lower. While based on a small sample at this stage, satisfaction among residents is much higher than the national average and satisfaction with participation is a staggering 99 per cent.

Yet it is clear from the commission’s work that mutual housing development, management and achievements are not well-known or understood.

Gateway associations

Perhaps our most interesting finding is that mutuality in housing is more widespread than official statistics report; there are about 900 organisations of which some 680 are housing co-operatives and 200 are tenant management organisations.

Only about 300 are registered with regulators. Five gateway associations also operate in England and Wales. The reach of the mutual housing sector is nationwide, but major concentrations are in London, the North West, the North East and the Midlands.

The annual turnover of the mutual housing sector is considerable – at least £162 million – with shareholding capital amounting to a further £230 million.

Some 45,000 homes are managed, of which around three-quarters are owned by the organisations themselves with the other quarter managed on behalf of mainstream social housing providers.

From an international perspective the mutual housing sector remains small, even if flourishing in qualitative terms, representing only 0.2 per cent of the UK’s housing stock in contrast with 18 per cent in Sweden and 14 per cent in Norway. Canada has more than 2,000 co-operatives accommodating 250,000 people and Turkey’s 1.4 million co-operative housing units form one-quarter of the housing stock, so the UK has still a long way to go.

Adrian Coles is chair of the Commission on Co-operative and Mutual Housing and director general of the Building Societies Association.

David Rogers

This year housing starts will fall short of the government’s house building target by more than 150,000 and supply problems will worsen. The average house price remains out of reach of average earners in many parts of the country despite a 17 per cent drop in prices during the past year. Mortgage finance has shrunk and the number of products reduced to a fraction of what was previously available.

The problems will not be countered by increases in the supply of affordable housing for rent or HomeBuy products such as shared ownership. Housing associations are facing challenges building homes for rent at existing grant levels because they can no longer cross-subsidise them from sales. Developers are seeking to renegotiate section 106 agreements, with work on existing sites grinding to a halt.

The Co-operative Party’s response to this need is to advocate a new model of mutual home ownership that can create permanently affordable homes in the intermediate housing market.

Mutual home ownership separates the cost of land from the cost of a home by taking land out of the market through a community land trust (CLT). It combines CLT ownership of land with resident ownership of the homes built on it by a co-operative mutual home ownership society.

The key is the use of publicly owned land and land that can be acquired at nil or low cost and transferred into community ownership. To achieve affordability in some areas, limited grant from the Homes and Communities Agency may also be required, particularly where infrastructure or site development costs are high.

Unlike individual home ownership which involves residents taking on a personal mortgage, mutual home ownership is funded by a corporate loan borrowed by the mutual. The value of buildings is divided into equity shares which members finance through a deposit and through their monthly payments.

When members leave they take the net equity they have builtup based on a valuation formula which links equity share values to average earnings. Lower transactional costs when members buy and sell their equity shares are also a key benefit. The ability to offer a long-term investment and fixed annual yield creates an attractive investment opportunity for pension funds and other institutional investors.

Greater affordability

Affordability is guaranteed because members’ monthly payments are geared to 35 per cent of household income. This means that the more residents earn the more they pay and the more equity shares they own.

Mutual home ownership is a new ‘rent with equity’ form of tenure. It gives the right of permanent occupancy but without the right to permanent subsidy, which will maximise the number of affordable homes that can be built.

A CLT in partnership with a mutual home ownership society offers a means of creating sustainable and affordable housing. It also encourages active citizenship through the community control of land and resident control of housing. Environmentally sustainable elements of design and construction are also easier to finance because they can be funded over the length of the life of the housing asset.

Moreover, mutual home ownership requires members to look at home ownership in a different way. Gone are the days of speculative house price inflation. Rather than seeing their homes as speculative capital investment, housing becomes a consumer durable, like a car or a fridge.

CLTs were defined in law by the government last year. CLTs and mutual home ownership are generating interest across the political spectrum as a practical means of providing sustainable and affordable housing in both urban and rural settings and drawing in desperately needed new sources of institutional investment.

The Co-operative Party’s new model for mutual home ownership offers benefits to investors, residents and communities. CLTs have the capacity to deliver the new homes we badly need while tackling the deep housing challenges that now face traditional approaches to affordable housing supply.

David Rodgers is executive director of CDS Co-operatives

Download New Foundations: Unlocking the Potential for Affordable Homes