As private rent prices soar and it becomes increasingly difficult to get onto the property ladder, Samir Jeraj finds out how, with the right game plan, housing co-operatives can offer an easier and cheaper way to score a home
‘I really think that housing co-operatives can tackle the housing time bomb’, says Alison Power, a recruitment consultant who knew very little about housing co-operatives until she moved into one.
Ms Power has now lived in the Ash Co-operative in Cambridge for 11 years, during which time she has been a member of the management committee responsible for allocations, education for members, maintenance, and chair.
Rents in the co-operative are as little as £68 per week all inclusive in a city where, according to research published in October 2012 by Halifax, buying a property costs an average of £2,634 per square metre compared with a national average of £1,668. Her low rent allowed Ms Power to take the financial leap into starting her own recruitment business. A lot of the other co-operative members are self-employed and work in the creative industries.
A growing trend
Over recent years, a growing number of people have begun looking at setting up co-operatives, says Nic Bliss, chair of the Confederation of Co-operative Housing, which serves as an umbrella organisation for housing co-operatives, and promotes co-operative and tenant-controlled housing.
This new wave of public interest includes older people looking for mutual retirement housing and young people who can’t make it onto the first rung of an increasingly rickety housing ladder, he says.
In 2009, an independent Commission for Co-operative and Mutual Housing, which included Mr Bliss, National Housing Federation chief executive David Orr, and Hanover Group chief executive Bruce Moore, published a report called Bringing democracy home. It concluded that people living in co-operatives are more satisfied and have as good, or better, services compared with all other types of housing.
Its authors said they wanted each town, village and community to be able to offer co-operative and mutual housing options to potential residents by 2030. But progress is still slower than they would like. There are currently 677 mutual housing co-operatives in the UK, which together own roughly 45,000 homes - less than 0.2 per cent of the nation’s total housing stock.
The main thing blocking the development of more co-operatives is money - the UK government spends a tiny amount on co-operative housing. While the 2011/12 UK Housing Review concluded that owner-occupiers were subsidised by £6 billion through capital gains tax relief, shared ownership schemes - including co-operative housing - received around £1.6 billion in subsidies.
So what can the co-operative movement do to ensure it gets its hands on the funding needed to develop more quickly?
In November last year, that very question was discussed at Co-operatives United, a festival held in Manchester to mark the close of the United Nations Year of Co-operatives. Discussions focused on ways to build new co-operative housing in a ‘risk-averse environment’. Shortly after the festival, the CCH announced it is set to launch a bond hoping to generate up to £100 million of investment (Inside Housing, 14 December).
Mr Bliss says the CCH believes there is likely to be a suitable pipeline of schemes to allow for them to be ‘warehoused’ together to use a single funding source. He adds that the warehouse fund concept would be rolled over so it can be used again for new schemes and new organisations as they come on board.
‘We need to get to a big enough position to be able to do this for the first time and then we’ll have the mechanism in place to do it again,’ he explains.
The group has begun the process of looking for a financial intermediary to help raise the financing, although any potential bond issue could still be up to 18 months away.
Through the bond, the CCH hopes that 4,000 homes will be developed by co-housing organisations by 2017. It anticipates that the warehouse fundraising exercise could account for a large proportion of these.
Strength in numbers
The idea is to group a number of housing developments led by community-based organisations into one package big enough to be financed commercially.
As with all co-operative housing, local authority support is vital. Whether it be financial support or subsidised land, co-operatives need councils - and in many cases housing associations - to make schemes viable. Schemes deemed appropriate for funding through the CCH’s bond will require local authority support. Some of the co-housing developments using the finance will have additional funding already in place from the Homes and Communities Agency’s £1.8 billion affordable homes programme.
Mr Bliss says the end of long-term bank financing has made it increasingly hard for co-operative housing organisations to fund development, despite government backing for projects. ‘It’s great if individual organisations can get financing on their own,’ he says. ‘But our thinking is that if we show we can do it together, it’s a good thing for our whole sector as it sends a clear message that this is possible.’
Clubbing together in this way is at the heart of the co-operative ethos, and theoretically at least, setting up co-housing can be fairly straightforward. However, there are many different types of co-operative housing, and local circumstances often determine their likelihood of success.
Co-operative housing comes in many different shapes and sizes and a wide range of legal structures. Two Piers Co-operative, which consists of 22 homes in Brighton, for example, is run entirely by tenants without any staff being employed. Members join management committees to decide and implement decisions and elect officers at an annual general meeting. Other co-operatives have a more arm’s-length arrangement, with a management committee elected by tenants each year and employees who implement their decisions.
Fully mutual co-operatives work by members - or tenants - each owning an equal share, often just £1. They then rent directly from the co-operative. Rent contributes to paying off the mortgage, investing in new development, and towards the upkeep of existing housing. Less traditional types of co-operative housing include tenant management organisations in council housing, co-housing, and shared ownership schemes.
Setting up a co-operative that builds its own homes, like Redditch Co-operative Homes has done, is more complicated, requiring planning permissions, architects and builders - but the fact that it currently has a £8 million, 79-home development underway, shows it is possible.
Redditch Co-operative Homes, part of the 11,000-home Accord Group, supports five co-operatives in the west midlands and is now developing its sixth with contractor Mansell Midlands and Accord.
The development is partly funded with a £1.8 million grant from the Homes and Communities Agency. Debbie Ritchie, a future resident of the scheme, who will move in when it is complete this summer, describes the hands-on role she has taken in the development of her new home.
‘I negotiated with the planners over what my new home will look like,’ she says. ‘I’ve sat with the builders and discussed the specifications. I have also had the opportunity to sit, laugh and chat with my future neighbours.’
It’s hoped that the CCH’s fund could create dozens of developments like those in Redditch. So, maybe now is a good time to join the revolution.
First of all, individuals need to form a group of at least three people, although the numbers of people involved varies massively.
Second, they need to start raising some basic money to run the group and build up funds. Money can come from the individuals involved and also from other sources including the Co-operative loan fund.
Third, the group needs to register the co-operative with either the Financial Services Authority or via a ‘promoting body’ for housing co-operatives, such as Radical Routes. The group also needs all the necessary documentation and policies in place, such as tenancy agreements and financial records.
Fourth, ‘loan stock’ needs to be issued to the co-operative - money lent with low or no interest by supporters and members. The loan is not secured against the property, but is paid back via rents.
The group also undertakes fundraising and applies for grants from housing organisations and charities to bring in more substantial funds towards a deposit towards property or land for development.
The next step is to develop a business plan detailing the expected costs and income, get a mortgage collectively as a co-operative and buy the homes.
This is obviously a very simplified step-by-step guide. Nic Bliss, chair of the Confederation of Co-operative Housing, says this model is just one way to set up a co-operative and is best suited for those who are ‘prepared to rough it’.
In reality, it can be very difficult to get co-operative housing schemes off the ground.
Mr Bliss says the best possible first step is to work with a local authority to identify potential funding and land, and to find a ‘sympathetic housing association’ that can offer support.