Finding Solutions to the Housing Crisis
Dear Sir or Madam
The British aristocracy have come up with many wonderful innovations. The Earl of Sandwich invented the sandwich, a product now consumed by billions of people each day with not a penny in royalties making it’s way into Sandwich family coffers. Lord Cardigan invented the Cardigan and was largely responsible for the “The Charge of the Light Brigade”. Arguably, the military tactics employed in this epic cavalry charge were later highly influential amongst Kamikaze pilots.
How fitting it would be if Cadogan Estates came up with a property scheme that was so popular amongst the younger generation that
the glorious Tory Party could rule for another 20 years and the great Cadogan name would be revered for umpteen generations.
This is the essence of the scheme. It’s a “Rent to Buy Equity” scheme with no downpayment or deposit.
1) A development is purchased completely by a charity/ quasi government agency.
2) Each individual property becomes a separate limited company with a specific purpose of owning that particular property.
The By Laws of the company do not allow any other activities or any borrowings secured on the tenants shareholding.
2a The shareholder who is above 50% is not allowed to abuse minority rights.
3) Rent is converted into equity in the company at a fixed price with a fixed valuation that doesn’t change until ownership
by the tenant goes over 50%, at which point the tenant can buy out the Landlord at the original valuation price. The rental payment buys equity in the company at a predetermined rate. The tenant can opt to top up their rent and buy more shares once a year in December of each year.
4) Until the tenants ownership goes over 50%, they can only sell their shares and tenancy rights back to the LANDLORD at the original valuation.
5) For example. A flat is valued at £100,000. The rent is £500 a month. £6000 a year. At the end of year 1, the shareholders register is altered
The landlord (originally 100%) now owns 94% and the tenant 6%. At the end of year 2, landlord 88% tenant 12%.
Year 3 landlord 82%, tenant 18% until the tenant owns over 50% in year 9. Once over 50% the tenant can either continue the scheme,
buy the landlord out, sell the shares to a third party, or still have the option for the Landlord to buy the tenant out at the original price.
6) If the tenant pays no rent for 9 months, he/she is evicted and the landlord buys back the shareholding after the tenant moves out
at the original valuation. So for example, after 3 years, the landlord pays back three years rent to the tenant, gets someone else interested
in the scheme and resets the price of the property according to existing market conditions.
6a) The tenant can after 3 years ask the landlord to buy back the shareholding at the original price ( equivalent to the rent paid over that period)
7) Repair costs are apportioned according to shareholding. Utilities and council tax are the responsibility of the occupier(tenant). Furniture can either be included in the rental price or be the responsibility of the tenant.
8) Subletting up to 1 month at a time is allowed. Long term subletting is not allowed.
9) If the tenant eventually makes substantial capital gains out of the scheme ( once over the 50% threshold) then this gain would be taxable at he existing CGT rates (unlike the gains generated by some ex London council properties)
10) At the very least, a pilot scheme along the lines of the scheme above would be worth a try just to iron out any pitfalls, undpredicted consequences and “what if” scenarios. If succesful and deemed to be a fairer and easier way for the younger generation to step onto the property ladder it could certainly be expanded upon.
11) It is much easier changing small percentages in ownership of a limited company than it is changing small changes in ownership of land
at the land registry.
The advantages of this scheme over and above council house, housing association and buy to let schemes is that it encourages the responsibility of ownership by the rent payer, can be left in a will and is also a type of savings scheme. The tenant feels that they are getting something for their money. On top of this, it should be less political. ( A labour council will favour natural labour voters as tenants and a Conservative Council will favour natural Tory voters.) The tenant vetting process should be simple and involve a) Identification Documents b) Bank Statements and c) A short interview to try to determine whether the potential tenant of this “Rent to Buy Equity” scheme will stick it out for a reasonable length of time
During periods of rising property prices, tenants are highly incentivised to continue paying the rent, since they are buying ownership at advantageous price levels.
There is quite a lot of administration involved in such a scheme, mainly to ensure that the very specific company bylaws are complied with, and that the shareholdings accurately mirror the rent paid. There are also likely to be disputes about what constitutes necessary repairs or necessary improvements. Two people paid £25,000 a year in a small office should be able to cover a scheme of say 50 dwellings involving the administration/rent collection/ maintenance of 50 separate companies and properties.
I would love to get involved in such an inovative and groundbreaking scheme within the framework of Cadogan Estates.
The rug has been pulled from under our feet with housing benefit
being suddenly stopped with delayed universal credit as with Mendip DC. Maple Leaf housing has six houses in Frome rented out at below average pricing housing about twenty people. It is not an easy game with all the regulations and at the same time keeping up with maintenance, gas safe. EPC etc. We wish your organization all the best with the big issue today.
Have you discussed the possibility of a Local Levy on house purchases by people coming in from outside with no connection to Frome, or no residency for the last few years?
10% of the purchase price could be levied and be put into a local fund to help young people get on the ladder _ e’g’ a grant to help out with the deposit or reduce the price of the intended purchase, for example.
I’m a tenant of Andrew Earle, I can honestly say, he is not only a considerate landlord, but extremely fair as well.
Your email address will not be published. Required fields are marked *