What if an individual homeowner could designate their house to become and then remain a debt-free house and forever serve a particular community, such as non-profit workers?
Free and Open Source Software Inspiration
This is inspired Richard Stallman’s Free Software idea that lead directly to both Open Source software and Creative Commons. His approach relies on a background of restrictive laws, in his case copyright law after the passing of the radical 1976 rewrite which made everything expressed copyrighted and effectively forever. Stallman’s brilliant insight in 1983 was that since the government made all expressed ideas subject to ownership, those owners could put covenants on their use. His covenant was to voluntarily give up some of the privileges of the monopoly ownership. This was not needed before the law became so restrictive, but became needed because the community nature of writing software became precarious (the world lost the Lisp Machine Operating System, for instance, which caused Richard to invent Free Software, but this is a longer story). His ideas spread to every nation and now a very large percentage of all software used is Free or Open Source.
What if homeowners could forever benefit in the same way that software writers were helped by Free and Open Source Software licenses and create communities where helped by Creative Commons licenses? Here is how this could work.
The Problem with Housing Debt
At this point, most houses are put back under mortgage every time it is sold. Since houses are sold every 6 years, on average, and mortgages are typically 30 years long, houses can stay under mortgage debt forever. Also, the owner is mostly paying interest rather than principal in the first 6 years, so when the house is sold, the owner must pay as much money to get out of a house as they put in. Therefore house prices must go up continually if have the owners are not to lose money. This is not only unlikely and unstable, it becomes a burden on future generations with increasing debt on old houses. So instead of buying and owning a house outright, most people owe a monthy mortgage payment. This has many of the insecurities of rent, so that if a person loses their job or has a medical emergency, then they can lose their house through foreclosure. And losing one’s house through foreclosure is more painful than moving out of a rented house. Also, since the market adjusts to what people can pay each month and this stays fairly stable, the price of the house is largely determined interest rate. If the interest rates go up and down from 6% (1965) to 14% (1985) and them back to 4% (2005) , then the price of houses fluxuates wildly which causes all sorts of havoc. All in all, it seems like a bad idea to have most houses under debt. What if we can get some houses out of this?
Using the Free Software idea, what if homeowners could voluntarily take their house out of the perpetual debt cycle and therefore secure a home that people can own outright? This would be a sacrifice to those first owners, but some might see it instead as an investment in the future.
Possible Benefits from Debt-Free Housing
Actually, there has always been debt-free housing such as pastor’s houses, student dormitories, fraternities, and some university faculty housing. Also, a hundred years ago, mortgages, if they existed were short, and people paid them off. But this is now the exception. The idea here is to make it easy to free houses from debt on a distributed and grass-roots way without requiring being part of a large institution.
- Quality student housing, such as the cooperatives around many colleges,
- Support teachers, non-profit hospital workers, or other public benefit workers in a community that may be priced out of living near where they work,
- Enduringly affordable housing for low-income people that is owned not rented,
- Housing for retirees so they can stay in their communities as their income drops,
- Quality housing for single parents, or other needy populations.
How to Permanently Free Houses from Debt
I can think of two approaches for homeowners to create debt-free housing , one is to have a non-profit have an ownership interest in the house, and this is explored in other posts on this blog. Another is to put binding restrictions on the title and file it with the county. This needs more investigation, but here is how it might work:
An owner of a house can deed a house to become a “Trust House” by adding a standard document (“Deed of Trust”) the title of the house filed with the government. A new non-profit Housing Trust organization, I believe is needed to help administer this system. This could have a volunteer board elected from former owners of Trust Houses.
Required Covenants in the Deed of Trust:
- Owner of this Trust House agrees to be a Trustee on nearby houses,
- Trustees for this particular house are the geographically nearest Trust House owners, say 11 of them. This keeps governance local and resilient,
- The Housing Trust has the right to seize the house if the Trustees determines these Covenants are broken,
- In case of foreclosure, or not paying taxes… what happens?
- Removal or modification of the Deed of Trust can be requested by the Trustees but a larger number of Trust House owners must be involved to decide what to do, say 23 of them.
- No New Debt:
- No new liens may be placed on the house: original mortgage, if any, gets passed on as-is or same terms.
- No material benefit can be derived by one owner as it passes to the next (no “key money” as they call it in NYC as some rent control apartments are passed on)
- Optional Covenants can be put on the property by the original purchaser such as: characteristics of the preferred futures buyer, and how often these characteristics are enforced.
Voila! Houses shed their debt once and for all.
Can restrictions like this be placed on titles?
Should this be done with contract law instead?
Can mortgages be transferred? Do we need special mortgages for this?
How many people would do this?
How can this go wrong and not serve the purposes we are intending?
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This is a great idea. I’m not sure a local trust would work, as modern industry seems to require a lot of mobility from people. How about creating a national sustainable housing trust, in which folks could buy shares? Say a share represents $1000 worth of a house in today’s market, then someone who wants to move from a $100,000 house which would be a 100 share house in the trust, could move to a $125,000 house in another area by buying 25 more shares in the trust. It might also work something like couch surfing, only for longer periods. Say you want to live in a 200 or 300 share home, but can only afford 150 shares. You might still be able to do so by offering to share the home equally with another shareholder either by time sharing, or splitting the space available, and sharing a kitchen for example.
I’m concerned about the incentive for maintenance and renovation in a shared housing trust. If you own a home, and decide to remodel, usually this adds value to the home that you get back when you sell it. If the house isn’t really yours, it would be easy to let it fall apart leaving less value for the next person in the trust. However, if you could get housing shares by say replacing worn out 25 years shingles with a 100 year metal roof, the sustainability of the trust house would be enhanced as well as the equity in housing trust shares of the person living there.
With a bit of work, I think folks with no children might be willing to leave homes to such a housing trust, and folks like me who like to spend parts of the year in different places, might like to exchange their home for shares that might allow more mobility.
Like a time share, some area homes may require more shares in particular seasons. A ski area in Colorado might command a premium in winter, and homes in warm areas like southern California, Hawaii, Florida etc might require more shares to live in in the winter.
I like to spend my winters in Hawaii, and summers in New England. With a web service that’s kind of a blend of couch surfing and time share swaps, I might be able to own shares in properties in both locations with an investment I can afford more easily than owning two homes outright, and perhaps provide very cheap housing for someone who telecommutes and could take advantage of living in the same places in the off seasons. Hmm, maybe a share should be defined in terms of time, say a week or month as well as a representation of housing value. Perhaps a few shares could reserve storage space in an attic or garage for properties shared annually?
It could work like a food co-op where shareholders contribute volunteer time doing things like transition inspections noting damages that might cost shares, and crediting shares for improvements like adding or repairing a deck, roof, or driveway etc. Someone might be the key holder for a community, and help check folks in and out of their reservations. Some might be sysadmins managing the software and enhancing the online tools for trading shares and reserving properties and matching folks interested in co-operative housing. Folks could also offer training in skills needed to maintain and renovate their homes, and offer community services like child care, or education for home schooling, or even just hosting social events to promote connection and community building among shareholders.
The trust could also create endowments to cover property taxes in times of recession to prevent foreclosures. This might work like an insurance policy on shares, or come from common membership dues, kind of a reverse dividend. On the other hand shares might also pay dividends like a REIT if excess properties were rented to non-shareholders.
The trust might also engage in political action to fight for sustainable legislation addressing issues like privatized water. I believe it creates artificial scarcity to legally require people to buy water from a particular business and prohibit them from catching the rain that falls from the sky!
This has so many possibilities!
The system could be set up to reward sustainable investments like solar power and hot water, green garden rooftops, or planting edible landscaping to ensure more healthy food for folks sharing this vision!
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I had a similar idea a few years ago, but it struck me at the time that one would want to focus on the land first (especially open prairie land, but land with homes too). The issue for both kinds of property is that they are more or less “rented” from the communities they are located in through the imposition of taxes. So a couple of other questions I would add are:
Who pays taxes (or how can they be avoided, not evaded)? The trust? The visitor?
Who can stay on the land and for how long? And what right do they have to bring friends?
Is subdivision possible? Minimally, are other homes on the one property allowed?
Who decides what “improvements” are actually improvements?
Can just anyone pick all the berries? Can they sell them? If so, how is the profit allocated?
Generally the other types of housing you mentioned as examples have short term tenants who live rent free or at a reduced rate because they are perceived as relatively impoverished. Ideally the trust property ownership type you describe would not devolve into a way for large trusts to scrape rents off of the financially needy.
Personally, and not totally related, I have a problem with small islands of prairie surrounded by cities and highways. It would be great to have long swaths of land (hundreds or thousands of miles long if possible) that were available for the use of member owners (and the animals and plants that lived there), where those member owners were regular people rather than rich private hunting ground owners. But the similar sort of public land like national parks where people are only allowed to walk on marked trails and take pictures is probably as close as we’re going to get.
With cooperative land, sooner or later someone is going to petition to pick flowers, and then plant gardens, and then build a little house, and then a roadside store, and then a factory, and then a small town, and so one gets right back to not wanting to allow any real use at all.
I worry that “not wanting to allow real use” of the houses we are talking about will cause them to only be used by a few people or not at all, because the trust can’t decide who should gain their favor.
But I don’t love mortgages, and I would like to see homes get free of them.