Economists believe that in a free market, the forces of supply and demand set prices, and resources are allocated efficiently based on consumers' preferences and producers' incentives.
When a market does not allocate resources efficiently, economists say there is a market failure and think of ways to make the market operate as expected. Typical market failures are assets bought but not used, used for the least valuable purposes, or sold for a higher price than necessary. In all cases, the price was higher than required for optimal use. When the price is the only criterion, markets will inevitably fail because the buyer with the most money will always win and pay a higher price than necessary.
Economists would do better if they changed their objective from the highest price that buyers and sellers will accept to — Markets should use the least quantity of money to exchange a given value of goods and services for a given profit. The product's prices are optimal if the exchange uses the minimum amount of cash over the duration of the exchange.
Because prices are optimal, the Community served by the market specifies the objective of the market independently of prices. For example, a housing market could supply every person in a community with a place to live at a price they can afford. Rather than let the market decide based on price, the Community decides on other criteria, such as the buyer's need.
Markets will still exist, and competition and choice will allow the system to adjust to changing needs. Markets will operate to give the economic outcome of the most goods and services for the lowest cost.
Today's Housing Markets are Capital markets. A buyer has to have the Capital available to buy the dwelling. If the buyer does not have enough money, they rent some from a bank. This increases the money needed to purchase the house by the interest paid.
Assuming an investor wants a 5% return on money invested in the house, the buyer can pay a maximum of $20,000 a year, and the price is $500,000. If a typical loan is used over 30 years, then at 5%, the total amount of money at the end of the house exchange is $500,000 plus interest or $975,771. The buyer repaid the Capital plus the interest, and each interest payment increases the money needed beyond $500,000.
With Community Capital, the total money needed is never greater than $500,000. The $475,771 extra money is not required. With Community Capital, more money may be transferred, but the amount needed at any time is fixed at $500,000. The dwelling changes hands for the least possible amount of money or in the most economically efficient way.
By using Community Capital, the risk is shared across the Community. The risk is low when the money is for housing, the Community Capital market is unlikely to fail, and the market automatically adjusts to changes in housing value and buyers' ability to pay.
The minimum amount needed for the exchange means the money moves quickly and continuously in small amounts. It also means the money stays in the Community and does not exit the Community of buyers and investors.
Operating a Community Capital Housing Market
Any form of collective organisation can govern a Community Capital Housing Market as the organisation's constitution can be written to accommodate financial principles with democratic principles. The critical idea is that the cooperative owns all the houses, so the title and asset value leave the organisation with agreement from investors. Housing becomes affordable when occupiers can purchase the home incrementally by paying for occupation, and the money paid by occupiers stays within the organisation.
Investors in a Community Capital Market own a piece of all the houses, while occupiers own some of the dwellings they occupy. If investors own more than the occupied house, they hold a part of all the remaining houses.
Because the Community Capital Housing Market uses the least amount of money at any time, the Community can allocate houses to prospective buyers with different rules. For example:
- A person can occupy a house if 25% of their yearly income is greater than the house price divided by two and multiplied by an investor's annual return on investment.
- When more than one new buyer wants a property, the one with the greatest need, as defined by the Community, gets the property.
A Community Capital Housing Market will out-compete the regular housing market because paying for properties requires less money, so that the prices can be higher and the returns to investors greater.
Affordable Housing through a Community Capital Housing Market
Not only is less money required, but there are also savings in operating costs. All sales are zero-cost because no money changes hands to make a sale; hence there are no real-estate commissions. Title transfers may still occur, but if they do, they of a known asset. Conveyancing costs are reduced to a minimum. A collection of Community Capital Markets can self-insure and spread the risk without putting aside money by increasing investment when needed. No costs are associated with creating a loan because there is no loan.
The target market for houses is all existing homeowners with or without a mortgage, new housing developers and governments who own social housing. The owners of houses have access to the Capital in their homes, and to stay in the market, they pay 25% of their disposable income. They get an indexed return on the money they put into the market. Initially, this will be 5% indexed for inflation.
Buyers will be easy to find as anyone who rents or wants to purchase a home can do it provided they can pay, with rental assistance, a minimum of 25% of their income to live in the dwelling they occupy. They can search the markets and know that if they are the most in need, they will occupy the house and not be out-bid by others with more money.
Community Capital Markets keep all the money supplied by members to increase the value of the assets in the Community. If the Community has enough housing assets, it reduces the price it charges for goods and services. If the assets decrease, the Community charges more for the goods and services or increases the investment rate. Members get money with goods and services at a lower cost or by selling their shares to others. It is the most economically efficient form of Capital as it generates the most accommodation for the least amount of money.