In Australia today, an average-income person cannot afford the loan repayments to purchase the average house. Permanent Housing Markets make housing affordable by creating permanent local housing markets where buyers purchase and sell their houses incrementally by selling shares. Cameron Murray outlines the idea in Chapter 2 of The Great Housing Hijack, where he writes.
Although the logistics would be insurmountable, it is technically possible for property owners to collectively decide to incorporate a company that owns all their property and convert their part location-ownership share to a part percentage-ownership share in the new company.
The following outlines how to overcome the logistics problems and how small groups can set up small companies with the assistance of Banks to scale the approach across Australia.
Figure 1 illustrates how it occurs. Instead of buying and selling homes each month, shares in every home in the market — including those fully paid and owned by occupiers are purchased or sold. This removes the interest cost as the houses are purchased and sold incrementally. The investor gets their return in more shares within a company.
Putting houses in a shareholder company or cooperative vehicle gives home buyers and sellers the same advantage that companies enjoy of zero-cost transfer of capital within the organisation. Read more at Increasing Productivity with an Efficient Financial System.
The main barriers to establishing a PHM are social and regulatory. The financial world is designed around “money makes money”. Money only makes money when invested to create a surplus through trading. The Financial System is a human system that allows money to make money when distributing the surpluses (capital) created by exchanging real goods and services. Unfortunately, the financial system distributes surpluses mainly to those who already possess money. The following shows, for housing, how to either not create a surplus when distributing surpluses or share the surpluses equitably across all parties.
The Benefits of a PHM
The Reserve Bank licenses banks to create new money by lending new money. The borrower has to pay back the money and interest (surplus), and the borrower does most of the work. Eliminating the need for new money eliminates the cost of interest. The savings are a productivity improvement because the PHM must use a financial body, like a Bank, Credit Union, or Mutual Society, to hold the money. The productivity improvements are large, and the longer the assets last, the greater the improvements.
Investors will likely get a 12% indexed annuity for 17 years that lasts at least twice as long as a superannuation-indexed annuity. Buyers save from 35.77% to 73.78% on bank loans, and the savings distribution is up to each PHM.
Banks can achieve the same result today by charging interest but taking the interest paid off the amount owed. Sharing interest with the borrower is the quickest way to improve any country's productivity. Suppose banks become shareholders or sponsors of these organisations. In that case, the companies will automatically become part of the financial system under the control of the Reserve Bank, but their loans must be simple interest loans.
Who Benefits from Joining a PHM
If you are a new home buyer, you will not require a deposit, and you will be eligible for PHM money with yearly repayments of a maximum of 25% of your income or 2.5% of the PHM capital (the discount rate is claimable for taxation purposes).
If you are in a shared house, you can combine your payments to get PHM money to buy a house.
If you are in an apartment block, you can work with others to purchase your apartments as a group and to represent you on the body corporate or to replace the body corporate if all owners join.
If you are a seller, you can list your home with PHMs.
If you have a mortgage, you can get a PHM to replace your mortgage, provided you allow occupiers to purchase the home from the PHM.
If you own your home outright but need money for repairs, extensions, or other purposes, you can join a PHM and obtain funds you repay over time.
If you own your home but are looking for a high-paying annuity, you can join a PHM and obtain a better annuity than any superannuation fund.
If you take old houses and refurbish them, PHMs are a ready market.
If you are a small developer/builder/architect, PHMs are a ready market.
Occupiers have the title, but there are caveats to selling without agreement from investors with a stake in the properties.
Who does not Benefit from Joining a PHM?
Landlords and Developers who receive profits, including Capital Gains greater than 12% of their Capital.
Operation
A PHM only sells a dwelling if 75% of the Occupants, including the property's residents, agree to sell it.
The residents pay their rent each month. 50% of the payment becomes shares in their homes, and 50% goes to operating the company, maintaining the assets, and paying insurance and taxes. Any excess buys new homes or improving existing homes.
All shareholders must sell 5% of their shares not in their homes to residents or other investors each month, and they receive 5% of new shares paid from residents' payments or sold to other investors each month.
Example: One House and One Investor
Assume one person owns a $1,000,000 house and another is looking for an investment. The person owning the house wants to improve it and needs some money to do so. The investor wants to make an investment and get a return by increasing the investment in the house as they do not need the money just yet.
The two people form a company. The occupier of the house keeps the title but creates $1,000,000 worth of shares in the house and puts the shares as capital into the company. The person who occupies the house does not get a return on their existing investment as they get a return by living in the house. The company sells $50,000 to the investor. Each year, the investor gets 6% of $50,000 or $3,000 more shares in the house from the company, and each year, the investor must sell 6% to other investors or to the occupant.
The occupier pays the company $12,000 of their income to live in the house to cover the expenses associated with living there and purchases the $6,000 in shares sold by the investor. However, the occupier receives no new shares from the $950,000 shares it owns. The house depreciates at 2.5% per year or $25,000. The money coming from investors gives $50,000 in repairs and maintenance. The house's value and the number of shares remain the same. The company has a loss because of depreciation, so it pays no tax. The occupier can not pay money to live in the house but can sell more of the house if they wish to buy the house rapidly.
The occupier and the investor can agree to transfer $6,000 worth of capital instead of buying the shares in the house with money.
All money and share transfers are within the company, and until the money moves out, it is not taxed. If any shares are sold by the occupier, it is not taxed as it is a partial sale of the principal place of residence.
