About the model
Model “streams”
This model is said to have three streams. The word stream is imperfect. They could be said to be stages as they typically happen in order, but they do overlap and the results are blended together. There’s a flow - while most of the model might start using the first stream, as the proportion of the second stream increases, so can the proportion of the third. It’s possible for the flow to reverse temporarily (if a new house is purchased, the amount of mortgage debt might increase), but generally it will flow inexorably towards the final stream until the collective is entirely stewarded by the community.
Having overlapping streams rather than discrete steps is important to this model, because the act of repaying mortgages is slow so, if they didn’t overlap, the collective would spend years paying off mortgages and acting exactly like the regular capitalist system for property ownership. By blending the schemes we are able to live the future immediately, in a proportional way. Even if only 1% of the housing is owned by the collective and debt free, we can see how that 1% of our financial contributions works in a better, more collective world. This lets us start to build confidence that the end state of the model (collective stewardship) will provide us with access to more affordable and humane housing options as well as better long-term housing security in the face of both individual life changes and shared risks such as climate change.
For more details on how this works in practice, see “Blending the Streams”.
Concepts
Housing costs
Housing costs include rent, mortgage payments, rates, taxes, household insurance, repairs and maintenance, as well as interest payments on loans for alterations and levies on strata-titled dwellings.
Mortgage
A secured loan used by a borrower to buy a property. Typically a mortgage loan is repaid over a number of years to repay both the capital cost (i.e. the actual money paid for the property, also called the ‘mortgage principal’) and the interest on the loan. The loan is secured by rights to the deed of ownership for the property, these rights are held by the entity that provided the loan until the loan (including all interest) is fully repaid.
Operating costs on a mortgaged property
Mortgage payments plus non-mortgage operating costs.
Non-mortgage operating costs on a mortgaged property
The required costs of running the housing that the collective will be responsible for. This typically includes:
- Council rates
- Household insurance
- Utilities (water, electricity, gas, internet)
- Required maintenance
- Contingency (builds a buffer to handle cash flow issues and missed payments)
Immediately available liquidity
Money that the collective has available that could be deployed to pay for any operating costs if necessary, or otherwise paid out on very short notice. This is generally any uncommitted cash savings held by the collective, plus the amount that can be promptly withdrawn from mortgage principal in some way (such as withdrawing from an offset account).
Total available liquidity
As per immediately available liquidity, but also includes amounts that can be withdrawn from the mortgage principal even if doing so requires time consuming checks, or approvals (that are considered likely to be granted) from the lender.
Regular financial contribution
The financial contribution expected to be paid by someone on a regular basis (generally monthly). This is usually in return for being able to live in, or otherwise use, the housing supplied by the collective. The makeup of this payment, whether there are any additional benefits to paying it, and whether there is flexibility to avoid paying it, differs in each of the three stages of the model. Decisions about how to calculate who pays what financial contributions may differ from one collective to another (although the total financial contributions must cover the total operating costs in all cases).
Additional financial contribution
A financial contribution not expected of a participant, but paid nonetheless. These typically deliver additional value to the project, and are likely to move the collective further through the model, help grow the collective, or deliver social benefit outcomes. These payments are optional, but whether there are any additional benefits to paying it differs in each of the three stages of the model.
Total asset value
The value of the collective’s assets as they relate to property ownership. This is generally the combined total of all property valuations owned by the collective (regardless of whether they are mortgaged), plus any cash savings or similar. Other material assets (such as tools and equipment) are not generally considered in this model but if a collective does choose to have expensive assets it could include them in total asset value if it wants, using a realistic resale value of the asset.
Affordability Metrics
Each stream has a different affordability metric .
There are many ways to calculate housing affordability. One of the more useful is the 30:40 indicator - an indirect gauge of ‘housing affordability stress’ (HAS) defined as “when households in the bottom 40% of the income distribution pay more than 30% of their gross income on mortgage or rent payments." When making this calculation, household income can be calculated as the combined gross income (income before tax is paid) for all householders, or it can be calculated in more nuanced ways be determining the relevant equivalised disposable income (income after tax is paid adjusted for the number and ages of people in the household). Another nuanced but harder-to-calculate measure is ‘residual income’, which is based on how much a household has left available for ‘housing costs’ after paying for a standard budget of household goods and services.
Percentage of income
While collectives may adopt the more nuanced housing affordability calculations (see ‘Housing affordability’ below), this model uses percentage of income as a proxy for indicating the use of sliding-scale contributions and assumes that, depending on income, participants can afford to spend 30%-40% of their gross income on housing costs.