The Right to Stay

Benn is advocating the "Right to Stay" as a sort of update of Maggie Thatcher's "Right to Buy".

In other words, that the poor sods who took on the 100% to 125% Northern Rock mortgages and are now finding the rate resetting to unpayable levels should not be repossessed (for which read "foreclosed" in the context of US sub-prime) but should have the "Right to Stay".

How may this be achieved?

Community Land Partnerships

My proposal is that affected properties should be transferred into the ownership of a "Custodian" and that "affordable" rentals should be set in what would be an "evergreen" leasing arrangement of indefinite duration which I call a "Community Land Partnership".

There would potentially be two forms of "Rental":

(a) Land/ Location Rental - a payment in relation to the privilege of an indefinite exclusive right of occupation of the "Commons";

(b) Capital Rental - a payment for the capital invested in the land ie the "use value" of buildings and improvements.

The Land / Location Rental concept enables some interesting policy ideas through simple "pooling arrangements":

  (a) land use pooling, where those members of the CLP who use more land would make net payments to those who use less;

  (b) income pooling - where those members of the CLP who have a higher income would make a net payment (say 5 to 10% of income) into a pool which is then redistributed equally - resulting into a net transfer from those with above average income to those with below average incomes.

Leaving such aspirational policy ideas to one side, let's turn to the financial nitty gritty of what could essentially be a "Debt/Equity" swap on a grand scale.

We take "Affordable" Rental payments, "pool" them and then "unitise" the resulting stream of rentals into proportional "Units" eg "billionths" within a legal framework I call a "Community Land Partnership".

Example

A £1bn nominal value portfolio of 10,000 25 year mortgage loans (averaging £100,000) initially at @ 5% pa, but about to reset to 7.5%.

For an individual mortgagee this means a 25% increase in repayments from an already increasingly unaffordable £591 per month to £748 per month.

We convert these loans into “Public Equity” using a CLP.

Step One: set a reasonable “Capital Rental”.

At 2% this is £2,000 per year on £100,000; at 3% it is £3,000 per year (ie £250 per month) and so on.

Step Two: Index Link the Capital Rental

Step Three: Unitise the Pool of Public Equity into say 100 million Units of £10.00, each of which carries the right to a proportional share in the index-linked stream of rental revenues.

Outcomes

- A new “Public Equity” asset class which is to all intents and purposes a new form of Real Estate Investment Trust (“REIT”)

- The “affordability” of the "Capital Rental" derives from the fact that:

(a) this is a new form of “Public” Equity, not Debt, so no Capital is being repaid;

(b) the Rentals are index-linked.

- Because the Rental is “affordable” it is more likely that it will be paid. In other words, for Investors, affordability = certainty justifying a lower rate of return. NB by way of comparison Wessex Water last year successfully issued 50 year index-linked bonds at 1.49%

- Although for tax reasons, it is not currently feasible for UK pension funds to participate in "Investment LLP's", other UK investors probably would, in particular the Occupiers themselves, who are able to acquire "Equity" simply by paying Rentals in advance.

It is likely that overseas pension investors, and Sovereign Wealth Funds would be attracted. In particular we could look to the vast pools of Gulf PetroDollars looking for Islamically sound homes, since this proposal is, as it happens, structurally Islamic, by contrast with what are all too often Islamic veneers on an UnIslamic Reality