How a quiet revolution in property unfolded

Community business has the potential to answer pressing political questions

Ged Devlin

Programmes Manager, North West

and

Gen Maitland Hudson

Head of Evaluation and Impact Assessment

As the policy world bats devolution back and forth, and the ordinary woman in the street worries about whether the NHS is being privatised by the back door, a quiet revolution is developing new forms for the civic management of both private property and public services.

In June 2016 Rafe Blaufarb published a dry historical analysis of the ways in which the French revolution changed our conceptions of property. With impressive scholarly detail he takes the reader through the cens, the lodsseigneurie directe and the expropriation of church assets. His overarching argument is that the French revolution created an understanding of both property and citizenship that broke decisively with what had gone before, and which has stayed with us since.

That decisive revolutionary change stripped property of public power. Feudal and pre-modern France had interlaced property ownership and management with a set of jurisdictional rights and responsibilities as well as varied rents and charges. The revolution built its understanding of citizenship on a foundation of private property divided completely from public sovereignty. Citizens were to have full rights over their property, to use, profit from and sell at will. Governed by the new Civil Code, private property would be guarded from the incursions of public power.

Modern property ownership – absolute, profit-driven and commercialised – has been the economic and social engine of the industrial and post-industrial West ever since.

Influenced by a range of social and cultural trends, from globalisation and climate change even to the grim interdependency of terrorism, that absolute notion of property no longer seems the solid foundation stone it once did, nor the natural safeguard of civic rights.

Without yet looking like a self-conscious movement, securing collective ownership and responsibility for property has become more common.

In the US, the Community Development Corporation has seen remarkable growth from its foundation in the late 1960s to the present day. In the 1990s, at least 1,000 new CDCs were formed, and latest estimates suggest there are 4,600 operating across the country. The first Community Land Trust was founded in 1970 by Robert Swann, and there are now some 250 CLTs operating in the US, building affordable homes and securing them for the community by retaining and reinvesting a share of the profits from resale.

The UK has its own CLT movement, which has grown quickly in the last decade.

Perhaps one of the most interesting developments in communal property ownership is the Community Benefit Society. Like CDCs and CLTs, ComBens hold property, and participate in trade, for the benefit of the wider community. Their numbers, too, are on the rise, not least because they can secure equity through a community share issue.

That equity, drawn from local investors, can provide investment for property that would otherwise be unused: too expensive for Local Authorities to maintain and insufficiently profitable for the mainstream private sector.

It’s worth taking a brief foray into the technical nature of two key features of the Community Benefit Society to show how they challenge private conceptions of property ownership.

Capital gain is the conventional reason for investing and this is seen, rightly, as incompatible with community business. Equity investment, in particular, has been considered untenable because shares give legal title, so that the enterprise is owned, controlled and run in the interest of its investors. A business focus on an appreciation in capital value will, by definition, distract from wider community benefit since it must focus on maximising a private return.

In a community share issue, however, capital gain is tightly circumscribed by two key mechanisms: the nature of withdrawable share capital, and the asset lock.

By contrast with shares in an ordinary traded company, withdrawable share capital cannot be transferred. This prevents the speculative exchange of shares in the community business and gives greater security. Societies can also set limits on the withdrawal of shares, further safeguarding the Society’s financial security.

An asset lock is a legal device which prevents the distribution of residual assets to members of a corporate body. In doing this, and making sure that assets don’t move into private hands if an organisation is dissolved, an asset lock is a guarantee against ‘carpetbagging’ investors speculating for profit.

Why is this important? The UK in the 1990s saw a whole host of Building Society ‘de-mutualisations’.  Membership requited nothing more than having an account. As a result, huge numbers of speculative investors opened accounts with Building Societies. As members with votes, they then drove the call for demutualisation.

Without statutory asset locks, the building societies had no defence against the will of their new members. Money accrued for the common good over a number of years, found its way into their hands as a capital gain.

The idea of being a custodian owner – owning the asset built up by former members in the favour of future members – was lost to speculative, short term gains.

All the examples above, from CDSs to ComBens, show how company structures and legal mechanisms can provide the means to bring public power back into property ownership in the form of civic custodianship, safeguarding the value of that property not only for its members – as in the traditional co-operative form – but for the community itself.

This is not ‘privatisation by the back door’, nor is it the nationalisation of assets that would otherwise be managed profitably in private hands. This is a form of civic participation that uses property to retain profits within the community, providing services that would not otherwise be delivered.

For this set of developments to continue to grow, their radical nature needs to be better understood.

They offer a means of breaking the recurrent squabble that sends domestic policy bouncing between the left-wing distribution of centrally mandated social goods, and conservative and libertarian do-it-yourself. By reinjecting public power into property, they offer a solid experience of ‘civic renewal’, that comes with genuine responsibility through membership, ownership through community shares, and tangible benefits through local products and services.

Community business grew more quickly than charities and small businesses last year: we already know that this is a movement with some momentum behind it. It has the potential to answer pressing political questions too, which may be equally important.