Alt Equity Model

Constraints are interesting. Often they are firm, set down as principles that reflect our character. Other times they are arbitrary guesses at the best method available. Home ownership falls somewhere in between to me. The principle of ownership is great, taking on risk to build equity and through that improve our community by living out our character, literally. The solitary method of home ownership and equity building seems to contradict this. As the sub-prime crisis has shown, the financial systems that govern home ownership are fractured. The independent players in this system maximize their own position, with good intentions. But this has led to blurred constraints, "incomplete contracts" as we say in Economics, an imbalance of power that ultimately puts those at the bottom in an even worse position. Our response? Gentrification, housing projects, endless renting with minimal credit history improvement. I don't think these are good enough. I think that we need to reassess the purpose of these systems and then see what parts we really need.
My idea, a very fuzzy one, is to create an alternative home equity model. I also have a fun idea about renovating old warehouses, pictured above, that I hope to use as a vehicle for working this crazy idea out. The basic idea is that the building is set up as a company. The initial investment money is a combination of residents and possibly outside investors as needed. The part I think is most innovative and also the hardest to visualize, is that you buy a share of that company based on what you can afford. The difference between the share you are paying interest on and the number of shares your unit is worth do not have to be the same. The difference is figured out so that if you own less than the units worth, you pay rent on the remainder. If it is more, then you receive rent.

Ex: An 8 unit building. Worth $2 Million, or about $250,000 not taking shared space into consideration. Let's set the share price at $10,000 which translates to 200 shares. We'll assume that 20% down is needed for good financing. That means $400,000, or $50,000 per unit. Each unit then needs 5 shares for initial acquisition, or 40 for the complex. For simplicity, lets say that 4 people can afford 2 shares each and 4 people can afford 6 shares each. That leaves 8 shares outstanding. The 4 who cannot afford a full share pay their normal mortgage payment for their shares and then pay rent per share outstanding. It's the reverse for those who own more shares than their unit. They pay their mortgage payments, but receive a per share portion of the rent paid. An outside investor would be used to buy the 8 shares and they would receive the rent for those. As incomes change, residents can buy additional shares from the bank and possibly the outside investor until they own the full total of the complex between the residents.

It has many many legal and logistical questions, but I like the idea of "equality equity" as a new approach to providing the updated American dream.