Set up a co-op to donate your rent

Ben Dunn-Flores27 Apr 2023 10:58 UTC

47 points

Community Effective Altruism London Effective giving Building effective altruism Patient altruism Opportunities to take action

London EAs pay £140m in rent^[1]. £56m of that is landlord profit which could be donated effectively. Enough money to save 10,000 lives per year is lying on the table.

If you pay £1000 per month in rent, you could save a life each year—without ruining any coats.

Housing co-operatives enable their tenants to donate their rent, rather than it going into a landlords’ pocket. We believe this could unlock large additional donations, even among people who do not earn high salaries.

We can help you set up a co-op to do this in the UK. The process is:

Set up an asset-locked housing co-op (I can do this for you)
Arrange the mortgage and deposit (I can help with this too)
Pay rent to your co-op, which donates the money to effective causes

This is a guide to doing it yourself. It’s not easy, but several groups have managed it in London. I’m building a tech company, Roost, to make it easy, but we can arrange a call without you needing to use our product.

Note: impact measurement

I estimate there are ~10,000 EAs renting in London, paying £1200pm on average. Landlord profit margins after costs and debt are about 40%, leading to the figure of £56m which could be donated effectively. Calculations in footnotes^[1].

Setting up a co-op

Step 1: Find a home

This is a guide to setting up a house-share without a landlord, where the surplus rent can go to effective causes. A housing co-operative is the ideal legal form for this – it has existed for hundreds of years and co-ops are very common in Europe.

Co-ops work best with 3-6 people – fewer, and it’s often more expensive than renting; more, and planning permission is required. This form of housing would usually require a license, but co-operatives are exempt.

Number of people in co-op:	1-2	3-6	7+
Do I need planning permission?	Never	Sometimes	Always
Is it cheaper to do as a co-op than to rent?	Sometimes	Usually	Always

We’ve been working on a property search tool to show how much rent you would pay for a given property. Let us know if you want free access.

The process for finding a home to buy is the same as renting: search online, book viewings, and make an offer. However, it takes longer after this stage: usually around 12 weeks. There is more that can go wrong, so we recommend putting in two offers to make sure you get at least one.

Step 2: Set up a co-op

There several legal forms for co-ops. At Roost, we use non-equity co-ops. We think this optimises for quality of life and allows large donations to effective charities.

This is where the DIY approach differs from how we do it. If you’re going the DIY route, I recommend using the model documents for a Fully Mutual Housing Co-operative at cch.coop.

These model rules include an asset lock. This ensures that anything the co-op owns must eventually benefit a charity. The asset lock in clause 130 will need to be amended to specify an effective charity.

Step 3: Get a mortgage

Ecology Building Society will usually give you a mortgage. They are more expensive than commercial lenders, charging a ~6% variable rate with some discounts for environmental upgrades. Most successful co-ops work with Ecology BS.

For context, a comparable commercial mortgage is at ~4.5%, but co-operatives can’t access these directly.

Roost uses a non-profit land trust that owns the property via a limited company. It is more complex, but it allows the co-op to access the cheaper commercial capital.

Step 4: Get a deposit

Putting in your own money

You can put your money in as a donation to the co-op, in which case this is easy. If these are your savings and you need them back to live, then you can structure it as debt. There are model documents to do this.

External debt

Co-op Finance can help with up to £150k for the deposit at between 6-10% interest. It can be a slow process but we’re working to speed it up.

Donations

Sanford Housing Co-op frequently gives £25k to new co-ops on very favourable terms. London CLH is an enabling group that can point you to more money. Radical Routes can offer its ‘Rootstock’ of 3% interest loans up to about £100k (but they have other conditions on that loan).

Private individuals

Some private individuals around the EA space may be interested in supporting your co-op. A donation to start an EA co-op has two routes to impact: the donations it generates and the home itself.

A £10,000 donation to set up an EA co-op generates about £1,400 worth of donations each year. 14% is a good return for investing-to-give.

It also creates good homes. At a time when many young, ambitious people are being forced out of London, we are excited about the way that co-ops can help them secure affordable, decent, value-aligned housing.

If you’re interested, email me and I can send the full financial model.

Step 5: Donate the rent

Each month you pay rent, the surplus goes to effective causes.

About 30% of rent goes to costs—maintenance, improvements, and retrofits.

About 30% of it will go to mortgage interest, assuming a 25-year repayment mortgage at 5% interest.

The remaining 40% is usually the landlord’s cut. It’s split between cashflow – the surplus of rent minus costs – and the capital appreciation of the property as the mortgage is paid off.

If you pay £1000 per month in rent, your landlord is making £400. It could be going to GiveWell.

What happens when the mortgage is paid off?

After a few years, the mortgage is much less than the value of the property that the co-op owns. It’s asset-locked so the value of the home can only go to public benefit.

It could be kept going as a housing co-op without debt, so it can donate much more of the rent.
It could be let at below-market rate if the work is impactful enough, e.g. charity entrepreneurship or policy work.
It could be sold and the money returned returned to charity.

What it’s like living in a co-op

Aside from being able to donate your rent, co-ops are better to live in than landlord-owned housing.

Tenants have control over the property, so you can change the colour of the walls, put in a new kitchen, or invest in the home’s energy efficiency.
Tenants can’t be evicted without fault, so you can live there as long as you like. You can move out with a couple months’ notice.

Having a really proactive landlord might be less effort than managing your own housing. We expect co-ops to be most attractive for people who cannot afford really proactive landlords.

In conclusion, donate your rent

A brief example

Evie is has made the Giving What We Can Pledge at 10% and earns £35,000 net (i.e. £50,000 per year). She gives £3,500 per year.

She pays 40% of her income on rent, as most Londoners do, and this works out at £1,150.

So she sets up a co-op and donates her rent. It works out at an extra £5,600 per year going to effective causes, enough to save an additional life. She’s just donating the rent that would otherwise go to the landlord.

What happens next?

Let us know if you would like to set up a co-op. We’re here for a chat if you want to do it yourself, or we can set it up for free.

We have standardised legal forms and access to cheaper mortgages.

We will charge general consumers for this in the future. During our test phase, we want to get EA’s into decent houses and help them donate their rent—so we’ll waive our fee for anyone who commits to donating the rent to effective causes.

^
How much could London EAs give if they donated their rent?
Number of EAs in London
Guesstimate: EA London reckons that it interacts with 10% of London EAs. They have a mailing list of 2,200, with a 50% open rate. This suggests 11,000-22,000 EAs in London. They estimate 100-200 people go to monthly events.
Checkstimate: Rethink Priorities estimates that 7% of EAs live in London. GiveWell has 110,000 donors. Let’s say half of EAs give to GiveWell, and that every GiveWell donor can be considered ‘EA enough’ for this basic analysis. 7% of 220,000 suggests 15,400 EAs in London.
These sources are all from 2018-2020, so I expect the numbers to have risen somewhat. Let’s use ’15,000′ as a round number on the lower-middle of the estimate range.
Renting vs owning
EAs lean young and highly educated. Both of these camps are more likely to rent. In London 26% of people rent, however, home-ownership skews older. I would be surprised if less than ²⁄₃ of EAs rent.
So let’s take 10,000 people as the sample.
Mean EA rent
Let’s take a low estimate of the mean EA income, at £50k. EAs tend to have advanced degrees and work jobs in tech or finance, so I expect the true figure is higher. The net income for someone on £50k is £35k, after tax, national insurance and student loan repayments.
The vast majority of renters in London spend between 30-50% of their income in rent. Let’s use 40% - that equates to £14,000 / £1166pm.
Amount ‘lying on the table’
£14,000 x 10,000 = £140m in gross rent per year.
As discussed above, Landlord’s profit margins are about 40% of gross rent.
40% of £140m represents an £56m per year source of additional donations from existing EAs.
Epistemic status
Back of the napkin calculation.