Finance:
Financial management of any community project will pose unique challenges, but especially one that seeks to handle the large volumes of money associated with housing development and provision. The following headings outline some of the unique issues relevant to collective housing projects:
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In Aotearoa New Zealand many collective projects are 100% self funded by the residents as a group of individual housing unit investors. Their contributions take two forms. Equity capital and loan security. These projects require seed finance to cover initial costs such as incidental meeting and venue costs, feasibility studies, web resources, and as the project proceeds for a range of consultants (ranging from community leaders and facilitators to architects, planners, financial advisors, and project managers) needed to advance a project. Typically project seed finance is contributed from an initial membership fee by group members to create a float for expenses. This usually occurs around the time a core project leadership group is established and members commit to a project. As a project proceeds over time more formal commitments and increased financial contributions are required.
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Internationally there are many ways to fund a collective housing project. Funding can come through shared equity arrangements with social housing providers, through land-tenure (therefore equity) grants or land tenure security from long term leases, equity financing support and guarantees, or through below-market establishment loans through ‘ethical banks’ or federal or city administrations. Support may also occur through preferential site access and deferred settlements, and long-term, low-return leasehold agreements. Active partnership support may also occur through national and local governments, Community Land Trusts, philanthropic organisations, and socially responsible community participants or employers as has occurred throughout history facilitating the establishment of cooperatives. While many of these solutions are not common in Aotearoa New Zealand, they are all potentially viable funding options.
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It is common overseas for institutional funds to finance and invest in collective housing as secure, long term investments. There are also examples of boutique investment funds established to facilitate new collective housing projects by providing their bridging finance. Nightingale Housing in Melbourne uses this means to fund their projects. Effectively this enables groups to use direct collective procurement to act as a developer and avoid the developer profit and marketing costs of a typical development project. We need a boutique collective housing investment fund like Nightingale Housing’s fund for New Zealand. Such a fund could be targeted at the project bridging period returning investors above bank rate returns.
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It is also common overseas for developers to partner with collective housing projects as a single readymade client. In these situations often the developer owns the land and will fund and manage the project to completion and occupation. This route also allows early contractor engagement with the developer as a party to the project. The disadvantage is the developer will tend to limit the extent of community input.
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As with any community organisation, it is valuable to elect a treasurer to handle finances on a day-to-day basis. They will act as the community representative in most situations where finance is being discussed, and will keep track of organisational funds. As the project scale and complexity grows and as it progresses professional financial help is likely to be required from a range of advisors such as accountants, quantity surveyors, project managers and specialist project financial advisors.
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It is easy for costs to escalate at any stage and this has been a particular problem in recent years. Good financial and project management includes processes to monitor scope of work creep, costs and to manage value. Clear and comprehensive documentation, current professional detailed assessments of cost and clear establishment of responsibilities through detailed contract definitions are essential as are realistic contingency funds to cover the inevitable unforeseen items and any increased costs over the project construction period. Independent reviews of the project at key stages by outside parties are also helpful.
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Few banks in Aotearoa have systems in place for working with collective housing communities. This can lead to confusion, slow progress, or struggles to find applicable policies. One potential way around this is to engage with banks through the structure of registered organisations. Using existing structures can help streamline the process of being recognised as a legitimate entity by financial organisations.
