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Open Source Housing Can Adapt ESOPs and REITs

I paid attention at tonight's Commonwealth Club talk on "open source housing."  The concept needs more definition but the movement's drivers are on the right track.  The current state of open source housing is a collection of websites offering simple, low-cost designs for stand-alone single family homes.  Those plans are great for rural areas or exurban infill that can be rebuilt into a denser community.  An urban core like San Francisco needs a different open source template.

Capturing a social capital spirit is great for open source plans that support non-profit organizations.  The limitation on this movement is that non-profits do not drive America's GDP.  Urban housing solutions need a capitalist impulse.  Non-profits are welcome to experiment with starting their own credit unions, sequestering parts of their endowment into residential housing units, or issuing bonds to buy buildings.  Our Commonwealth Club speakers mentioned all three tonight and I noticed that all three are limited by most non-profits' lack of a capital base.  Universities have successfully launched campus-owned residential housing initiatives because they have sufficient financial strength to underwrite large acquisition and construction projects.  Your typical San Francisco neighborhood charity cannot match the strength of our local universities.

The fourth pillar of tonight's talk is some kind of open source creative commons license for local housing solutions as co-working spaces.  This concept has legs if it finds an ecosystem that can make it profitable for large numbers of market participants who are not limited by geography.  Open source systems like Linux and Arduino work because they enable the construction of products that many people will purchase in a free market.  Adapting an open source model from IP to physical residences means creating a legal and financial template that people will find profitable.

Here is the Alfidi Capital contribution to open source housing.  The private sector already has a concept that allows employees to convert their labor into equity; it's called the employee stock ownership plan (ESOP).  Adapting this for a non-profit enables non-profit workers to make tax-free contributions to an equity pool that the organization can use to buy multi-unit residential buildings.  Making this scalable means multiple non-profits can pool their ESOP housing funds into a professionally managed private REIT.  Consolidating the purchased buildings into a private REIT fund gives each employee shares they can exchange for an available residence, similar to a condominium's homeowner association.  The advantage of a REIT structure is that shares may be sold privately between non-profit organizations' employees.  Perhaps they could be tradeable on portals like SecondMarket.  The REIT's liquidity allows flexibility for non-profit workers who may not wish to spend their entire lives committed to one housing arrangement if they decide to move on with their careers.

I look forward to seeing what SOCAP people will do with open source housing.  FINRA notes that private REITs come with many caveats.  Physical designs for housing are less important than an economic framework that is scalable to address a large number of mostly urban non-profits that are too small to move the residential market on their own.  Employers and investors know that ESOPs and REITs already work as capital pools.  The non-profit sector can use them to buy affordable housing.