HOW TO BUILD A VILLAGE TOWN, PART II

Purchasing Power

The largest purchase an ordinary person or family will make is their home. They may need to save for years to put aside the down payment the bank will require to assure its loan is protected. The bank will loan the money for interest on a term that may be 20 or 30 years. For most people, this means they will be paying off that loan for most of their working life. At the end of the mortgage, they will hold a capital asset that may provide for their needs when they no longer can work to earn a living.

If an individual or family goes to the bank, they have little power. They take the terms the bank offers, perhaps negotiating a detail or two. However this is not the case with the VillageTown. It becomes important for the buyers of homes in the VillageTown to understand their implications of combined purchasing power. This does not mean collective pooling of money. From the individuals' perspective, it is the same as securing a private mortgage from the bank. Combined is what happens afterwards, what the bank normally does and how it manages the mortgages.

The VillageTown involves building about 4,000 homes, numerous workplaces and a 50 acre (20h) industrial park. In order to achieve the critical mass in population required for profitability of the businesses and professions that sell local-to-local, all construction must happen in the same time frame. Unlike typical development that relies on the regional economy for growth, and therefore builds in several releases over years or decades, the VillageTown will know its buyers in advance. They buyers bring their own inter-related local economy with them that will enable them to pay the bills. In addition, those buyers bring combined purchasing power that can exceed a billion dollars.

When one family approaches financiers to borrow $250,000 for a home, the financier has the upper hand. There is no reason why a VillageTown cannot be financed by 4,000 such families going to their favorite bank in the conventional way as each will be buying and having built a private home. However, there is a good reason to do it smarter. Start your own bank and apply through it for the mortgage. Have all 4,000 applicants use the same bank. Have the bank owned by the VillageTown corporation... which the citizens of the VillageTown own.

In the USA, for example, a community bank that has a billion dollars in assets is considered at the upper end of the scale, and usually it takes decades or even centuries to get there. If the VillageTown starts a bank that will be owned by the VillageTown citizens, and it consolidates all those mortgages, it opens its doors with a billion in assets. It packages those mortgages into mortgage bonds or prime mortgage backed securities that are sold to long-term investors such as insurance companies or pension funds. The best terms that can be negotiated are passed on to the buyers, and the VillageTown retail community bank starts out in a strong capital position.

The next aspect of purchasing power comes in construction. When 4,000 units are built at the same time, the efficiencies of scale lower the cost. Materials are delivered by the shipload or by railcar - not at the building supply store's trade price, but at the factory door price; or in some cases, it may be cost effective for the VillageTown to start its own factory. The cost per home drops significantly. 

It would be a mistake to pass these cost savings on to the first home buyer because they come not by something the individual has done, but by the combined purchasing power of the group. Thus, except for the parallel market homes, the new home price will reflect the market price. The cost savings remain with the organizing company when it is recast as an operating company, thus starting the VillageTown out with a substantial Legacy Fund that may be in the hundreds of millions of dollars.

Creative Power

What will the VillageTown choose to do with the Legacy Fund? While it is still the organizing company, the intent is to seek out lateral thinking, creative, but skilled and proven fund managers who carefully invest both money and talent to further the purpose of the VillageTown (a good life... citizenship, conviviality, artistic, intellectual & spiritual growth). This involves not only attracting talent, but then fostering a community-wide, or even perhaps global-wide dialogue about what that means. The act of creation is often ascribed to artists, but in its full scope, it speaks to causing anything to come into being. Thus, with the focus being the long-term well-being of the VillageTown, the act of creation becomes potent when it is backed by access to funds. So often great and do-able ideas die for lack of funding, while large institutions and influential groups seem to vaccuum up money for their banal and sometimes toxic projects. Not so when the VillageTown is its own corporation, and the money it needs is owned and held by it. The power to create is given by the outcome of combined purchasing power.

An Eastern Missouri Village Town could control its own destiny, because it would control its own financial strength.  What a great way to begin a community.  Join us.