Buying and Selling a house using debt versus Rent and Buy Mortgages

Today we typically transfer the value of assets, like a house, over time with the use of debt. The following is a simplified sequence of steps taken to sell a dwelling.

A buyer finds a house to purchase. They go to a bank, and the bank gives them a loan. The bank does not take money from existing accounts but creates new money and provides this as a loan to the buyer. The buyer then buys the dwelling with the money. The buyer repays the bank the money over time and also pays interest on the money. The seller of the dwelling has some money which we will assume they deposit in the same bank. The seller earns interest on the money they leave in the account. It will be less interest than the bank charges. The seller’s money depreciates with inflation.

For the sake of simplicity, we will assume the buyer borrows $100 and repays the money in one amount after 30 years, and we will assume the seller leaves their money in the bank for 30 years. We will assume an interest rate of 5% for the bank, an interest rate of 3% for the seller and an inflation rate of 2%.

The amount of money transferred from the buyer to the bank is $432.
The money transferred from the bank to the seller is $242. The value of the money the seller receives after accounting for inflation is $134.

The total cost of using bank debt is $432-$134 = $298. This cost is born by both the seller and the buyer. To transfer an asset of value $100 has cost three times the value of the asset.

If instead of using bank debt to transfer the funds, the buyer paid the seller directly without using bank debt, then the seller would receive all the money the buyer paid.

The reason we use bank debt is that the banks guarantee the money gets paid. To replace bank debt and save three times the value of the money transferred we need to have a way that ensures the transfer of value.

Rent and Buy Mortgages ensures the transfer of value and links sellers with savers to finance the exchange. This means the seller gets their money immediately.  By adjusting payments and interest rates, the buyer and the saver share the savings. Some savings can pay for insurance, lawyers, real estate agents and accountants who are needed to make the exchange.  These costs will be lower than the current system because the money used for these payments is cheaper than debt money.

How to reduce household, business and government debt

The world has a debt bubble that is causing economic stagnation and a maldistribution of wealth. It is widely acknowledged that we need to reduce the amount of debt.

Debt is created when we lend money and receive more money back than we lend. Credit is the ability of a customer to obtain goods or services before payment, based on the trust that payment will be made in the future.

Debt could be created by an organisation selling money they create. This is selling IOUs. Thus any entity can sell IOUs, and people will accept the IOUs if they are confident they will get a return on the IOUs by receiving back goods or services of greater value than the money they paid.

Governments can print money because we have confidence that governments will tax us and will accept their own money.  If they gave us a discount on taxes when we used the money we purchased we would happily buy their money.

Other organisations can issue money and we will buy it from them if we have the confidence they will deliver goods or services in the future.  If they give us back goods and services of greater value than our purchase price then our purchases become an investment.  This is better called negative credit rather than debt.

If we do this we can eliminate money debt and replace it with negative credit for future goods or services. Each time we replace money debt with negative credit, it removes the cost of interest on money and the cost of inflation. It does not eliminate the value of negative credit which is the return on investment.

We can do this one debt at a time without disrupting the economy. The cost of moving to negative credit is more than covered by the removal of the cost of interest and the cost of inflation.

Australian Priority Investment Approach to Welfare

The Australian Priority Investment Approach to Welfare invests in people who can find and hold a job. It will first target groups in society who have a high propensity to rely on welfare payments throughout their whole life.

The minister’s announcement in parliament

Government call for expressions of interest

The proposal outlined here complements and assists this approach by providing ways for any Welfare Recipient to invest and accumulate wealth. If people accumulate capital and can turn it into an annuity, they have less need to access the welfare system. This proposal offers ways to assist individuals and families build their capital resources and use any capital resources they possess.

The money to pay for the accumulation of wealth and to operate it comes by removing the cost of interest and the cost of inflation. It is a flexible approach and accommodates individual circumstances. It starts small and is scalable.

Capital Accumulation for welfare recipients

In this proposal, capital accumulates in two ways. The first turns rent into a mortgage repayment.

Turning rent into mortgages provides a way for individuals and families to have tenancy rights over the place they live. It reduces housing stress and gives a home ownership foundation to personal finances. When a person gets older, the accumulated capital can return as an annuity. Removing interest from money and repaying the money over a longer time reduces the cost to accumulate wealth while giving a fair return to savers.

The second way to accumulate wealth rewards those who use fewer community resources such as water, energy, transport and other community infrastructure. The rewards are investment capital invested in developing more community infrastructure. Non-consumption is a form of savings and turning it into investment capital is a way to turn it into a future annuity income.

Funds for Investment

Removing interest and the effect of inflation on wealth accumulation provides the money at no extra cost to the government. What happens is that the use of community assets move to custodianship and control by individuals but remain owned by the community. It is leasehold rather than ownership in perpetuity.

Most investment funds will come from superannuation and other personal savings. As an alternative to putting money into banks to earn interest, funds are invested to pre-pay tax. The savers get a return on investment by getting a discount on any future taxes or fees paid to the government. The discount can apply to goods and service, income, or capital gains taxes. If a person cannot use the pre-payment, they can sell it on a secondary market. There is no money created, and the system can compensate for inflation. Doing this removes the cost of interest and the cost of inflation. Over a person’s lifetime, these are significant costs.

Members of the community receive the benefits from the investments and so are better able to pay their taxes and not require income support from taxes. Most superannuation savings are likely to remain in these pre-payment accounts until needed for a retirement or emergency annuity.

Funding Operations

Funds for operations come from transaction fees on transfers of value. A 1% charge on all transfers should pay the total cost to support individuals and for software services. It means there is no cost to the government to operate the system.

How quickly can it start and how much will it cost to trial

There is no need for legislation to start a trial. Funds to construct the system can come from sales of pre-payments within a month of a decision. The trial itself can commence within three months of a decision.

As with the Australian Priority Investment program, it is proposed to start with a trial of people at risk of becoming homeless or who are suffering financial stress because of the high cost of housing.

What are the benefits?

This approach will assist a person to own their home by the time they reach retirement. It will provide a place for superannuation contributions to be safe and to provide high annuity payments on retirement. The approach can be extended to all citizens and is likely to take people off the old age pension. We can expect the welfare bill to reduce every year as more pensioners use their house capital and the high annuity returns available from buying rewards. The government’s debt will drop, and there will no longer be the burden of ever increasing debt repayments.

Instead of welfare payments going directly into bank accounts, payments can go to Rewards accounts or Rent accounts. Money in any of these accounts increases in value over time. With the permission of the Reserve Bank, payments for goods and services can be made directly from these accounts. The government no longer needs to use interest bearing money and so can reduce its debt. Welfare recipients get a return while ever the money remains in their accounts. The savings to the community is the cost of interest and the cost of inflation on the amount of money.

How does it fit into the NZ model?

Building capital resources require the individual to have access to, control over, and understanding of their finances. These are all capabilities that people need to get the most from Investments in themselves. This proposal includes the software systems to help a person manage their finances. The accounting software will be an adaptation of the small business accounting software. Organisations like those identified in the Australian Priority Investment program will act as advisors with the software and help people to monitor their finances. The systems will be in place and available to help other “Investment in People” initiatives.


This proposal has no net cost to the government. It will assist the deployment of the Australian Priority Investment program. It has the potential to reduce welfare payments by increasing the capital available to welfare recipients. If trials are successful, it is scalable. It requires no legislation or funding to start. It requires the government to allow pre-payment of taxes with a discount. It requires the cooperation of a state government agency to institute a rewards program such as Water Rewards for consumers who use little water.

Reduce the Cost of Capital to Balance Budgets

Day after day, year after year, we are told we need to balance our budgets.  There are three ways we can do this. The first is reduce our expenditures; the second is to increase our income, and the third is to reduce the cost of transferring money and use the savings to balance the budget.

The largest variable costs in running the economy are the cost of using money with interest and the cost of inflation. We can remove these costs by using money with zero interest. We give investors a return on their savings by paying them back more over a longer period. With no interest money, our debt does not compound. The cost of Capital Works reduces by half.

It is remarkably easy to change to no interest money because we can do it one loan at a time.

What it means for the ACT is that we can afford to build hospitals, schools, Light Rail, more roads, more footpaths and cycleways. What it means for the Federal Government is that we can afford to compensate coal companies for closing mines, and we can afford to build as much renewable energy capacity as we can use.


Replace Debt and Fix the Economy

When exchanging goods or services for money then if the exchange happens at the same time, the value of the money is equal to the value of the goods or service.
If we give the money before getting the goods and services then we can get more goods and services the longer we wait as we can get a discount.
If we receive the goods or services before we exchange the money, today we give more money the longer we wait.
Instead of giving more money we could have received fewer goods and services or paid more for the next lot of goods and services.
In both cases, if we vary the number of goods and services received and pay the same amount of money we do not have to use interest bearing money, debt, to transfer value. We can also compensate for inflation by varying the number of goods and services transferred.

This removes two large costs from the transfer of value and reduces the cost of operating an economy. It removes the cost of debt and the cost of inflation and will fix any economy.

Welcomer Identity

With Welcomer identification of a person comes by examining the history of data transfers made by the individual. Welcomer stores the metadata of the interactions as the person interacts with other entities on the Internet. This history of interactions is only accessible to the person, and they use it to prove their identity. Identity with Welcomer depends on context and adjusts itself with use.

All Internet interactions occur with a physical device. The interaction of the person with the physical connection is a Welcomer connection. The history of these interactions enables the device and the person to be mutually confident of their respective identities.

Welcomer identity is simple, private and secure. Surveillance is challenging, and privacy breaches quickly detected.

Welcomer identity applies to any identifiable entity. Because identity is the same for all entities, it means seamless integration of the Internet of Things with the Internet of people and the Internet of applications. We change behaviour depending on with what or whom we communicate.

Welcomer connections are with other entities not where they reside. If a person uses a different device to connect to the internet, they are still the same person. If a person’s money moves to another bank account or if the bank moves the money to a different machine it is still the same money. With Welcomer, behaviour becomes the primary identifier. A way to confirm an identity is to ask for a record of their past few connections. The entities connected are asked via a different channel to confirm the behaviour.

Welcomer identity is low-cost. The cost is the cost of computation and storage of data. Both these prices are low and continuing to drop.

Privacy comes because behaviour and connections do not reveal who you are. They show what you have done not who you are.

Security is high because it is hard to fake behaviour and connections in a system with memory.

Welcomer a platform for connecting silos of data

Welcomer is an open source platform for connecting silos of data. It connects existing silos without requiring any change to the silos. Each connection is independent of any other connection. For a given item of data, parties who initially share data have access control over later third party sharing. Relationships remain until any party unilaterally decides to break it. Applications establish and maintain relationships with permissions and rules of access to data elements. Using applications with the Welcomer platform, across silos, keeps access rules consistent and permits their propagation.

Typically an existing application starts to use Welcomer to improve its performance. It changes one current connection at a time to use Welcomer connections. For example, a large organisation may have an existing organisational budget application that collects data from operational systems. The application can use Welcomer to change the collection of data without affecting the functionality or operation of the systems that create the silos. Externally everything looks the same. Internally Welcomer connects and remembers the data transfers for use in other applications. The budget application evolves. It can reflect on its performance and automatically improve.

The Welcomer platform is distinguished by what it doesn’t do rather than what it does. Standards emerge rather than being defined. Functionality happens incrementally rather than in well-defined discrete steps. Importantly costs reduce with each change meaning funds for improvement come from operational budgets instead of a capital budget. Welcomer coexists with any application and is an ever-changing organic system that is separate from but integrated with other systems. It has a value derived by reducing costs. As it evolves, it adds value from new functionality made possible from the history of data transfers.

The Welcomer platform reduces the cost to transfer value. On the Internet, the transfer of value is the movement of data. Instead of moving regular money we can transfer credit, or the promise to pay. Credit has value. Money has value plus it has an interest cost and a cost of inflation. By using credit, we remove interest and inflation costs. Eliminating them reduces the cost of all transfers of value. The savings are large depending on the length of time the credit is in place.

Water Rewards Submission to ICRC

The ICRC (Independent Competition and Regulatory Commission) put out a draft on tariffs for ICON Water.

The following is a submission that uses sustainability principles for price setting rather than market principles.


The ICRC has an unenviable task of attempting to determine prices for water and sewerage using ideas of market efficiency where there is no market.

Instead of trying to achieve economic efficiency through market principles we suggest a different approach. We recommend that tariffs be left as they are and ICON Water introduces other methods to control demand and to ensure economic efficiency.

We suggest all water in the ACT fall under the jurisdiction of ICON Water. The ACT population believes all water is ICON water responsibility and ICON Water is in the best position to ensure all water in the ACT is used in the most efficient way.

We recommend the introduction of Water Rewards, a low-cost way to involve the community in obtaining the greatest economic return from all the water assets in the ACT, including streams, ground water, sewerage outflow and storm water.

Tariff Structure

The ICRC report on the Price Elasticity of water in the ACT shows that price alone has little impact on demand. Price Elasticity is -0.14%. The reduction in usage since 2003 and its plateauing is due the extensive publicity and awareness of the water situation leading to a change in behavior. With the passing of the emergency, community behavior has not reverted to previous levels of consumption. The community understands the system and has accepted the prices. Changing to higher fixed charges and lower consumption costs will mean residents are likely to consume more and to revert to previous consumption levels.

We suggest ICRC allow automatic CPI inflation indexing of all charges at the beginning of each financial year.

Market economics would say it is economically efficient to sell more water when there is enough supply. Long-term water sustainability principles disagree with this approach. Rather it says we should produce no more than is sustainable for the lowest possible cost. Just because it is available does not mean we have to use it. Water Rewards is a way to help provide economic sustainability for water.

Water Rewards

Water Rewards are a way to reduce the funding costs of water infrastructure. Instead of funding water infrastructure with loans Water Rewards allows the community to self-fund water infrastructure and save ICON water users the cost of interest and the cost of inflation. In 2016 this will be $75M in interest and $30M in inflation. Doing this increases the surplus available to the community from the sale of water from $131 million to $236M.

This extra money can address equity and economic efficiency issues highlighted in the ICRC report. It will save the ACT government having to fund water catchment infrastructure and maintenance with debt. It can remove existing ICON Water debt from the balance sheet. The government can use it as collateral to support the construction of other community infrastructure.

Water Rewards Operations

Water Rewards take the form of pre-paid vouchers used to pay Water Invoices. They attract a 10% yearly discount or 0.27397% per day. They increase in value with CPI inflation. They are transferable, and there is a secondary market to trade them.

Because they are an attractive place to store savings and because ICON Water wants to limit the number ICON Water issues Rights to Buy Water Rewards. The Rights to Buy are also transferrable.

To make them socially equitable and to encourage sustainable consumption of water the Rights are issued to each individual Water User by the average of their previous year’s daily consumption.

The Social and Sustainability Benefits of Water Rewards

The government, through ICON Water, sets the rules for the operation of Water Rewards and Rights to Buy. The government has flexibility and can target specific issues. For example, the government can issue Rights to Buy to large users of water who wish to use recycled water. The Water Rewards purchased with the Rights pays for the infrastructure to recycle water.

Instead of giving rebates to different groups the government can give Water Rewards. Instead of imposing restrictions on water use the government can provide more Rights to low consumers of water.

Members of the community can donate their Rights to organizations such as schools or charities.

The community will have a close direct connection with ICON Water and have a stake in the operation through Rewards. It opens up many avenues for community engagement including using Water Rewards as a high-value savings account and way to pay for other government and non-government services.

The income from water will support more Water Rewards than needed for Water infrastructure. The government can decide to issue more Water Rewards than needed and use the extra funds for other infrastructure including Water Catchment maintenance and support. The total investment funds supportable by Water Rewards at 10% are about three billion dollars.

The cost of operating Water Rewards

A 1% transaction fee on each transfer of value covers the cost of running Water Rewards. This fee is paid with Water Rewards so there is no direct charge on the ACT budget to build or operate Water Rewards.

The only change to existing systems is to allow the payment of invoices with Water Rewards.

When can Water Rewards be operational?

Water Rewards can start on a small scale within three months of a decision to proceed.

Simplified Bookkeeping

When we trade, we exchange goods or services for money. The goods or service have a value, and we represent value with money. With simplified bookkeeping, if we receive the money at the same time as the goods or service, we get money with a value X. If we receive the money before delivering the goods or service, we get X+Y in money and if later we get X-Y in money. Alternatively, we could get the same amount of money and less or more goods and services. Y may depend on time and is independent of any other agreement.

Using this approach to bookkeeping simplifies accounting because it removes the time value of money. Removing the time value of money eliminates money markets as we know them today. The value of money tokens is zero as money is a way to exchange value, not a store of value. Money in the bank is savings and the savings have a value, not the money symbol.

Accounts across entities are tightly linked with transactions. Doing this further simplifies accounting because we agree on value, and it remains fixed. The amount of money transferred varies but as money is not a store of value the books are unaffected.

This approach eliminates most interest and money inflation as each agreement contains rules around the calculation of Y to account for them. With modern technology the calculation of Y is a small cost and is much less than the expense of markets, interest, complicated book-keeping and inflation. It will reduce the costs of operating a modern economy by at least 50%.

We can make the change to simplified bookkeeping transaction by transaction as a transaction using simplified bookkeeping is compatible with existing bookkeeping.

The first transaction made using simplified bookkeeping were the fees paid to my bookkeeper Tailored Accounting.

Rent and Buy Mortgages for Public Housing


Using debt financing doubles the cost of owning a home.

By changing the way, we repay loans we can eliminate both interest and inflation, and the buyer of a house does not have to rely on capital appreciation for the investment to hold its value. For public housing, the savings are transferred over time to the occupants of public housing.

Rent and Buy Mortgages eliminate interest, remove the effect of inflation so removing the need for the house to appreciate in value.  Using Rent and Buy for public housing provides a way for people with low incomes and few resources to gain a deposit for their own home.

Rent and Buy Mortgages provide alternative funding so that anyone who can afford to rent can afford to buy their own home.

How they work

The details will vary for each operator of a public housing project.  A typical arrangement follows.

Saver investors purchase Rent and Buy Mortgages at an agreed rate defined at the time of purchase. That determines the amount they will get in return for their capital. Typically this will be an 6% inflation-adjusted annuity.

For example, an investor purchases an annuity for $100,000. They decide to start drawing down the capital after twenty years. At that time the annuity value is twenty times 6% times $100,000 plus $100,000 all adjusted for inflation or $220,000 with no inflation. The investor now draws that down over a period of thirty years at $11,000 per year. Alternatively, they could draw it down at the rate of $22,000 over fifteen years.

If the investor does not start drawing an annuity the rent money collected is invested in mortgages on other properties.

The investor can sell their mortgages on a secondary market. When they sell they get cash and pay tax on any increase in value over the original $100,000.

Occupants of dwellings buy part of the mortgage on their house each time they pay rent. For public housing, the rent paid is determined by the renter’s ability to pay. In return, the tenants look after the dwelling and pay for the utilities and operating costs.

Renters have the option of purchasing all the mortgages at any time. Renters accumulate mortgages, but they cannot sell any mortgage of the dwelling in which they reside until they leave.  When they leave they have access to the mortgages they own to use as a deposit on a new home.

Over time the total amount of rent paid is equal to the total amount of money returned to investors.

What it looks like to Renters and Investors

Renters think of themselves as home buyers as they are accumulating mortgages (ownership) over the property. Investors think of themselves as purchasing a flexible high-value inflation proof property backed annuity.

What does it look like to the government

The government supplies the governance, executive oversight and initial capital as they do now with public housing. They set the rules on how much renters pay and the return on investment. The government is the initial mortgage holder of properties it builds or buys.  It sells those mortgages to renters and investors as the investment moves into private hands. The sales enable it to purchase and build more public housing if it is needed.

As investors and renters all acquire mortgages it is expected governance will move to all the mortgage owners.

What does it look like to the operator

The operator will operate as a bank except it takes no responsibility for the money because it does not create debt. It does what most people think banks and real estate people now do. They take money from savers and use it buy properties on behalf of the savers and rent them out.

The government can be the operator but they are likely to outsource the operations to organisations with expertise in real estate rentals and issuing mortgages.