BUILDING SOCIETIES, or societies " for the purpose nition. of raising, by the subscriptions of the members, a stock or fund for making advances to members out of the funds of the society upon freehold, copyhold, or leasehold estate by way of mortgage," may be " either terminating or perma-nent" (37 and 38 Vict. c. 42, § 13).
A " terminating " society is one " which by its rules is to terminate at a fixed date, or when a result specified in its rules is attained;" a " permanent" society is one "which has not by its rules any such fixed date or specified result, at which it shall terminate" (§ 5). Popular A more popular description of these societies would definition. be,—Societies by means of which every man may become "his own landlord," their main purpose being to collect together the small periodical subscriptions of a number of members, until each in his turn has been able to receive a sum sufficient to aid him materially in buying his dwelling-house.
Origin. The origin and early history of these societies is not
very clearly traceable. A mention of " building clubs " in Birmingham occurs in 1795; one is known to have been established by deed in the year 1809 at Greenwich; another is said to have been founded in 1825, under the auspices of the earl of Selkirk at Kirkcudbright in Scotland, and we learn (Scratchley OH Building Societies, p. 5) that similar societies in that kingdom adopted the title of " menages."
Acts of When the Friendly Societies Act of 1834 gave effect
*836 *° W^Se atl^" ^^era^ P°licy °f extending its benefits to societies for frugal investment, and generally to all associa-tions having a similar legal object, several building socie-ties were certified under it,—so many, indeed, that in 1836 a short Act was passed (6 and 7 Will. IV. cap. 32), confirming to them the privileges granted by the Friendly Societies Act, and according to them the additional privileges (very valuable at that time) of exemption from the usury laws, simplicity in forms of conveyance, power to reconvey by a mere endorsement under the hands of the trustees for the time being, and exemption from stamp duty. This Act remained unaLWed till 1874.
The early societies were all "terminating,"—consisting Ternunat-of a limited number of members, and coming to an end as tag soon as every member had received the amount agreed S0Cletl8S-upon as the value of his shares.
Take, as a simple typical example of the working of such a society, one the shares of which are £120 each, realizable by sub-scriptions of 10s. a month during 14 years. Fourteen years hap-pens to be nearly the time in which, at 5 per cent, compound interest, a sum of money becomes doubled. Hence the present value, at the commencement of the society, of the £120 to be real-ized at its conclusion, or (what is the same thing) of the subscrip-tions of 10s. a month by which that £120 is to be raised, is £60. If such a society had issued 120 shares, the aggregate subscriptions for the first month of its existence would amount to exactly the sum required to pay one member the present value of one share. One member would accordingly receive a sum down of £60, and in order to protect the other members from loss, would execute a mortgage of his dwelling-house for ensuring the payment of the future sub-scription of 10s. per month until every member had in like manner obtained an advance upon his shares, or accumulated the £120 per share.
As £60 is not of itself enough to buy a house, even of the most modest kind, every member desirous of using the society for its original purpose of obtaining a dwelling-house by its means would require to take more than one share. In this respect the Act of 1836 presented a curious inconsistency; it limited the amount of each share to £150, and the amount of the monthly contributions on each share to £1, but did not limit the number of shares a member might hold. If its purpose in this respect was to confine the operation of these societies to the industrial classes, it was de-fective. The only rational explanation of the provision is that it was an anticipation of the modern system of limited liability.
The earlier formed societies (in London at least) did not Names of usually adopt the title " Building Society;" or they added to societies, it some further descriptive title, as "Accumulating Fund," " Savings' Fund," or " Investment Association." Several are described as " Societies for obtaining freehold property," or simply as " Mutual Associations," or " Societies of Equality." The building societies in Scotland are mostly called " Property Investment Companies," or by some similar name. Although the term " Benefit Building Society" occurs in the title to the Act of 1836, it was not till 1849 that it became in England the sole distinctive name of these societies ; and it cannot be said to be a happy description of them, for as ordinarily constituted they undertake no building operations whatever, and merely advance money to their members to enable them to build or to buy dwelling-houses or land.
The name " Building Society," too, leaves wholly out of sight the important functions these societies fulfil as means of investment of small savings. The Act of 1836 defined them as societies to enable every member to receive the amount or value of a share or shares to erect or purchase a dwelling-house, &c, but a member who did not desire to erect or purchase a dwelling-house might still receive out of the funds of the society the amount or value of his shares, improved by the payments of interest made by those to whom shares had been advanced.
About 1846 an important modification of the system of these societies was introduced, by the invention of the " permanent" plan, which was adopted by a great number of the societies established after that date. It was seen that these societies really consist of two classes of members; that those who do not care to have, or have not yet re-ceived, an advance upon mortgage security are mere inves-tors ; and that it matters little when they commence invest-ing, or to what amount, while those to whom advances have been made are really debtors to the society, and arrangements for enabling them to pay off their debt in various terms of years, according to their convenience, would be of advantage both to themselves and the society. By permitting members to enter at any time without back-payment, and by granting advances for any term of years agreed upon, a continuous inflow of funds, and a continu-ous means of profitable investment of them, would be secured. The interest of each member in the society would terminate when his share was realized, or his advance paid off, but the society would continue with the accruing sub-scriptions of other members employed in making other advances.
Statistics. Under this system Building Societies have largely in-creased and developed. In the county of Middlesex alone, 1600 societies were certified between 1836 and 1874; in that of Lancaster, 1300; and the total number of societies established in England and Wales cannot be less than between 5000 and 6000.
Deducting the terminating societies which have reached their ter-mination, and the permanent societies which have failed or been dissolved, it is estimated that more than 2000 societies are still in existence. The operations of some of these societies are very extensive. The Queen's Building Society at Manchester has an income of £734,578, and assets amounting to £910,224 ; a society at Halifax has an income of £261,654, and assets £430,683 ; one at Burnley £221,508 income, and £324,919 assets (Report of Registrar, 1875), There are also several large societies in Scot-land.
The total funds and income of building societies cannot be accurately ascertained ; but the Royal Commissioners who inquired into the subject in 1872, estimated the total assets of the societies in 1870 at 17 millions, and their annual income at 11 millions. The larger societies are in the North of England, where, indeed, all classes of provident associations, notably friendly societies and co-operative societies, are more fully developed than in the South. To this remark, however, there is one exception, viz., the Birkbeck Building Society, London, whose receipts for the year 1874 amounted to 4^ millions, but by far the larger portion of that enormous sum consisted of deposits paid to the society as a banker.
Starr Bow- A variety of the terminating class of societies has met with some
kett favour of late years, under the name of " Starr Bowkett " or
societies. "mutual" societies, of which about 200 have been established.
They differ from the tynical society above described, in the contri-bution of a member who has not received an advance being much smaller, while the amount of the advance is much larger, and it is made without any calculation of interest. Thus a society will issue say 500 shares, on which the contributions are to be Is. 3d. per week, and, as soon as a sum of £300 has accumulated, will allot it by ballot to one of the shareholders, on condition that he is to repay it without interest by instalments in 10 or 11\ years, and at the same time to keep up his share-contributions. The fortunate recipient of the appropriation is at liberty to sell it, and frequently does so at a profit; but (except from fines) no profit whatever is earned by those who do not succeed in getting an appropriation, and as the number of members successful in the ballot must necessarily be small in the earlier years of the society, the others frequently become dis-contented and retire. These societies cannot, of course, borrow money, for as they receive no interest they cannot pay any. The plan has recently been modified by granting the appropriations alternately by ballot and sale, so that by the premiums paid on the sales (which are the same in effect as payments of interest on the amount actually advanced) profits may be earned for the investing members.
A further modification of the " mutual" plan is to make all the Appropria-appropriations by sale. The effect of this is to bring the mutual tions by society back to the ordinary form ; for it amounts to precisely the sale only, same thing for a man to pay 10s. a month on a loan of £60 for 14 years, as for him to borrow a nominal sum of £84 for the same period, repayable in the same manner, but to allow £24 off the loan as a " bidding " at the sale. The only difference between the two classes of societies is that the interest which the member pays who bids for his advance depends on the amount of competition at the bidding, and is not fixed by a rule of the society.
In 1874 an Act was passed at the instance of the building societies Act of conferring upon them several valuable privileges, and relieving 1874. them of some disabilities and doubts, which had grown up from the judicial expositions of the Act of 1836. Building societies are now incorporated bodies, and the members, and all who derive title through them, henceforth will not have to trace that title through a succession of trustees for a society. Again, a distinct declaration is given to the members of entire freedom from liability to pay any-thing beyond the arrears due from them at the time of winding up, or the amount actually secured by their mortgage deeds. Power to borrow money is also expressly given to the societies by the Act, but upon two conditions :—that the limitation of liability must be made known to the lender, by being printed on the acknowledgment for the loan, and that the borrowed money must not exceed two-thirds of the amount secured by mortgage from the members, or, in a ter-minating society, one year's income from subscriptions.
Previous to the passing of the Act (or rather to the judicial deci-sion in Laing v. Read, which the clause of the Act makes statutory) there had been, on the one hand, grave doubts on high legal author-ity whether a society could borrow money at all; while, on the other hand, many societies in order to raise funds carried on the business of deposit banks to an extent far exceeding the amounts used by them for their legitimate purpose of investment on mort-gage. It is now enacted, that if a society borrow more than the statute authorizes, the directors accepting the loan shall be person-ally responsible for the excess.
The history of building societies thus briefly traced shows great progress in the past and equal promise for the future. The social and moral utility of societies established for the direct purpose of aiding a man to become proprietor of his dwelling-house is obvious, and the extent to which that purpose has been effected is very con-siderable.
It may be mentioned that building societies flourish in America
(notably in Massachusetts, where they are called "Mutual Loan
Fund Associations," and Pennsylvania), and in the British colonies,
especially that of Victoria, Australia. (B. W. B.)