Back to Basics: Co-op Housing, part 1

The FWD #B15 • 1,124 Words

Is cooperative housing a new American dream?

Cooperative housing, sometimes known as co-op housing, is a unique and innovative kind of residential living. Under this approach, residents share responsibility, make decisions democratically, and jointly own the development through a cooperative agreement. 

Co-op housing frequently prioritizes affordability and mixed-income communities. Let’s take a closer look at cooperative housing to learn about its many manifestations, success stories, and why it isn’t more common in the U.S.

What is co-op housing?

The beginnings of the modern co-op housing trend may be traced back to Denmark in the late 1960s, when young Danish families were searching for shared childcare responsibilities and communal living. This idea has since flourished in Denmark, Germany, and Austria, and it has become more common to allocate land for co-ops. 

One such example is the intergenerational co-housing project Gleis 21 in Vienna, where a group of locals conceptualized and financed the project from multiple sources, including bank mortgages, personal savings, and government subsidy. With an average monthly rent of €600 (about $650 USD), the building’s 38 units are managed by its tenants cooperatively.

Middle-class families have been drawn to cooperative housing because it emphasizes affordability and shared responsibility. In essence, the monthly “rent” is their portion of the mortgage payment for the building. In order to guarantee that inexpensive apartments can continue to be included in the mix, this shared mortgage can also be divided democratically based on needs and means. 

Importantly, cooperatives function according to shared ideals, frequently utilizing a one-member, one-vote approach for significant choices. This strategy makes sure that the community’s direction is decided upon by its members as a whole. 

In a cooperative, residents are owners, but rather than owning a specific housing unit or apartment, they own shares in the corporation (non-profit or for-profit) that owns the real estate. Cooperative owners can sell their shares when they move. Co-ops typically establish rules for selling co-op shares, often designed to maintain affordability, but many do allow residents to earn equity as the value of the co-op’s real estate increases.  

Washington, D.C. has a long history of housing cooperatives, including one of the largest limited equity housing cooperatives in the United States. These cooperatives provide moderate-to low-income families with affordable homeownership options in an otherwise expensive real estate market. This cooperative has been successful in promoting a sense of community while battling gentrification because of its shared ownership and democratic administration.

It’s essential to note that cooperative housing is not a one-size-fits-all concept. There are multiple variations, many of which are not as focused on affordability and community:. These include Market-Rate Cooperatives (where share prices have no restrictions when sold), Leasing Cooperatives (where the co-op leases the building from a separate owner), and Student Housing (like ICC Austin, a member-led nonprofit with nine properties for students at UT-Austin).

Cooperative housing shouldn’t be confused with cohousing.

Cohousing can be incorporated into cooperative housing, but they are two distinct ideas. Cohousing is essentially an architectural style that encourages social cohesion and community building in tandem with cooperative living. This can exist regardless of ownership structure, which is at the core of cooperative arrangements.

In Virginia, co-housing has taken a few distinct forms. Two examples include the Blueberry Hill cohousing community in Fairfax, Virginia, which encourages neighborly relationships, and EcoVillage Charlottesville, which emphasizes environmental sustainability in a community context. 

Image source: Critical Concrete

Why aren’t cooperatives more popular?

Cooperative housing has many benefits, but it also has certain drawbacks that have prevented widespread appeal in the U.S.

First, financial hurdles. Establishing cooperative housing projects can be financially challenging, and in order to keep the project affordable, lower-income apartments sometimes require continuing subsidies, though this is true of any affordable housing project. The real issue is accessing financing for mortgages and share purchases. 

Few lenders offer share loans—an individual loan obtained by a tenant to purchase a share of the cooperative—because banks consider them riskier and less profitable than larger, traditional mortgage loans while facing similar origination and underwriting costs. Barriers to access equity needed for these share loans also exist, much like traditional downpayment and closing cost barriers. 

Financing to create and build a new cooperative is also a challenge. The Federal Housing Administration used to have some loan products specifically targeted to cooperatives, but little origination financing for new cooperative projects exists today. Any lender who may be willing to give it a try would be inexperienced and cautious.

“There is nothing that makes co-op development more expensive than other affordable housing models. I think there is a lack of understanding and political will to make cooperatives.”

Alexander Roesch of the Urban Homesteading Assistance Board, the biggest affordable co-op developer in New York City

Then, there is legal complexity. Although cooperatives are recognized by Virginia code, obstacles like zoning regulations and legal expertise in cooperative ownership schemes can prevent many ideas from getting off the ground. 

Furthermore, co-op housing can be difficult to market, and understanding how it operates can be challenging for buyers and real estate agents who are unfamiliar with the concept. Much like community land trusts, cooperative housing models also face challenges in tax assessment that can impact their ability to maintain affordability and community-oriented living.

And while they’ve proven to be a viable and sustainable housing model, co-ops often face a deeper cultural challenge. By emphasizing collective ownership and shared responsibilities, co-ops buck the 20th Century version of the American Dream, which is firmly anchored by individual homeownership and autonomy over one’s property. (Did you know most Americans find homeownership more important than raising a family?) 

The social dimension of cooperative housing

Beyond the economic issues, cooperative living offers a distinct sense of community. Decision-making is participatory, which fosters a closer relationship between neighbors. 

Cooperative housing also provides a creative and community-focused response to cost-of-living issues that extend beyond housing. Childcare expenses, in particular, can be a substantial financial burden, often rivaling or even surpassing the cost of housing in many regions. 

As parents seek quality care for their children, they must allocate a significant portion of their income, making it challenging to cover other essential expenses like housing, groceries, healthcare, and education. As aging in place becomes a growing concern in the commonwealth, comprehensive support systems are needed to alleviate the cost of living and promote economic stability for families.

Despite obstacles like initial expenditures and regulatory restrictions, cooperative housing offers exciting ways to address housing issues in the future thanks to its capacity to build prosperous, affordable communities. As we increasingly recognize the consequences of sprawl and single-family zoning, perhaps it is time to consider a new American dream. 

Tune in for part two on this topic outlining the differences between cooperatives, cohousing, and HOAs/condo associations. 

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