Affordable Housing US

7/25/2019 Affordable Housing US

http://slidepdf.com/reader/full/affordable-housing-us 1/36

Lessons from the History of Affordable Housing

Lessons from the History of AffordableHousing Cooperatives in the United States:

A Case Study in American Affordable Housing Policy

By GERALD W. S AZAMA*

ABSTRACT. Understanding the history of the affordable housing coop-

eratives in the United States helps us understand the general history of

American affordable housing policy. This paper contains a de-

cade-by-decade summary of the history of affordable cooperatives.The affordable cooperative movement has evolved from ethnic and

union groups which developed self-help cooperatives in the 1920s,

through the federal funding of low-income cooperatives in the 1960s

and 70s, to local nonprofit organizations using ad hoc packages of

funds to organize cooperatives during the 1980s and 90s. As this his-

tory unfolds, it provides answers to contemporary policy questions af-

fecting both cooperatives and affordable housing in general.

I

Introduction

THE HISTORY OF THE AFFORDABLE HOUSING COOPERATIVE MOVEMENT in the

United States is part of the history of the struggles of working people

and the poor for decent housing. Understanding this history helps us

to understand the general affordable housing movement, and to de-

velop contemporary policies for both cooperatives and the affordable

housing movement as a whole.Circumstances and methods of the affordable housing cooperative

movement vary decade by decade, but the objective of this movement

American Journal of Economics and Sociology, Vol. 59, No. 4 (October, 2000).

© 2000 American Journal of Economics and Sociology, Inc.

*Gerald Sazama is an Associate Professor of Economics at the University of Connecti-

cut at Storrs. He has published articles on affordable housing cooperatives and the eco-

nomics of education. Professor Sazama wishes to thank Roger Willcox for the rich infor-

mation on housing cooperatives he has shared over the years and for his comments on

a previous draft of this paper. He also wishes to thank Ernie Eden, Herbert Levy and

Nancy McDowell for their information and helpful suggestions.



is constant: to obtain for low- and moderate-income families decent

housing, at an affordable price, with effective resident control. This

movement started with ethnic and union groups developing self-help

cooperatives in the twenties. It evolved into federal funding of low-in-

come cooperatives in the sixties and seventies, and then into local

nonprofit organizations using ad hoc packages of funds to organize

affordable cooperatives during the eighties and nineties. The suc-

cesses of these historical struggles have resulted in about 376,000

dwelling units in affordable housing cooperatives in the United

States.1 This number equals 17 percent of the total number of rent-re-

duction housing units owned by the nation’s public housing authori-ties (HUD and Census Bureau, 1995; and Table 1).

The history of affordable housing cooperatives is relevant for to-

day’s affordable housing movement because, in a world that is in-

creasingly market driven, cooperative housing provides contempo-

rary housing advocates with an alternative that reinforces joint

ownership of property (Hays, 1993). Also, affordable housing cooper-

atives empower low- and moderate-income families, since under the

cooperative structure they own and control their own housing(Birchall, 1988; Cooper and Rodman, 1992; and Heskin and Leavitt,

1995). Finally, affordable cooperatives are contrary to the traditional

welfare mentality prevalent in so much of subsidized rental housing

because with co-ops, residents not only take responsibility for their

actions, but they experience the direct consequences of these actions

on the cost and quality of their housing (Miceli, Sazama, and Sirmans,

1994 and 1998).

As this history unfolds, it highlights policy questions relevant for

contemporary affordable housing policy. Nine policy questions are

examined, each at the end of the historical period when the question

first became important. Some examples include: Should housing ad-

vocates support a federal or a decentralized housing policy? Should

rents and monthly housing charges be collected as flat fees or as a

percentage of household income? Should affordable housing be de-

veloped as co-ops or rental properties? Should emphasis be placed on

providing more housing units, as opposed to the development of resi-

dent skills to control their own housing?

574 American Journal of Economics and Sociology



The following definitions will be used in this paper: A housing co-

operative is a cooperative where member-residents jointly own their

building. Ideally, member-residents democratically control the coop-

erative, and receive the social and economic benefits from living in

and owning the cooperative. An affordable housing cooperative is

available to moderate-, or low-income families.2 This “affordability”

ordinarily results from private or public subsidy or other government

action. Limited equity cooperatives (LECs) are affordable cooperatives

that have affordability restrictions on the resale of initial membership

shares. Affordability restrictions limit the resale of co-op shares to

moderate or low-income households, and/or restrict increases in theresale value of these shares.

In the national debate on assuring the availability of affordable

housing, many alternative polices have been offered. Some argue that

decent affordable housing is best provided by the private market, or

by private charitable and civic organizations. Most, however, argue for

some form of government intervention. One form of intervention con-

cerns the debate over government regulation of the private market via

rent control, zoning, building codes, and the Community Reinvest-ment Act. A second form of intervention is via tax policy. For example,

some argue that a land tax would reduce the cost of urban housing,

and thereby increase the availability of affordable housing. Also, there

are tax expenditures which subsidize housing via the deduction of

property taxes and interest on home loans, accelerated deprecation of

investment in rental housing, the federal low-income housing tax

credit, and local property tax abatement. A third option is supply side

policies, which directly increase the availability of affordable housing

via capital grants, subsidized operating cost, low interest loans, and

loan guarantees. Finally, demand side policies subsidize eligible fami-

lies to rent housing in the private market.

This paper will concentrate on civic organizations, supply side, and

tax expenditure policies, because virtually all of the existing afford-

able housing cooperatives were funded under such programs. To tell

the history of affordable cooperatives, the author uses a combination

of original source materials, interviews, oral histories, and secondary

sources.

Lessons from the History of Affordable Housing 575



II

1910s–1920s: Early Housing Cooperatives

THE EARLY HOUSING COOPERATIVES in the United States grew out of the

global cooperative movement. The first cooperative was organized in

1844 in Rochdale, England, as a self-help consumer group of urban

workers. The Rochdale Cooperative Principles emphasized demo-

cratic control of capital through the principle of one member one

vote.3 By the early twentieth century, working class organizations hadsponsored housing cooperatives throughout Europe, but predomi-


Table 1

Estimated Number of Affordable Housing CooperativeDwelling Units in the United States, by Principal Type of

Financing, 1995

Number Percent

(1) New York State and United Housing Foundation :

United Housing Foundation and NY Labor Unions 40,000

NY State Mitchell-Lama Law 60,000

subtotal 100,000 27(2) Federal Government Sponsored:

Conversions

World War II housing 35,000

FHA Section 213, by FCHSa 5,000

Conversions of Public Housing 18,000

LIHPRAb 5,000

Section 220(3)(f) 6,000

(subtotal) (69,000) (18)Other HUD Insured Programs

FHA BMIR, Section 221 d(3) 36,000

FHA BMIR, Section 236 23,000

Section 202 (Senior Citizen) 10,000

Section 8 with market rate Sections 25,000

Other 43,000

(subtotal) (137,000) (36)



nantly in Germany and the Scandinavian countries (International La-

bor Office, 1964). In the United States, however, housing cooperatives

did not become well established until after World War I. Housing co-

operatives then took two forms: exclusive apartment dwellings for

high-income families, mostly developed by private real estate specula-

tors; and cooperatives organized by ethnic-immigrant groups and/or

unions to provide affordable housing for their members during the

post-World War I housing crunch (Dolkart, 1993).

The first affordable housing cooperative organized in the UnitedStates under the Rochdale Principles was developed in Brooklyn, New


Other Federal

Farmer’s Home Administration 5,000

With Community Development Block Grants 1,000

(subtotal) (6,000) ( 2)

subtotal (All Federal) 212,000 56

(3) Nonprofit Sponsorship and States’Programs, Outside of New York:c 40,000 11

(4) City Building Conversion Programs:

New York City 20,000

Washington D.C. 4,000

subtotal 24,000 6

Total d 376,000 100

Notes and Sources for Table 1

a. FCH, the Foundation for Cooperative Housing, and FCH Services, Inc.b. LIHPRA, the federal Low-Income Housing Preservation Act

c. Many of these nonprofit and other state projects are assisted by FHA and HUDrent supplement programs, and via federal Community Development Block Grants.

d. Several thousand of the total units, especially those financed by direct federal

programs, have had an expiration of the restrictions on the sale of membershipshares, and they have been converted to market rate co-ops or to private ownership.

Sources of Data: National Association of Housing Cooperatives (1991 and 1995)and Willcox (1995); and interviews with Reicher (1996), and Levy (1996).

Table 1.

continued

Number Percent



York, in 1918 by a group of Finnish artisans, the Finnish Home Build-

ing Association (Dolkart, 1993). This co-op is still alive and well today

(Cooper-Levy, 1998). Other early successful affordable co-ops were

developed by Lithuanian and Bohemian groups in New England and

the Midwest (Leavitt, 1995).

While many unions sponsored affordable co-ops in the 1920s

(Leavitt, 1995), the most well known were sponsored in New York City

by the Amalgamated Clothing Workers Union (Siegler and Levy, 1986).

This union had strong socialist influences, as well as experience with

many self-help projects for working families, including credit unions

and an early experiment in social security. Therefore, housing cooper-atives were consistent with their other organizing efforts.

Given the general pressure for affordable housing, the influence of

the union movement, and the sympathy of professional urban plan-

ners, Governor Al Smith pushed for the passage of the New York State

Limited Dividend Housing Companies Act of 1927 (Leavitt, 1995). This

act supported the development of all types of affordable housing, and

was the first relatively large-scale government program available for

affordable housing cooperatives. Thirteen cooperatives were built un-der this Act in New York City, many under the leadership of Abraham

Kazan of the Amalgamated Clothing Workers Union.

In 1928, a liberal planning group sponsored an affordable co-op,

and offered units to the general public. After difficulty in filling these

units, they concluded that with a diverse population their co-op could

not achieve the solidarity necessary for success. They proposed that

the best chances for co-ops existed among a homogeneous fraternal

or racial group (Leavitt, 1995).

This historical experience brings forth the first policy question rele-

vant for today. Policy Question 1: Should membership in a specific

co-op be diverse racially and in other ways?

Racial diversity within each project is a goal of many contemporary

co-op organizers. For example, Allan Heshkin, a professor at Univer-

sity of California, Los Angles, and a cooperative organizer in Southern

California, tells the story of the substantial efforts put into sustaining

diversity in a Los Angles co-op (Heshkin, 1995). However, minor is-

sues, like whose turn it is to take out the garbage, put significant strainon the cooperative spirit, even when co-op members have a common




racial, ethnic, or cultural background. In Boston, for example, a

long-term resident-controlled project which houses three distinct ra-

cial/ethnic groups has experienced almost constant conflict (Hexter,

1998). On the other hand, Cooper and Rodman mention successful

contemporary homogeneous co-ops in Toronto, Canada, organized

for Chilean and Russian-Jewish emitters (1992). The author believes

that for co-ops a “rainbow coalition” of racial/ethnic diversity among

homogeneous individual co-ops may be a better way to celebrate di-

versity than by a “melting pot.”

III

The Great Depression and World War II: Development of New

Affordable Cooperatives at a Stand Still

DURING THE GREAT DEPRESSION, existing cooperatives struggled to stay

alive. More than 75 percent of the real estate-promoted co-ops in New

York City and Chicago went bankrupt, but the affordable co-ops gen-

erally survived the Depression (International Labor Office, 1964). Cru-

cial to the survival of the affordable co-ops were: 1) wider market ap-peal of affordable co-ops, which made temporary rental of vacant

units practical; 2) more conservative fiscal practices in the affordable

co-ops, which included provisions for accumulation of substantial re-

serves; and 3) the strong cooperative spirit found in these co-ops (In-

ternational Labor Office, 1964: 116).

With the boost in union membership between 1935 and 1937, the

labor movement became more involved in the fight for affordable

housing. This, and the nation-wide pressure from the housing crisis

resulting from the Depression, caused Congress to pass the United

States Housing Act of 1937. In spite of the success of the union and

ethnic co-ops, activists failed to get cooperatives included in the fed-

eral government’s new affordable housing legislation enacted during

the Depression and World War II.

There was a broad-based struggle for the principle of housing as a

basic need, but the objective of federal housing policy, as finally en-

acted, was restricted to providing temporary rental housing for the

working poor (Radford, 1996). There are several explanations for this.1) Many congressmen accepted public housing as only temporary re-




lief for working families that had hit hard times, therefore they saw no

need for the federal government to assist low- or moderate-income

families gain equity in their own homes (Leavitt, 1995). 2) Real estate

interests advocated to the general public that owning a single-family

home is a sign of being in the middle class. American acceptance of

individualism, and the desire of immigrant groups to be part of the

middle class, helped the public to accept ownership of a single family

home as a symbol of “having made it” (Leavitt, 1995). 3) Given that

some politicians associated affordable co-ops with unions and leftist

groups, they may have seen co-ops as politically unacceptable.

In the years immediately following the passage of the 1937 Housing Act, real estate interests and advocates of free market policies fought

public housing, and were almost successful in repealing the bill

(Leavitt, 1995). The housing needs of World War II defense plant

workers saved public housing during the War. However, Senator

Lanham (D. Texas) led initiatives for public housing to be sold to pri-

vate investors at the end of the War, and in 1942, he succeeded in en-

acting such an amendment to the 1940 Housing Act.

After the War, homelessness among veterans, combined with thegeneral housing shortage, prevented the extensive sale of federal pub-

lic housing on the private market. Instead, by 1945, a disposition pol-

icy was developed amending the 1940 Housing Act, ensuring that

those public housing projects not converted to low-income housing,

would first be sold to veterans, then to residents, and, lastly, to private

realtors (Bailey, 1988). Some of these sales would involve conversion

to co-ops. Lessons from this period include the importance of conser-

vative fiscal practices and of the co-op spirit for the survival of specific

co-ops, and the difficulty of housing advocates obtaining federal sup-

port for a national multi-family affordable housing policy, in spite of

its broad-based coalition support.

IV

The Early Post World War II Housing Cooperative Tradition in

New York City

ALTHOUGH AFFORDABLE HOUSING COOPERATIVES WERE VIRTUALLY EXCLUDED

from the early post-World War II federal housing legislation, trade un-




ions in New York City sponsored affordable cooperatives (Siegler and

Levy, 1986). In 1951, under the leadership of Abraham Kazan, these

groups formed the United Housing Foundation (UHF). This formation

spurred enough activity that by 1965 the UHF and its predecessors

had created 23 cooperative housing projects in New York City, rang-

ing in size from 124 to 5,860 units. In 1965, with the support of the

mayor of New York City and the Governor, UHF started construction

of Co-op City which eventually contained 15,382 units (UHF, 1970).4 A

total of approximately 40,000 units were built in New York by the

UHF and by similar programs (Table 1). While the UHF still exists, it

has not directly developed any co-ops since the early 1970s. Activists also succeeded in getting the 1955 New York State Limited

Profit Corporations Law passed. This law, popularly known as the

“Mitchell-Lama Act,” encouraged the development of moderate-income

housing through property tax exemptions and through low-interest

loans (financed by state revenue bonds) to developers who agreed to

restrict their dividends (Sullivan, 1971). As shown in Table 1, about

60,000 units of affordable cooperative housing were organized under

this statute, mostly in the 1950s and 1960s. A lesson from this New York experience is that while strong regional

organizations were able to obtain state government sponsorship of

multi-family housing for moderate-income families, advocates of subsi-

dized housing were unsuccessful at this on the national level. Again in

the 1980s, a housing movement based in the local community develop-

ment corporations succeeded in obtaining some state and local govern-

ment funding at a time of federal cutbacks for affordable housing.

Experience with Mitchell-Lama housing brings forth the second pol-

icy question relevant for today’s affordable cooperative movement.

Policy Question 2 : Should mature affordable co-ops be allowed to

convert to market-rate co-ops or to condominiums? Under the Mitch-

ell-Lama Act, the value of a membership share is limited for 20 years

to its initial purchase value, plus the unit’s proportion of the paid off

part of the co-op’s mortgage (Garst, 1996). After the 20-year limit there

has been strong pressure from some members of these cooperatives

to convert their units to market-rate cooperatives or condominiums.

Because of the shifts in the national real estate market and gentrifica-tion (the movement of the middle class into well-located urban neigh-




borhoods previously occupied by the poor), current market value of

one of these co-op units can be twenty times greater than its restricted

share value.

Opponents of this “privatization” argue that residents should not re-

ceive capital gains on government subsidized projects, and that after

privatization the buildings are no longer available as affordable hous-

ing. They also believe that privatization kills the cooperative princi-

ples under which these buildings operate by replacing them with indi-

vidualism and private ownership. Proponents of privatization argue

that many co-op occupants have been residents for many years, and

that they have taken good care of their buildings. They argue, there-fore, that these residents, as individuals, are justified in receiving eco-

nomic benefits for their efforts.5

V

1945–1990s: Direct Federal Funding of Housing Cooperatives

THE SUCCESSES AND FAILURES OF THE HOUSING COOPERATIVE MOVEMENT in se-

curing direct federal funding from 1945 through the 1990s mirroredthose of the affordable housing movement in general. Direct federal

financing of affordable co-ops occurred in four phases, which are

summarized here and are discussed in more detail in the following

sections.6

The first phase, the post-war adjustment period of 1945 through the

1950s, can be characterized as one of limited direct funding for afford-

able housing, and privatization of some previous, federally sponsored

affordable housing. Consequently, the cooperative movement gener-

ally did not obtain federal funding during this period.

The second phase, in the 1960s, occurred during the peak of the lib-

eral policies, symbolized by the Kennedy-Johnson “War on Poverty.”

During this period, extensive direct federal funding was secured for

cooperatives for low-income households, but not for moderate-in-

come ones.

The third phase, in the 1970s, occurred during Nixon’s presidency

and the early questioning of the War on Poverty. Direct federal fund-

ing of new low-income cooperatives was phased out by 1981.The fourth phase started with the Reagan administration and contin-




ues to the present. In the 1980s, as in the 1950s, we find privatization

of some of the federally sponsored multi-family housing. However,

some of these privatization projects resulted in conversions to afford-

able co-ops.

From 1945 through the 1970s, direct federal funding was responsi-

ble for virtually the only construction of affordable cooperatives in the

United States, except for the affordable cooperative development in

New York City discussed in Section IV above. Direct federal funding is

responsible for about 50 percent of the current units of affordable co-

operatives (see Table 1). Such cooperatives exist in more than 29

states.

A. 1945–1950s: Defeat of a General Federal Co-op Program, Early

Conversions to Co-ops, and Guarantees of Market Rate Mortgages for Co-ops

During the early post-World War II period, there was a struggle

among progressives, liberals and conservatives to define national pol-

icy. Some policies supported by progressives and liberals were en-

acted. For example, in 1946, Congress passed both the National Em-ployment Act, committing the federal government to achieving the

goal of full employment, and in 1949, the National Housing Act, com-

mitting the federal government to achieving the goal of “a decent

home and a suitable environment” for every family.

By the 1950s, however, private market solutions to our nation’s pol-

icy problems became more dominant. Progressives in and out of the

union movement were restricted by actions like the passage of the

Taft-Hartley Act and the McCarthy hearings. Also, the middle class,

buoyed by a growing economy, eagerly bought single-family houses to

reinforce their new identity. Federal housing, tax, and transportation

policy strongly fostered the suburban dream. This suburbanization fa-

cilitated the decline of urban neighborhoods, and the extended-family

systems and ethnic self-help groups in these neighborhoods.

Suburbanization also facilitated the growth of the nuclear family and

the further individualization of American society. In short, these trends

and policies created an inhospitable environment for federal funding

of affordable multi-family housing in general, and affordable housingcooperatives in particular.




The height of efforts toward a comprehensive federal policy sup-

porting affordable cooperatives centered on the proposed inclusion of

a separate Cooperative Housing Administration in the 1949 Housing

Act. It would have been equivalent to the Federal Housing Adminis-

tration (FHA) within the Housing and Home Finance Agency (HHFA).

The latter is the predecessor to the present-day Department of

Housing and Urban Development (HUD) (Leavitt, 1995). Some hous-

ing reformers reasoned that cooperatives would serve the growing

group of families who could not afford housing in the private market,

but were ineligible for public housing (Bailey, 1988). The introduction

of subsidized cooperatives into federal housing legislation was sup-ported by labor groups, religious and social welfare organizations,

consumer groups, and veterans groups, including the Veterans of For-

eign Wars and the American Legion. While these efforts undoubtedly

helped passage of the low-income housing parts of the bill, lobbying

for co-ops was unsuccessful. White House support ebbed, and Ray-

mond Foley, head of the Housing and Home Finance Agency pushed

for private sector housing for “middle” income families (Leavitt, 1995).

In contrast, in the Scandinavian countries, and in France and Ger-many, a substantial volume of cooperative housing for moderate-

income families was built during this period. In all of these countries the

existence of strong labor parties was a factor in these policies. In Swe-

den, Denmark, and Germany, the existence of a strong housing cooper-

ative movement between the two world wars also played a role (Inter-

national Labor Organization, 1964). The biggest success for the housing

cooperative movement was in Sweden where, by the 1980s, 15 percent

of all housing units were cooperatives (Berger and Turner, 1991).

Nevertheless, affordable cooperatives were not totally excluded

from federal funding in the United States. After World War II, some

federal “war housing” was privatized into cooperatives for lower-in-

come families. In addition, in 1950, Section 213 was added to the 1949

Housing Act, allowing FHA market interest-rate loan guarantees for

new construction of housing cooperatives. In 1959 these guarantees

were extended to cover converting existing projects to cooperatives.

During the 1950s and 1960s, Section 213 provided some financing for

moderate-income cooperatives nationwide (Willcox, 1995).In the 1960s, the federal government’s Douglas Commission found




a high rate of defaults and difficulties with the Section 213 coopera-

tives developed by realtor speculators. This finding led to a major re-

vamping of Section 213 in order to protect the cooperative members

(Leavitt, 1995). The push for these reforms came mostly from the co-

operators themselves. In New York City, for example, they organized

the Federation of Section 213 Cooperatives to respond to these prob-

lems, and it remains a self-help association to this day.

This historical experience introduces policy question #3: Should af-

fordable co-ops be sponsored by for-profit realtors, nonprofits, or

members?

The above discussion of Section 213 cooperatives serves as a casestudy for the potential problems with for-profit realtor-sponsored af-

fordable cooperatives.

Nonprofit-sponsored (frequently called consumer-sponsored)

co-ops had enjoyed a better success record than the Section 213 for

profit realtor sponsored co-ops. Consumer-sponsored cooperatives

are developed by nonprofit organizations that contract private build-

ers, supervise the contractor, and organize and train the cooperative

members. The primary example of the success of consumer spon-sored cooperatives is the Foundation for Cooperative Housing Ser-

vices (FCHS), which was organized in 1951 by a group of housing re-

formers committed to cooperatives. Between 1953 and 1969, FCHS

used financing from local public housing authorities, private sources,

and Section 213 guarantees to convert 10,388 existing living units to

co-ops (Willcox, 1995). These projects contained long-term

affordability provisions in their corporate by-laws and received ongo-

ing technical assistance from FCHS. Consequently, cooperatives spon-

sored by FCHS during this period have had less serious long-term fi-

nancial problems.7

The third way to develop a cooperative is by member-sponsorship,

through which the future member-occupants have substantial control

over the co-op’s design, development, and organization. At no time

during the early post-World War II period were member-sponsored

cooperatives funded by federal legislation (Leavitt, 1995).

Some contemporary cooperative advocates recommend member

sponsored cooperatives as a means to empower residents (Leavitt andSaegert, 1990; and Heshkin, 1991). This helped shape most of the




present federal administrative regulations for privatization of public

housing requiring membership sponsorship as the only means for res-

idents to control their project.

This author believes that residents of existing buildings that are be-

ing converted should have a basic role in the process. Co-op develop-

ment, however, is too complex a process for unseasoned non-profes-

sionals. The legal, architectural, financial, and management skills

required simply are not readily available among low- and moder-

ate-income households. When membership-sponsored cooperatives

are successful, each group needs to relearn the fundamentals of co-op

development. Also, because federal deadlines get passed as a result of this time-consuming process, many of the choice properties end up

being sold by the government to private realtor-speculators.

Historical experience indicates that consumer-sponsored coopera-

tives have the most successful record. They should be given consider-

ation as a contemporary option for the conversion of federally con-

trolled property.

B. 1960s–1970s: HUD Below Market Interest Rate (BMIR) Loan Programs 8

In the 1960s, the strength of the Civil Rights Movement, the idealism

among the young encouraged by their reaction against the Vietnam

War, and the increasing problems in our central cities all worked to-

gether to create pressure for reforms. The resultant “War on Poverty”

meant that the federal government began providing more low-income

housing. This increased involvement brought with it a shift from the

direct construction of public housing, used from the 1930s to the

1950s, to publicly assisted housing. With publicly assisted housing, the

federal government insured private sector loans, provided below-mar-

ket interest rates, and/or provided other subsides for private groups to

build and operate low-income housing. This approach became the

mechanism of choice for the explosion of housing programs in the

1960s (Listokin, 1991; Angora Group, 1992). David Krooth, a promi-

nent federal attorney active in the New Deal housing programs,

played an important role in the inclusion of cooperatives in these

BMIR loan programs (Willcox, 1995).The principal federally assisted housing programs were the Section




221(d)(3) BMIR loan program, which Congress passed in 1961, and

Section 236 loans, its 1968 successor. Congress made these BMIR

loans available to private developers (who were willing to limit the in-

come they earned on their investments), to nonprofit developers (who

frequently were created by local public housing authorities), and to

cooperatives for low-income families. These BMIR mortgages could

cover up to 100 percent of construction or rehabilitation costs, and for

cooperatives, loans were for forty years. The combined effect of all of

these provisions was equivalent to a subsidy of approximately 30 per-

cent of project cost (author’s estimate).

In order to keep these federally assisted cooperatives available asaffordable housing, there are income limits on new members, strong

restrictions on increases in share value, and substantial penalties for

prepayment of mortgages so that the housing remains under federal

affordability regulations for the full term of its HUD-insured mortgage.

Members elect a resident board, which sets co-op rules and which

contracts with a property manager. In contrast, residents of federally

assisted rental properties by definition do not own their properties,

and thus only rarely have any real control over them. Basically, theserestrictions remain in place for the length of the mortgage, ordinarily

40 years. While 642 of these federal BMIR mortgages were granted to

co-ops in 29 states, 48 percent of them were granted in Michigan and

Indiana (Calhoun and Walker, 1994).9

Historically, most funders pressure affordable housing developers

for a rapid increase in number of units. However, fostering the institu-

tional capacity for quality development, and providing appropriate

services to new co-ops also are important. The importance of this is il-

lustrated by the Foundation for Housing Cooperative Services (FCHS).

From 1960 through the 1970s, FCHS sponsored more than two-thirds

of the 59,000 BMIR co-op units (Willcox, 1992, and Table 1). How-

ever, after its initial success in the 1950s and 1960s, FCHS tore itself

apart with internal conflicts in the early 1970s. One faction pushed for

a rapid expansion of FCHS-sponsored co-ops. Another faction urged

that this expansion should not move beyond the capacity of experi-

enced staff to responsibly support it (Institute for Community Eco-

nomics, 1996). After a spurt of expansion in the early 1970s, FCHS ex-perienced problems with these recent co-ops. Then in the mid 1970s,




the organization atrophied due to its internal problems and the drying

up of federal funds available for co-ops (Willcox interview, 1995).

This historical experience introduces policy question 4 : What is the

appropriate balance between the quantity of affordable housing con-

structed and the quality of the total development process?

Many funders and legislators rate developers according to their abil-

ity to produce many units in a short period of time. However, quality

development takes careful planning and good experience. Also, coop-

eratives go beyond the development of just buildings—they involve or-

ganizing new human institutions that emphasize the residents. This re-

quires patience and follow-up, which unfortunately is compromised inefforts to just produce more units. Research indicates that involving resi-

dents in cooperatives results in safer, more efficient, and more satisfying

multifamily affordable housing (Sazama and Willcox, 1998).

C. 1970s–1980s: HUD Section 8 Rent Supplements

With the arrival of the Nixon administration we see the early question-

ing of the liberal programs of the 1960s. Congress passed the NationalHousing Act of 1974 and subsequent legislation, which introduced

sweeping changes in federal affordable housing policy. First, for the

construction of affordable housing, there was a shift away from the

BMIR and direct subsidy programs toward the provision of Section 8

rent supplements. These rent supplements pay a landlord the differ-

ence between the HUD-determined average private market rent for a

metropolitan area, and 30 percent of a household’s income. By the

late 1990s, the vast majority of HUD funds for affordable housing are

in the form of this demand side policy, that is, in the form of Section 8

rent supplements. Some of the Section 8 certificates are tied to a spe-

cific building (called project-based), but most are portable with the

tenant. Households use their portable certificates to rent housing in

the private market.

Supporters of the supplements argue that supplements paid to pri-

vate landlords avoid the inefficiencies of publicly supplied housing.

Real estate interests support Section 8 portable certificates because

they provide an injection of federal funds at high HUD determinedrent levels into the private market for rental property.




In addition to the introduction of Section 8 supplements, the Na-

tional Housing Act of 1974 and other legislation enacted around that

time: 1) repealed the BMIR programs to fund new housing (discussed

in the previous section); 2) capped rising flat-fee monthly rents in fed-

erally-subsidized projects at 25 percent, and later at 30 percent, of

household income; 3) increased operating subsidies to existing public

housing, but as part of converting this housing into housing for the

very poor; and, 4) shifted urban renewal efforts to state and local gov-

ernments via block-grant programs (Listokin, 1991).

The demise of the BMIR programs was a major blow to the devel-

opment of new subsidized cooperatives. However, many of theco-ops already in the pipeline in 1974, as well as some new co-ops,

were built with project-based Section 8 funds. This financing re-

mained available until 1981, and funded about 25,000 dwelling units

in affordable co-ops (Table 1). Also, because low-income households

could use their portable Section 8 certificates to rent previously con-

structed federally assisted housing, and because of the project-based

Section 8 funds, all types of Section 8 funds became important for

most existing, federally assisted housing.10 (See, for example, the datain Table 2 on LECs in California as of 1991.) There has been pressure

for HUD to convert all Section 8 project-based funds into portable cer-

tificates. This would cause a financial shock to projects relying on

these funds, and such projects located in distressed neighborhoods

would have trouble surviving.

Net rent in publicly assisted housing, including Section 8 supple-

ments, was capped at 30 percent of household income. This was en-

acted to insure that federally assisted housing remained affordable to

low-income families. However, this policy has a negative secondary

effect on these subsidized families because it eliminates the economic

incentive to keep their project’s operating costs low.11 Rent is 30 per-

cent of income regardless of whether a household is careful or care-

less. In contrast, in all of the cooperatives units not receiving Section 8

funds, members have paid flat-fee monthly charges to cover the

unsubsidized portion of these costs. With flat fee charges residents di-

rectly experience and control the economic and social consequences

of their individual and joint activities.12

This historical experience introduces policy question # 5 : Should




Table 2

Limited Equity Housing Cooperatives in California, 1991

Units Years Number of

Program Section Constructed Co-ops Number % of Total

HUD Assisted

221(d)(3) BMIR 1963–1971 9 930 19.5%

221(d)(3) Market Rate 1971–1980 5 598 12.6

236 1969–1976 12 1,148 24.1

Section 8 New Construction 1978–1984 9 1,106 21.1

Section 8 Moderate Rehab 1981–1986 7 320 6.7

Total HUD Assisted 42 4,038 84.0

Non-HUD Assisted

Farmers 1979–1980 3 179 3.8

CA State Loan Program 1980–1991 6 294 6.2

National Co-op Bank 1981–1986 3 112 2.3

Tax Credits 1991 2 138 2.9

Private Financed 1982–1984 2 38 0.8

Total Not HUD Assisted 16 737 16.0

Total 59 4,879 100%

*not available

Source of Data: The Agora Group (1992), appendices A and B.



rents and monthly housing charges be collected as flat fees or as a

percent household income?

Essentially this becomes a question of how to best balance the eq-

uity and efficiency goals for rent payment in affordable housing. One

solution would be to provide the project or cooperative subsidies in

the form of a block grant, in order to maintain the housing as afford-

able. The remaining costs of the project would be paid by the resi-

dents as flat fee rent or housing charges. These charges could vary ac-

cording to several income categories within a specific project, but the

total subsidy given to the project is fixed. This would restore eco-

nomic incentives to the residents, because by efficient group behav-ior, they could lower their monthly fixed fees. The Canadian govern-

ment cooperative program has been successful with such a policy for

their monthly charges (Cooper and Rodman, 1992).

D. 1980s and 1990s: Federally Financed Conversions to Cooperatives

In the 1980s and 1990s, the emphasis on private market solutions re-

sulted in the virtual termination of federal direct financing of new af-fordable housing. Under the Reagan administration, budget authority

for HUD-assisted housing, both new and existing, was cut from $26.7

billion in 1980 to $8.3 billion in 1988 (Rasey, 1993). There was also a

resurgence of the 1940s-1950s style of privatization of federally owned

and assisted housing. As discussed in the next section, because of de-

centralized actions by building residents and affordable housing orga-

nizers, some of these privatizations resulted in conversions to afford-

able co-ops.

Since the 1980s, about 18,000 dwelling units of public housing have

been converted to affordable cooperatives (Table 1). These pri-

vatizations have been financed under Jack Kemp’s HOPE program,

the Low-Income Housing Preservation Act, HUD Section 220(3)(f). Al-

ternatively, they have involved the sale of multi-family properties

owned by the federal government’s Resolution Trust Corporation

(RTC) as a result of the 1980s savings and loan crisis and banking cri-

sis (Rohe and Stegman, 1992; Levy, 1996). As discussed in policy ques-

tion 3, and in an article by Rohe (1995), current federal administrativeprocedures for co-op conversions are so cumbersome they limit these




conversions. Part of this difficulty is the strength of for-profit develop-

ers who wish to have the de facto first opportunity to purchase choice

properties.

VI

1980s–1990s: Third Sector Sponsorship of Limited Equity

Cooperatives (LECs)

THE CUT-BACK OF DIRECT FEDERAL FUNDS for the supply of low-income

housing, coupled with the increased shortage of affordable housing

during the real estate boom of the 1980s, stimulated local nonprofit or-ganizations to become involved in the supply of affordable housing.

These organizations put together ad hoc packages of funding from

many different federal, state, and local government sources, and from

private sources.13 This movement has been labeled “Third Sector

Housing” (Davis, 1993).14

Because many of these local housing organizations are based in the

rent strike and resident empowerment movements of the sixties and

seventies, they are deeply concerned with resident control. Because lo-cal politicians put their political capital on the line in support of these

housing projects, they are concerned with maintaining the long-term

affordability of these properties. Since LECs are controlled by their resi-

dents, and LECs restrict the future sale of equity shares to low-income

families, LECs became attractive to these local groups.15

Three important types of federal funds are still available for the sup-

ply of affordable housing: 1) the Low-income Housing Tax Credit; 2)

funds available for the privatization of publicly owned housing; and 3)

the urban grant programs to state and local governments. However,

many of the privatizations are being turned over to for-profit owners,

and projects not directed to the poor or to housing are getting a larger

portion of the urban grant funds.

The low-income housing tax credit, enacted in the 1986 tax code, is

an important source of funding for “Third Sector” housing.16 This tax

expenditure involves large tax breaks for corporate and high-income

investors (Stegman, 1992). It is the current major source of federal

government funds available for increasing the supply of affordablehousing. However, cooperatives are not directly eligible for tax credit




funds because these funds are restricted to rental properties, and

co-ops are resident owned.17 Cooperative groups have been organiz-

ing to amend the legislation so that they are eligible for these funds.

Some co-ops receive tax credit funds as “lease-hold” cooperatives. A

“lease-hold” co-op leases its building from the tax credit subsidized

owners, but many co-op advocates question this lease-hold arrange-

ment because it places another layer of restrictions in the way of direct

residents control (Willcox, 1994).

As a result of pressure from the housing market of the 1980s, and

from housing activists, some states and large cities have appropriated

their own funds to compensate for some of the decrease in federalfunds for affordable housing. As part of this process, coalitions of non-

profit organizations worked in conjunction with their state depart-

ments of housing to develop state government limited equity coopera-

tive programs. In 1979, California became the first state to pass a

statute for the formal chartering of a limited equity cooperative (An-

gora Group, 1992). The District of Columbia and approximately 11

other states, mostly in the Northeast and the Midwest, have since

passed similar legislation (Willcox, 1994).18 The creativity and innova-tion of the affordable housing program in Burlington, Vermont, have

made it a model “Third Sector” program for the development of LECs.

This program has done some of the early work in scattered site small

co-ops, and has developed good technical support for its co-ops (Da-

vis, 1993: Chapter 6).

In addition to federal, state, and local government funds, some pri-

vate sector funds also are available for affordable housing. Through

the federal Community Reinvestment Investment Act, affordable hous-

ing advocates continue to put pressure on private banks to fund af-

fordable housing. The National Cooperative Bank, a federally charted

cooperative enterprise founded in 1978, increasingly funds affordable

cooperatives. Fannie Mae, the federally charted enterprise to develop

the secondary market for housing mortgages, also is working to in-

crease the availability of funds for affordable housing, including coop-

eratives. Finally, with the renewed activism in the union movement,

some unions are paying attention to affordable housing. The AFL-CIO,

for example, now has a Housing Investment Trust, which tries to fun-nel the investment of union pension funds into affordable housing.




These private sources, however, charge market rates of interest,

which means increased operating costs for the project, and therefore

less availability to low-income families, although there still is substan-

tial demand for affordable housing by moderate-income households.19

The combination of efforts by local nonprofits, and state and local

departments of housing outside of New York City has resulted in the

development of approximately 300,000 units of affordable housing

between 1980 and 1996.20 About 40,000 of these units are in afford-

able cooperatives, mostly in the Northeast, the Midwest, and Califor-

nia.21 Experience with “Third Sector” housing introduces three policy

questions relevant for the affordable housing cooperative movementtoday.

Policy Question 6 : Should nonprofits develop affordable housing as

cooperatives or as rental properties?

Compared to rental properties, co-ops have several disadvantages for

nonprofit developers. First, co-ops have more difficulty obtaining pri-

vate financing, since financial institutions are not as familiar with co-ops

as they are with rental properties or condominiums. Second, co-ops re-

quire more time to be developed, and to train resident/members. Third,co-op members have to take responsibility for their own housing, and

not all low-income households are willing or able to do this. On the

other hand, the main advantages for co-ops are resident empowerment

and ownership. Consequently, affordable cooperatives have somewhat

lower operating costs and loan default rates, and better social environ-

ments than rental properties (Sazama and Willcox, 1998).

Policy Question 7 : Should affordable housing advocates support a

centralized or a decentralized affordable housing policy?

A major advantage of the “Third Sector” decentralized housing

movement is the spontaneous involvement by many organizations

and people in developing affordable housing without extensive direct

federal funding. Thus, the poor who want to do something about their

housing, idealistic community organizers, and middle-class people

who want to “make a difference,” are joined to develop the needed

housing. Another advantage of this decentralized movement is that

considerable knowledge is generated, and many people gain practical

experience, due to the extent and wide variety of projects involved. Italso provides a broad base of support for limiting further funding cuts,




and, when appropriate, for organizing for direct public funding of the

supply of new affordable housing.

There are, however, many disadvantages of a decentralized policy.

Given the diversity of projects, each project has to “reinvent the wheel.”

Many of the people involved are either volunteers or underpaid and, as

a result, nonprofit staff frequently is inexperienced and has high turn-

over. There are also problems with follow-up after many of these “Third

Sector” projects are occupied. At one extreme, some projects are left to

sink or swim on their own. At the other extreme, some projects are

over-regulated by state and city bureaucrats who have ventured into

new territory and wish to prevent political embarrassment. Also, with adecentralized movement, most developers do not understand the real

differences between limited equity cooperatives and rental properties.

Policy Question 8 : Are “Third Sector” cooperatives too small?

While affordable co-ops funded under the federal direct programs

of the 1960s and 1970s generally range from 50 to 300 units, with an

average size of about 100 units (for example, see Table 2), “Third Sec-

tor” co-ops range in size from 3 or 4 to 150 units, and are usually in

the 5 to 40 unit range. There are significant diseconomies of scale inthe development of these small projects. Smaller co-ops also have dif-

ficulty absorbing the financial shock of a few vacant units and diffi-

culty in developing leadership from within the co-op itself (Coo-

per-Levy, interviews, 1996). Advocates for smaller co-ops argue that

they allow for more resident control, self-help, and opportunities for

residents to learn. Given current limited funding and nonprofit staff

size, small projects seem to be the best alternative.

VII

Conversion of Properties to Co-ops in New York City and

Washington, D.C.

NEW Y ORK CITY AND W ASHINGTON, D.C., have had extensive co-op con-

version programs. These resulted from organizational successes of

building residents and community activists. In the 1970s, New York

City became the owner of thousands of occupied buildings taken from

private landlords who failed to pay their real estate taxes (Task Force,1993). Finding themselves with an undesired inventory of properties,




city officials tried to sell as many of these buildings as possible to pri-

vate owners. Many of the buildings, however, had strong tenant orga-

nizations that pre-dated the City’s foreclosure. These tenant groups,

working with community organizers, proposed that residents have the

ability to buy the buildings themselves as limited equity cooperatives.

Approximately 20,000 living units in these buildings have been con-

verted to LECs (Reicher, interviews, 1994 and 1996).22

By 1993, funds for initial capital expenditures and training and fol-

low-up were scarce while fees charged by the City were increasing.

About 20 percent of the 1,000 properties converted to LECs (formerly

owned by New York City) were experiencing some financial diffi-culty. Another 43 were close to bankruptcy. Due to a new voluntary

association of the LECs, and the improved economy, most of these

co-ops were doing somewhat better in 1996 (Task Force, 1993: 65-73;

and Reicher, interviews, 1994 and 1996).

In Washington, D.C., the crucial factor in the conversion of about

4,000 units in multi-family buildings to affordable co-ops is a District

law which specifies that residents have the first right of refusal if an

owner wishes to convert his or her property to an alternate use. Thislaw came about as a response to the substantial displacement of mod-

erate- and low-income families resulting from gentrification and the

conversion of buildings into condominiums that started in the 1970s.

A strong tenant’s movement and the District’s pride in “home rule”

helped to pass the law. Similar laws exist in Tacoma Park, Maryland,

and Berkeley, California, but these cities have experienced much

fewer co-op conversions than has Washington, D.C..

A group of nonprofit organizations in Washington, D.C. help mod-

erate- and low-income renters exercise their first right of refusal. Resi-

dents buy their building and convert the units into co-ops. Washing-

ton, D.C.’s city government financed these conversions with loans

generated mostly from its federal Community Development Block

Grant assistance. The city requires that LECs maintain long-term

affordability to qualify for these loans (interviews of Eden, 1994;

Waxman, 1996; and Cooper-Levy, 1996).

The successes of the “Third Sector” housing movement in general,

and in New York City, Washington, D.C., New England, and Californiaspecifically, show the importance of a strong grass-roots affordable




housing movement. When federal funds were initially cut back, orga-

nizations in these areas were particularly effective in getting state and

local governments, as well as private funders, to come forward with

their own affordable housing programs. Now in the late 1990s, the

federal government is further reducing its efforts to supply affordable

housing, and most state government departments of housing are also

reducing their support, particularly for low-income families. As a con-

sequence, local nonprofits have found the availability of funds for af-

fordable housing, both rental and co-ops, substantially reduced. In

this restricted environment, nonprofits are learning that development

of single-family and low-density affordable housing is the new “in way” to get funding. In spite of these current funding reductions for

the direct supply of subsidized/affordable housing, an extensive net-

work of local nonprofits still exists, and they remain important institu-

tionalized advocates for such housing.

VIII

Associations of Housing Cooperatives and Secondary Cooperatives

AS THE GENERAL AFFORDABLE HOUSING MOVEMENT has formed support orga-

nizations such as the National Low-income Housing Coalition, hous-

ing cooperatives have formed national, regional, and local support as-

sociations. These organizations for cooperatives serve both as mutual

self-help organizations, and as lobbyists for legislation favorable to

housing cooperatives.

The most important national group is the National Association of

Housing Cooperatives (NAHC), formed in 1950 under the leadership

of people from the Foundation for Cooperative Housing, the United

Housing Foundation, the Cooperative League of the USA, the

AFL/CIO, Nationwide Insurance (a co-op) and other groups. The

NAHC and affiliated regional associations are primarily service organi-

zations for member co-ops built in the 1950s through the 1970s.

The “Third Sector” co-ops of the 1980s and 1990s are generally iso-

lated from one another, or occasionally served by regional groups in a

few parts of the country.23 However, the Institute for Community Eco-

nomics (ICE), based in Springfield, Massachusetts, does provide a na-tionwide network for local groups interested in land trusts to preserve




urban and rural land, and some of these land trusts sponsor affordable

cooperatives (ICE, 1995). The Center for Cooperatives at the Univer-

sity of California at Davis provides studies that are helpful for housing

co-ops of all vintages.

The above groups are voluntary associations, therefore they do

not have the right to intervene with troubled cooperatives. In con-

trast, the Vermont Cooperative Housing Federation, as a secondary

co-operative (a co-op of cooperatives), has the legal right to inter-

vene in the affairs of member co-ops. Community organizers em-

ployed by the City of Burlington found that many of their small

co-ops required frequent technical assistance (Colburn, interview,1992). Private financial institutions were also more willing to partici-

pate in financing LECs if assured that some formal oversight of the

individual LECs existed. Given this experience, and a dialogue with

the Toronto, Canada, co-op movement, a secondary co-op was

formed. As a secondary co-op, the Federation develops new co-ops,

and intervenes in the internal affairs of a member LEC, if that LEC is

having substantial financial or interpersonal problems. To assure res-

ident control, a majority of the Federation’s board must be resi-dent-members of member co-ops.

This historical experience introduces policy question 9 : How can

technical assistance be provided more effectively for existing affordable

cooperatives and for the development of new affordable cooperatives?

Most residents of affordable cooperatives do not have the profes-

sional skills or experience to run their co-ops completely on their

own, and frequently need outside technical assistance. The National

Association of Housing Cooperatives, the Institute for Community

Economics, and some of the regional associations and local nonprofits

provide some technical assistance for the development of housing co-

operatives, but in the contemporary affordable housing environment

their resources are limited. Their effectiveness also is restrained by the

limitations on voluntary membership organizations discussed above.

On the other hand, the Vermont model of a secondary co-op is very

effective for resolving these problems. Member co-ops pay sufficient

dues, and the federation has successfully intervened in the affairs of

troubled member co-ops.




Finally, the National Cooperative Bank in Washington, D.C., and the

Institute for Community Economics based in Springfield, Massachu-

setts, provide some technical assistance for the development of

co-ops, but again funding is limited.

IX

Summary and Conclusions

THIS BRIEF HISTORY of the affordable cooperative housing movement in

the United States is a case study of an alternative affordable housing

movement. The affordable cooperative housing movement started

with the pooling of funds by ethnic groups, and with the availability of

financing from union pension funds in the 1920s and then again in the

1950s. With the weakening of these institutions in the 1960s through

the 1980s, cooperatives had to rely on public subsidy programs as the

major source of funds. Affordable housing advocates did succeed in

obtaining federal funding for low-income, but not for moderate-in-

come housing during the “War on Poverty” of the 1960s. By the 1980s,

however, the emphasis on private market solutions to our nation’s af-fordable housing problems resulted in the virtual end of federal direct

funding for the supply of all low-income housing, including co-ops. In

the 1980s, local nonprofits used grass roots organizing and ad hoc

packages of funding to sustain the development of the next genera-

tion of affordable housing cooperatives. In the 1990s, funds for non-

profit housing from state and local governments, as well as from fed-

eral community block grants, are being cut. As a result, the pace of the

development for all affordable housing including cooperatives hasbeen reduced to its lowest level since the 1950s.

The following conclusions resulted from our examination of policy

questions introduced by this historical experience:

1. Because cooperative boards need to resolve many problems di-

rectly effecting peoples’ living space, a “rainbow coalition” of ra-

cial/ethnic diversity among homogeneous individual co-ops may

be a better way to celebrate diversity than by a “melting pot”

within each individual co-op.




2. Many cooperative advocates recommend that permanent

affordability restrictions be placed on the sale of equity shares in

all housing that was federally assisted.

3. Cooperatives developed by nonprofit sponsors (consumer spon-

sored) have a more successful record than cooperatives devel-

oped by realtor speculators or member-sponsored groups. Un-

fortunately, consumer sponsorship is not easy to do under

current federal administrative procedures.

4. The pressure to produce more units of affordable housing fre-

quently conflicts with the need for more human capital invest-

ment in the residents themselves. The cooperative experience isa way to develop simultaneously affordable housing and this hu-

man capital.

5. The present federal policy of capping rent in assisted affordable

housing at 30 percent of household income eliminates resident

economic incentives to reduce project-operating costs. A struc-

ture of flat fees for residents combined with sufficient block sub-

sidies to the project can balance efficiency and equity goals.

6. Because cooperatives require training and follow-up technicalassistance for residents, they are more difficult to develop than

rental properties. But cooperatives have lower operating costs

and a better social environment than rental properties.

7. Decentralized development of affordable housing provides

broad-based learning experiences and support for affordable

housing, but it currently lacks the financial resources that flowed

from the more centralized federal housing programs.

8. Development of small cooperatives, and small projects in gen-

eral, results in diseconomies of scale in development costs and in

problems of management and the provision of technical assis-

tance after project completion.

9. Volunteer membership cooperative associations do not have the

resources to provide, or authority to require, the ongoing techni-

cal assistance required by most affordable housing cooperatives.

Also, they do not have the resources necessary to provide the

technical assistance needed for the formation of new coopera-

tives. The formation of secondary cooperatives could help tosolve these problems.




In conclusion, this examination of the history of affordable housing

cooperatives indicates that they are a viable way to meet part of our na-

tion’s affordable housing needs. Housing cooperative residents control

their housing, and when their cooperatives are structured properly, res-

idents experience the consequences of their actions. Therefore, hous-

ing cooperatives are an answer to the calls of many politicians for a re-

duction in the passivity of welfare dependency that is linked to criticism

of subsidized rental housing. Also, with the current emphasis on private

market solutions, as in the 1950s, co-ops can be an answer to the pres-

sure to convert government owned housing to private ownership.

Affordable housing cooperatives exist throughout the country be-cause of the federally assisted cooperatives of the 1960s and 1970s,

combined with the “Third Sector” housing movement of the 1980s and

1990s. These historical accomplishments provide part of the theoreti-

cal and organizational base, which could reinvigorate the affordable

housing cooperative movement, and the affordable housing move-

ment as a whole.


Some Organizations Concerned With Housing CooperativesBurlington Area Housing Federation

c/o Burlington Community Land Trust

PO Box 523

Burlington, VT 05402

Center for Cooperatives

University of California

Davis, CA 95616

Community Associations Institute

1630 Duke Street Alexandria, VA 22314

Institute for Community Economics

57 School Street

Springfield, MA 01105-1131

National Association of Housing Cooperatives

1614 King Street

Alexandria, VA 22314

National Cooperative Bank

1401 Eye Street NW Washington, DC 20005



Notes

1. In addition to the 376,000 dwelling units in affordable housing coopera-tives, there are approximately 625,000 dwelling units in market-rate coopera-tives (NAHC, 1995). With a market- rate co-op the value of membership sharesis proportionate to the market value of the co-op’s property. Middle- and up-per-income families primarily occupy market-rate co-ops.

2. Moderate-income can be defined as household income from 100 to 80percent of area median income, and low-income as below 80 percent of areamedian income.

3. The Rochdale principles are the founding principles of the first coopera-tive, organized in England in 1844. These principles, as restated in 1995 by the

International Cooperative Alliance, are: 1) voluntary and open membership;2) democratic member control; 3) member economic participation; 4) auton-omy and independence; 5) education, training, and information; 6) cooperationamong cooperatives; and 7) concern for community (Welty, 1996).

4. Co-op City, unfortunately, has experienced substantial difficulties. It is atestimony to the problems of grandiose size for a single housing cooperative,and of removing cooperative development and administration from agrass-roots base.

5. For more information on the issues surrounding privatization see a pa-per by Sazama and Willcox (forthcoming).

6. For general histories of federal low-income housing policies see workby Meehan (1979), Listokin (1991), and HUD (1995).

7. For more on the success of consumer sponsored cooperatives see an ar-ticle by Willcox (1995). This approach is not without its own problems. Forexample, in the late 1960s, FCH was embroiled in an internal struggle of how rapidly to expand. Cooperatives that were sponsored after FCH changed man-agement and rapidly increased rate of sponsorship were not as successful aspreviously sponsored cooperatives. Also, consumer sponsored cooperativesneed to put the cooperative concept first by engaging in sufficient residenttraining and technical assistance, otherwise the co-op can easily degenerate

into a de facto rental unit.8. Much of the material in this section relies on information from Roger

Willcox contained in a memo to me on August 11, 1993, and from The AngoraGroup (1992).

9. Besides Sections 221(d)(3), and 236, two other federal below market in-terest rate mortgage insurance programs are available to affordable coopera-tives. They are the Section 202 program for residents over 62 or disabled, andseveral Farmers Home Administration programs. When the Section 202 pro-gram was passed in 1959, it was a BMIR direct-loan program. In 1991, it waschanged into a direct grant program. About 10,000 dwelling units of afford-able co-ops have been built under the Section 202 programs, many of these inthe 1990s. There are several Farmers Home Administration programs for af -




fordable rural housing cooperatives. They have financed about 5,000 dwellingunits (Angora Group, 1992; Battelle Group, 1981a and b; and Table 1).

10. The proportion of Section 8 project based co-ops in California is higherthan in the nation as a whole.

11. For evaluations of the economic consequences of cooperative housingsee articles by Miceli, et. al. (1994) and Sazama and Willcox (forthcoming).

12. Because of the initial project subsidies, inflation and the growth in mar-ket rents, co-op monthly carrying charges are far lower than market rents forequivalent units.

13. Sources of funding for “Third Sector” housing include: a) Moneys fromfederal community block grants to state and local governments; b) State andlocal governments using their tax dollars and revenue bonds; c) Loans from afew far sighted private financial institutions, but more commonly from finan-cial institutions pressured to invest back into their communities by community groups working with the federal Community Reinvestment Act; d) Privatefunds invested to obtain tax savings via the Low-Income Housing Tax Credit;e) A more active policy by the federal agencies responsible for developingsecondary markets for mortgages on properties that are available to low-in-come families (Fannie Mae and Freddie Mac); and f) Explicitly for coopera-tives, the federally chartered National Cooperative Bank. For a discussion of these sources of funding, and of local nonprofits, see research by the Angora

Group (1992), Rasey (1993), Walker (1993), and HUD (1995).14. Recently, there has been an initiative to rename such housing as PARCChousing, that is privately owned housing that is “permanently affordable, resi-dent or community controlled” (Institute for Community Economics, 1995).

15. For a discussion of the various institutional forms available to localgroups for their provision of affordable housing see chapter 3 of the Davisbook (1993) and an article by Willcox (1994).

16. The 1986 tax reform closed significant loopholes for investing in real es-tate. However, housing advocates argued that these loopholes were also animportant stimulus to private sector investment in low-income rental housing.

Therefore, Congress passed a special tax credit to stimulate such private investment. State governments using federal guidelines regulate these tax creditfunds. For a summary and critical evaluation of the Low-Income Housing TaxCredit see an article by Michael Stegman (1992).

17. In order to bypass the restriction against co-ops under the low-incomehousing tax credit program, several hundred co-ops have been recently builtthat lease their property from another corporation which owns it, and receivesthe benefits of the tax credits (Willcox, 1994). “Leasing” co-ops are not popu-lar with many co-op advocates because the lease introduces yet another bar-rier to full resident control. For a further description of leasing co-ops see

work by the Angora Group (1992) and Willcox (1994).18. The eleven state departments of housing that have been especially ac-




tive in funding LECs are: Massachusetts, Vermont, Connecticut, New Jersey,Ohio, Michigan, Wisconsin, Minnesota Illinois, South Dakota, and California

(NAHC, 1991, and author’s contacts with various state departments of hous-ing).

19. Rates of homeownership in 1992 remained below 1982 levels for all agecohorts below 54 years (Gabriel, 1996).

20. The rough estimate of 300,000 units of affordable housing produced by local nonprofit organizations is made by the author on the basis of some an-nual data presented in Rasey (1993).

21. Parallel to the development of LEC ownership of multi-family buildingsis the formation of cooperative mobile home parks, usually by conversions,and mutual housing associations as additional sources of resident managedhousing (Willcox, 1994). In cooperative mobile home parks, individual fami-lies own their mobile homes, but the land is owned cooperatively, and thepark is managed cooperatively. Cooperative mobile home parks prevent theland from being sold out from under the residents by landowners wishing tosell the land for shopping centers or lots for higher income housing. In recent

years there has been substantial development of the cooperative manufac-tured home parks. Currently, there are about 140 such parks, of which 60 arein Florida, 40 in California, 20 in the Southwest, and the balance in the North-east (Levy, 1996).

Mutual housing associations (MHAs) of the German type have been en-couraged by a federally chartered public enterprise called the NeighborhoodReinvestment Corporation (NRC). While there are no equity shares in theseMHAs, similar to co-ops they have strong resident rights and tenant security.Between 1980 and 1991, 1,400 MHA units have been constructed in a total of 9 municipalities throughout the country (NRC, 1991). Since 1991, the Neigh-borhood Reinvestment Corporation has extended its activities to provide gen-eral assistance to local nonprofits. As of November 22, 1995, it had providedsome form of assistance for 133,000 dwelling units in 330 municipalities (NRC,interview, 1996).

22. The Urban Homestead Assistance Board (UHAB), a community non-profit organized in 1973, became an important source of technical assis-tance for tenant groups in New York City who wished to convert their build-ings to LECs. A grass roots organization, UHAB has contributed to the devel-opment of a very creative set of institutional rules for the economicfunctioning of LECs. Special features of these rules include: 1) monthly carry -ing charges are fixed by project costs, rather than as a percentage of residentincome; 2) residents neither have to leave the building, nor are otherwise pe-nalized, if they become “over-income”; 3) there are low rates of increase inshare values; 4) there are few restrictions on the board of directors, which iscomposed of resident LEC members; and 6) there are long-term restrictions onproperty resale.




23. Some examples of independent state-wide LEC associations are: the As-sociation of Resident Controlled Housing (ARCH) in the Boston area, the Cali-

fornia Association of Housing Cooperatives, and the Connecticut CooperativeCouncil.

References

The Angora Group. 1992. California’s Lower-income Housing Cooperatives. Research Report No. 8 . Davis: Center for Cooperatives, University of Cali-fornia.

Bailey, Kirsten. 1988. The Federal Government and the Cooperative Housing

Movement , 1917-1955. Unpublished dissertation. Carnegie-Mellon Uni- versity.

The Battelle Group. 1981a. Past Practices in the Development of CooperativeHousing in the United States and an Analysis of Their Implications for Ru-ral Areas. Washington, D.C.: HUD User Document Number 005831.

———. 1981b. An Overview of Various Federal and State Programs that Pro- vide Financial and/or Technical Assistance in the Development of Housing Cooperatives. Washington, D.C.: HUD User Document Number002209.

Berger and Turner. 1991. Windfall Gains on the Swedish Housing Market: The

Effects of Queuing for a Cooperative Dwelling. AREUEA Journal .19.2:161-183.

Birchall, J. 1998. Building Communities the Cooperative Way . London:Routledge and Kegan Paul.

Calhoun, Charles and Chris Walker. 1994. Final Report: Loan Performance of

Management Cooperatives . Washington, D.C.: Urban Institute ContractReport.

Colburn, John. Co-op Housing Specialist for the Burlington Vermont Commu-nity Land Trust. Personal interviews. July 20, 1991, and July 15, 1992.

Cooper-Levy, Herbert J. Executive Director of the National Association of

Housing Cooperatives, Alexandria, Virginia. Telephone interviews, Janu-ary, 17 and July 15, 1996, and personal interview March 6, 1998.

Cooper, Matthew, and Margaret C. Rodman. 1992. New Neighbors: A Case

Study of Cooperative Housing in Toronto. Toronto: University of TorontoPress.

Davis, John E., editor. 1993. The Affordable City: Toward a Third Sector

Housing Policy . Philadelphia: Temple University Press.Dolkart, Andrew S. 1993. Homes for People: Nonprofit Cooperatives in New

York City 1919- 1929. Cooperative Housing Journal of the National Associ-

ation of Housing Cooperatives , Alexandria, Virginia. 13-22.Eden, Ernie. Real estate consultant. Atlanta Georgia. Telephone interview.

September 12, 1994.




Gabriel, Stuart A. Urban Housing Policies in the 1990s. Housing Policy Debate .7.4: 673-694.

Garst, James and Rina. Members of the Board of the Mitchell-Lama Council.New York. Personal interview in Litchfield, Connecticut, August 22, 1994,and telephone interview, January 17, 1996.

Hays, Allen R., editor. 1993. Ownership, Control, and the Future of Housing

Policy . Westport, Connecticut: Greenwood.Heshkin, Allan D. 1991. The Struggle for Community . Boulder: Westview

Press. ———. 1995. Ethnicity, Race, Class, and Immigration in Cooperatives. In Alan

Heshkin and Jacqueline Leavitt, editors, The Hidden History of Housing

Cooperatives , 218-235. Davis: Center for Cooperatives, University of Cali-

fornia.Hexter, James. Cambridge, Massachusetts. Telephone interview. March 17,

1998.Institute for Community Economics (ICE). 1995. PARCC Housing Initiative.

CommunityEconomics . 32, (Spring): 1- 4. Springfield, Massachusetts. ———. 1996. Moral Issues in Our Work: Roger Willcox and His Moment of

Decision. Community Economics . 33(Fall): 12-15 Springfield, Massachu-setts.

International Labor Office. 1964. Housing Cooperatives. Studies and Reports,New Series, Number 66. Geneva: La Tribune De Geneve.

Leavitt, Jacqueline, and Susan Saegert. 1990. From Abandonment to Hope:

Community Households in Harlem. New York: Columbia University Press.

Leavitt, Jacqueline. The Interrelated History of Housing Cooperatives andPublic Housing from the Thirties to the Fifties, in Alan Heshkin and Jac-queline Leavitt, editors. The Hidden History of Housing Cooperatives ,79-104 Davis: Center for Cooperatives, University of California.

Listokin, David. 1991. Federal Housing Policy and Preservation: HistoricalEvolution, Patterns and Implications. Housing Policy Debate . 2.2:

157-167.Meehan, Eugene J. 1979. The Quality of Federal Policy Making: ProgrammedFailure in Public Housing. Columbia: University of Missouri Press.

Miceli, Thomas, Gerald Sazama, and C. F. Sirmans. 1994. The Role of LimitedEquity Cooperatives in Providing Affordable Housing, Housing Policy De-

bate . 5.4: 469-490. ———. 1998. Managing Externalities in Multi-unit Housing: Limited Equity

Cooperatives as an Alternative to Public Housing, Journal of Policy

Modeling . 20.5:649-668.National Association of Housing Cooperatives (NAHC). 1991 and 1995. Sum-

mary of Housing Cooperatives in the United States. Alexandria, Virginia.Radford, Gail. 1991. Modern Housing for America: Policy Struggles in the New

Deal Era.Chicago: University of Chicago Press.




Rasey, Keith. 1993. The Role of Neighborhood-Based Housing Nonprofits inthe Ownership and Control of Housing in U.S. Cities. In R. Allen Hays,

editor, Ownership, Control, and the Future of Housing Policy , chapter 9. Westport, Connecticut: Greenwood.

Reicher, Andrew. Executive Director of Urban Homestead Assistance Board(UHAB) in New York City. Telephone interviews, November 3 and De-cember 8, 1994, and January 17, 1996.

Rohe, William M. and Michael A. Stegman. 1992. Public Housing Home Own-ership: Will It Work and for Whom? American Planning Association Jour-

nal . 58.2:144-157.Rohe, William M. 1995. Converting Public Housing to Cooperatives: the Expe-

rience of Three Developments, Housing Policy Debate . 6.2: 439-480.

Sazama, Gerald W. and Roger Willcox. 1998. “An Evaluation of Limited Equity Cooperatives in the United States.” Working paper.

Siegler, Richard and Herbert J. Levy. 1986. Brief History of CooperativeHousing. Cooperative Housing Journal of the National Association of

Housing Cooperatives , Alexandria, Virginia. 12-20.Stegman, Michael A. 1992. The Excessive Effects of Creative Finance: Growing

Inefficiencies in the Production of Low-Income Housing. Housing Policy

Debate . 2.2: 357-375.Stone, Michael. 1993. Shelter Poverty . Philadelphia: Temple University Press.Sullivan, Donald G. 1971. Cooperative Housing and Community Development .

New York: Prager.Task Force on City Owned Property. 1993. Housing in the Balance: Seeking a

Comprehensive Policy for City Owned Housing. New York: Consumer FarmerFoundation.

United Housing Foundation (UHF). 1970. Twenty Years of Accomplishments .New York: UHF.

United States Department of Housing and Urban Development (HUD), andthe United States Bureau of Census. 1995. American Housing Survey forthe United States in 1993. Washington, D.C.: Government Printing Of-

fice.United States Department of Housing and Urban Development (HUD), Officeof Policy Development and Research. 1995. The Growing Role of Non-profit Housing Developers. Prepared by the Urban Institute under con-tract HC-5856. Washington, D.C.: HUD.

United States Department of Housing and Urban Development (HUD). 1995.63 Years of Federal Action Housing and Urban Development. Cityscape:

A Journal of Policy Development and Research. 1.3: iv-ix. Walker, Christopher. 1993. Nonprofit Housing Development: Status, Trends,

and Prospects. Housing Policy Debate . 4.3: 36-42.

Waxman, Andrew. Executive Director of WISH, Washington, D.C. Telephoneinterview, January 16, 1996.

Welty, Joel David. 1996. Cooperative History: A More Complete Application of




the Rochdale Principles. Cooperative Action. Newsletter of the Michigan Alliance of Cooperatives. (Winter): 12-15.

Willcox, Roger. A series of interviews and memos from Roger Willcox to theauthor conducted or received on the following dates: October 5, 1992;

August 11, 1993; July 10, 1994: and November 3, 1995. ———. 1994. Rochdale Principles and the Development of Housing Coopera-

tives since 1964. Cooperative Housing Journal of the National Association

of Housing Cooperatives . Alexandria, Virginia. 4-9. ———. 1995. Cooperative Homeownership Conversions: the Consumer

Sponsored Approach. Cooperative Housing Journal of the National Asso-

ciation of Housing Cooperatives . Alexandria, Virginia. 1-8.


Affordable Housing US

Documents

Transcript of Affordable Housing US