Housing Brass Tacks

Limited-Equity Co-Ops

Buying an apartment in New York City today often feels like a pipe dream for anyone not in the millionaire class. But for more than four decades, the nonprofit Urban Homesteading Assistance Board (UHAB) has been a leader in creating limited-equity cooperatives, homeownership opportunities attainable for low- and moderate-income New Yorkers. In our 13th Brass Tacks session, UHAB’s executive director, Andrew Reicher, took us through the benefits and structure of limited-equity co-ops and the group’s evolving work to organize New Yorkers for an affordable city.

#1 Cooperatives come in all shapes and sizes

Cooperatives are businesses or organizations that are jointly owned and democratically controlled by their members, who own shares in the corporation and elect a board of directors. You probably shop at some worker-owned co-ops: Ace Hardware is owned by its retail store owners, Cabot Creamery is owned by 1,100 New England dairy farmers, and Dunkin’ Donuts gets all its food, paper, and equipment supplies from a franchisee-owned distribution co-op. Consumer-owned co-ops include the outdoor retailer REI — anyone can join and, unlike a publicly traded company, it answers to its members — along with hundreds of grocery stores nationwide.

Cooperatives of all kinds are guided by a set of seven principles, known as the Rochdale Principles for the group of textile workers who first formed them in Rochdale, England, in 1844: 1) Open, voluntary membership, 2) Democratic control, 3) Member economic participation, 4) Autonomy and independence, 5) Continuous education, 6) Cooperation among cooperatives, and 7) Concern for community. Andrew Reicher termed cooperators “the largest interest group in the United States,” with 100 million co-op members nationwide.

Cooperative living Housing can be cooperative, too. In housing co-ops, real estate is owned collectively by a corporation and controlled by residents. The corporation holds the title to the property while each resident owns an interest or shares in that corporation, with a proprietary lease to their individual unit. The lease generally has a term of 99 years and is renewable. Thus, a cooperator owns the shares for her apartment, but not the apartment itself. “You are a tenant in a building in which you are a landlord,” said Reicher. “So you’re your own landlord in a co-op.” Resident shareholders then elect a board of directors to set policy and manage budgets and finances, resales, and provide general oversight.

Limited-equity co-ops, specifically, are income-restricted, placing affordable homeownership in reach of low-income and middle-income households. In a limited-equity cooperative, members purchase shares at below-market costs in exchange for limits on resale prices. Limited-equity co-ops typically receive tax abatements, lower mortgage rates, or other public subsidies to assist with affordability. When a cooperator in a limited-equity co-op decides to sell, she typically receives back the cost of her initial investment plus interest — but only a small profit (typically a percentage of the equity accrued), which puts the brakes on the speculative nature of the private real estate market.

#2 Houses that labor built

In 1916, a group of Finnish immigrants in Sunset Park, Brooklyn, built Alku (Finnish for “beginning”), an apartment building now generally considered the first nonprofit housing cooperative in the country. A decade later, trade unions, desperate to provide affordable worker housing and buoyed by a 1926 New York State law that gave developers property tax abatements in exchange for limiting their profits, took up the mantle and a full-fledged limited-equity co-op movement emerged. The Amalgamated Clothing Workers of America (ACW), which developed dozens of co-ops beginning in the late 1920s, joined forces with other labor and civic organizations to form the United Housing Foundation (UHF) in 1951. UHF took advantage of new federal housing laws and urban renewal funds to build cooperatives including the 15,300-unit Co-op City in the Bronx and 5,800-unit Starrett City in Brooklyn, both of which were also funded by the state’s Limited Profit Housing Companies Law, commonly known as Mitchell-Lama for the legislators who sponsored it. Targeted at the middle class, the 1955 law allowed developers to receive lower interest rate mortgages from the state or city in exchange for limits on profits (originally six percent) and the possibility to buy out of the program after a set period of time (originally 35 years). The program ended in the 1970s, but not before producing 140,000 units, about equally split between limited-equity cooperatives and rentals. Starrett City was the last project started by UHF — it was sold to a private developer midway through construction in 1971, also the year UHF lost its leader and the foremost advocate for limited-equity co-ops, Abraham Kazan. Although tens of thousands of those units remain today, with the demise of the Mitchell-Lama program and the UHF, two major pillars of limited-equity co-ops in New York City were gone.

Urban Homesteading Assistance Board In the 1970s, with the city mired in a fiscal crisis and suffering from population loss, deindustrialization, and property abandonment and arson, a new set of actors latched onto limited-equity cooperatives as a tool to stabilize neighborhoods through urban homesteading. As private landlords washed their hands of at least 11,000 apartment buildings, most dilapidated and many still inhabited, to take advantage of a new city foreclosure policy, tenants were left to fend for themselves. The city was eager to get the buildings off its hands, so residents had to get creative to maintain their homes.

UHAB was founded in 1973 with the belief that, provided with resources and tools, residents could own and run their own buildings and be “part of the solution of rebuilding their neighborhoods,” said Reicher. At the vanguard of a new generation of cooperative housing led by residents and nonprofit organizations, the earliest UHAB co-ops were created primarily through “sweat equity,” in which residents rehabilitated buildings themselves, with their time and labor acting as a down payment. The city formalized a homesteading program in 1978 called Tenant Interim Lease, transferring ownership of city-owned buildings to tenants once they demonstrated their capability to self-manage. (A later property disposition program was established in 1996 to allow the city to transfer ownership of foreclosed properties without taking ownership itself first.) These units became Housing Development Fund Corporation co-ops (HDFCs); existing tenants could buy in to the co-op conversion for a purchase price of $250, while new buyers paid a higher, but below-market, purchase price. Today, UHAB has assisted in the preservation of 1,300 buildings across the city, creating homeownership opportunities for 30,000 households.
"UHAB Celebrates 44 Years of Self Help" (2017). Video by Urban Homesteading Assistance Board

#3 Crunching numbers

Initially, a cooperative corporation obtains a “blanket mortgage” to acquire or rehabilitate a limited-equity co-op, using the entire property as security. By using the whole property as collateral, the cooperators can obtain financing that they likely wouldn’t be able to as individuals. They can also obtain share loans for their units to cover the purchase price. Cooperators pay monthly maintenance fees to cover the common elements of the building, which can include the mortgage, real estate taxes, insurance, repairs, and fuel. While Reicher said UHAB has “successful buildings at all scales,” from three to 230 units, he cautioned that smaller buildings are expensive, and can be riskier. If just one resident in a small building stops paying monthly maintenance charges, it can place the whole building in financial jeopardy.

While purchase prices are below-market, how far “below” varies significantly across buildings and neighborhoods. Current UHAB-sponsored HDFC co-ops for sale include a two-bedroom unit in Soundview, the Bronx, with an estimated purchase price of $55,000 and maintenance charges of $827 monthly, and three units at 278 East Seventh Street, a former squat in the East Village sold to UHAB in the early aughts, with sales prices of $125,000-328,000 and monthly maintenance of $641 to 1,278.

Co-op commitment The ideals of cooperative life are fantastic. The realities, sometimes less so. Cooperators are responsible for real estate management and operation, whether they maintain the building themselves or hire a management company. This requires a commitment of time and energy, along with skills that most tenants or homeowners typically don’t have. That’s why a critical component of UHAB’s work from the beginning has been training and technical assistance to prepare cooperators for homeownership and cooperative living, including understanding the financial, governance, legal, and maintenance obligations. UHAB classes cover accounting, insurance, pests and rodents, and solarizing your co-op. The rewards of a co-op — a tight community, stability, control, and reasonable housing costs — only come with active and engaged cooperators. “Co-ops are harder because you not only have to develop the building but you have to work with people” concluded Reicher. “But the benefits are much higher.”

#4 How many are there?

In 2015, UHAB began compiling a database of every shared-equity housing cooperative in the country. The National Co-op Research Project maps 305,828 affordable cooperatives created in the US and Canada — although only 166,608 remain shared-equity as of the end of 2016. New York is undeniably the limited-equity co-op capital: About 90,000 units are located here, of which roughly two-thirds are Mitchell-Lama units and one-third HDFCs, according to Reicher. In addition to a census of co-op locations, UHAB is conducting an ongoing survey of co-op residents and the organizations that support them to determine when the co-ops were created and how they’ve sustained their affordability. “They’re all over and there’s all sorts of flavors,” said Reicher.

One impetus for the project, Reicher said, was the lack of a strong national network to support limited-equity co-oops, despite their quantity. He contrasted the lack of organization to the power behind community land trusts: Relatively small in terms of numbers, CLTs are very well-organized nationally. So,  following the data-gathering project, UHAB and collaborators have launched the Sixth Principle Coalition, a group of practitioners advocating for the advancement of limited-equity housing cooperatives nationally. (The name is derived from the sixth Rochdale Principle: cooperation among cooperatives.) They are now developing an online platform with resource directories, best practices, a policy forum, and other materials to support creating and preserving affordable co-ops nationwide.

As part of its National Co-op Research Project, UHAB has mapped known shared-equity cooperatives and support organizations in the US and Canada. Map via Urban Homesteading Assistance Board
What’s the future? Ever-increasing housing costs and displacement pressures have led to a renewed interest in shared-equity housing programs. “I think everyone got a little sick of homeownership after the crash, and co-ops got brushed with that broad brush,” said Reicher. “But co-ops across the nation did very well through the housing crisis” due to resident screening, community support, and other factors. While the days of taking over abandoned buildings in neighborhoods like the Lower East Side are long gone, UHAB is employing today’s toolbox to create new limited-equity co-ops. Reicher said that UHAB has units in twelve new buildings, including Jupiter 21, a luxury rental building on the Lower East Side with 13 units of low-income co-ops scattered throughout, created through inclusionary zoning in exchange for the rights to an eight-unit building UHAB owned on the site. They have also continued to serve as a developer of new co-ops, rehabilitating over 70 buildings in the last 15 years.

For HDFC co-ops, it’s a time of uncertainty. While most HDFCs have income restrictions, only some have resale price caps, leading to a strange market in which low-income, asset-rich households — those with parental help or a trust fund, for instance — are scooping up supposedly affordable units. These buyers are attractive to some HDFC co-ops, including the roughly one-quarter that are in financial distress, since they can get the co-op back on steady financial footing. To streamline the hodgepodge, building-by-building restrictions that govern HDFCs, the city has proposed controversial new regulations. UHAB has opposed the draft regulatory agreement, offering alternate reforms to maintain the quality and affordability of these co-ops for future generations.

UHAB’s work has also evolved with the times. They have advocated for Mitchell-Lama shareholders resisting the privatization of their developments by helping to establish Cooperators United for Mitchell-Lama. With three other nonprofit organizations, UHAB earlier this year established the Interboro Community Land Trust, another pathway to permanently affordable homeownership by combining single-family homes and co-ops with a community-stewarded land trust model. Finally, for several years UHAB has supported the Crown Heights Tenant Union as they organize against rising rents, predatory landlords, and displacement in the gentrifying Brooklyn neighborhood. While the work is a step away from UHAB’s usual focus on homeownership, it’s very much aligned with UHAB’s goals: an organized community of strong leaders who consider their housing homes, not real estate.