Lessons from the History of Affordable Housing Cooperatives in the United States: A Case Study in American Affordable Housing Policy

American Journal of Economics and Sociology, The,  Oct, 2000  by Gerald W. Sazama

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

In the 1980s and 1990s, the emphasis on private market solutions resulted in the virtual termination of federal direct financing of new affordable 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 decentralized actions by building residents and affordable housing organizers, some of these privatizations resulted in conversions to affordable co-ops.

Since the 1980s, about 18,000 dwelling units of public housing have been converted to affordable cooperatives (Table 1). These privatizations have been financed under Jack Kemp's HOPE program, the Low-Income Housing Preservation Act, HUD Section 220(3)(f). Alternatively, 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 crisis (Rohe and Stegman, 1992; Levy, 1996). As discussed in policy question 3, and in an article by Robe (1995), current federal administrative procedures for co-op conversions are so cumbersome they limit these conversions. Part of this difficulty is the strength of for-profit developers 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 organizations 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 local 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 residents, 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 supply 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.