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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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 affordable cooperatives, mostly in the Northeast, the Midwest, and California. [21] Experience with "Third Sector" housing introduces three policy questions relevant for the affordable housing cooperative movement today.

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 private financing, since financial institutions are not as familiar with co-ops as they are with rental properties or condominiums. Second, co-ops require 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 environments 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. It also 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 turnover. 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 a decentralized movement, most developers do not understand the real differences between limited equity cooperatives and rental properties.