Housing cooperative

A housing co-operative is a legal entity that owns real estate, one or more residential buildings. Each shareholder in the legal entity is granted the right to occupy one housing unit, subject to an Occupancy Agreement, which is similar to a lease. The Occupancy agreement specifies the co-op's rules.

Legal status

As a legal entity, a co-op can contract with other companies or hire individuals to provide it with services, such as a maintenance contractor or a building manager. It can also hire employees, such as a manager or a caretaker, to deal with specific things that volunteers may prefer not to do or may not be good at doing, such as electrical maintenance. However, as many housing cooperatives strive to run self-sufficiently (and recognize the economical efficiency of doing so), as much work as possible is completed by its members.

A shareholder in a co-op does not own real estate, but a share of the legal entity that does own real estate. This provides many of the financial and decision-making benefits of ownership. Co-operative ownership is quite distinct from condominiums where people own individual units and have little say in who moves into the other units. Because of this, most jurisdictions have developed separate legislation, similar to laws that regulate companies, to regulate how co-ops are operated and the rights and obligations of shareholders.

Membership

Each resident or resident household has membership in the co-operative association. Members have occupancy rights to a specific suite within the housing co-operative as outlined in their "occupancy agreement", or "proprietary lease" which is essentially a lease.

In some cases, a key factor in the way a co-op works is that each shareholder has only one vote, compared with, for example, strata title ownership, where the number of votes an owner has is tied to the number of shares owned by the person. Whichever form of voting is employed it is necessary to conduct an election among shareholders to determine who will represent them on the board of directors (if one exists), the governing body of the co-operative. The board of directors is generally responsible for the business decisions including the financial requirements and sustainability of the co-operative. Although politics vary from co-op to co-op, and depend largely on the wishes of its members, it is a general rule that a majority vote of the board is necessary to make business decisions.

Management

In larger co-ops, members of a co-op typically elect a board of directors from amongst the shareholders at a general meeting, usually the annual general meeting. In smaller co-ops, all members sit on the board.

The board typically elects its own officers, such as a president, vice-president and so on. Usually, the directors are volunteers, or are paid an honorarium. The board may then establish standing committees from among the shareholders, who usually also volunteer their time, to either handle the business affairs of the co-op or make recommendations to the full board on such issues as its finance, membership and maintenance of its housing units.

Finance

A housing co-op is normally de facto non-profit, since usually most of its income comes from the rents paid by its residents, who are invariably its members. There is no point in creating a deliberate surplus -- except for operational requirements such as setting aside funds for replacement of assets -- since that simply means that the rents paid by members are set higher than the expenses. (Note, however, that it's quite possible for a housing co-op to own other revenue-generating assets, such as a subsidiary business which could produce surplus income to offset the cost of the housing, but in those cases the housing rents are usually reduced to compensate for the additional revenue.)

It is relatively difficult to start a housing co-op because if the idea is, for instance, to build a building or group of buildings to house the members, this usually takes a significant mortgage for which a financial institution will want assurances of responsibility. It may also take a year or more for the members to organize the design and construction, as well as time and foresight to establish even basic organizational policies. It is rare that these kinds of skills of organization are available in a random group of people who often have pressures on their existing housing. It may be somewhat easier to organize a group of closely related housing units. This opportunity may arise, for example, if an existing apartment building's owner is thinking about selling it.

Co-ops need not be populated by low-income people, or those whose politics are left of centre. There are housing co-ops of the rich and famous - John Lennon, for instance, lived in a housing co-operative; however, this represents an unusual exception to housing co-operatives that is common in New York City (and is discussed further below under "In the USA"). Generally, housing co-ops tend to attract those with strong collective or co-operative social skills and values.

There are two main types of housing co-operative financing methods, market rate and limited equity. With market rate, the share price is allowed to rise on the open market and shareholders may sell at whatever price the market will bear when they want to move out. In many ways market rate is thus similar financially to owning a condominium, with the difference being that often the co-op carries a mortgage, resulting in a much higher monthly fee paid to the co-op than would be so in a condominium. The purchase price of a comparable unit in the co-op is typically much lower, however.

With limited equity, the co-op has rules regarding pricing of shares when sold. The idea behind limited equity is to maintain affordable housing. A sub-set of the limited equity model is the no-equity model, which looks very much like renting, with a very low purchase price (comparable to a rental security deposit) and a monthly fee in lieu of rent. When selling, all that is re-couped is that very low purchase price.

In the USA

In the United States, housing co-ops are usually chatagorized as corporations or LLC's and are found in abundance in the Greater New York metropolitan area, and more precisely within New York City itself, Westchester County, New York (which borders the city to the north) and towns in New Jersey that are immediately across the Hudson River from Manhattan, such as Fort Lee, Edgewater, or Weehawken. Unlike in other parts of the world, most of these housing co-ops did not develop as a result of social engineering but simply as an alternative to condominiums or renting as apartments and multiple-family housing make up a more significant share of the housing stock than in most other US cities. However, multiple person cooperative models exist all over the country. Artist, student and community co-operatives are common in the San Francisco Bay Area, for example. Many of these housing co-operatives are members of organizations such as NASCO. In New York City, another significant factor in the rise of the co-op is strict and complicated rent control laws that have made many landlords want to get out of the rental property market.

Most of the housing cooperatives in the Greater New York area were converted to that status during the 1980's; generally they were large buildings built between the 1920's and 1950's that a single landlord or corporation owned and rented out that were now unprofitable as rental units. To encourage individual ownership of units, the initial buyers buying units from the seller (in this case the owner of the entire building) do not have to be approved by a board. Also, the rental tenants living in the building at the time of the conversion were usually given an option to buy at a discount. Many of these buildings, especially in Manhattan, are actually quite luxurious and exclusive; many celebrities live in them and some famous people are even rejected by the board. In the 1990's and 2000's some rental buildings in the Chicago, Washington, DC, and Miami-Fort Lauderdale-West Palm Beach areas went through a similar conversion process, though not to the degree of New York.

Student-owned and -operated housing co-operatives exist to provide low-cost housing to university students. Examples of such cooperatives exist in Berkeley, California, Chicago, Illinois, Minneapolis, Minnesota, Oberlin, Ohio, East Lansing, Michigan, Stanford, Ann Arbor, Michigan, Austin, Texas, Madison, Wisconsin, Olympia, Washington and West Lafayette, IN.

In Canada

The federal and provincial governments in Canada developed legislation in the 1970s that aided potential co-ops in receiving financing through high-ratio, low down-payment mortgages via an agency called the Canada Mortgage and Housing Corporation (CMHC). The government similtaneously began to encourage the development of non-profit agencies to develop the social structure for housing co-ops by finding suitable members, educating and organizing them, and installing them into turnkey buildings independly constructed or organized. These organizations often help in forming initial policies and holding the organization together while all the necessary work was done.

The federal government tied its loan assistance to requirements that such housing co-ops provide a percentage of their units, usually at least 15 to 20 per cent, for what are termed income-tested residents. These people voluntarily provide information to the co-op on a confidential basis about their gross income, and their rent is calculated according to a formula. If the calculated rent is less than the market rent of the units, then the federal government, through another formula, would provide funding to those units to bring their unit revenue up to the market rate. This produced mixed-income co-op housing, in which relatively well-off people lived side-by-side with relatively low-income people and worked with them on committees. This often had the ripple effect of improving the financial health of those less well-off. (It's interesting to note that, depending on your political point of view, such government payments for offsetting the rent could be considered subsidy of the low-income people, or a contractual business arrangement between the government and the co-op which helps to stabilize revenue to the co-op in exchange for accomplishing a social goal for the government for a specific period. This dichotomy is typical of the fact that a housing co-op is somewhere between a corporation and a social agency, and where one places it depends on one's viewpoint -- and the collective viewpoint of each housing co-op.)

Political will dissipated in Canada in the 1990s, however, as other issues occupied politicans and financial belt-tightening by the governments reduced the funds available for the mortgages. In 2004 and 2005, however, the political winds shifted back towards the idea of developing more low-income housing.

In Canada, there are associations of housing co-operatives. The major one is the Co-operative Housing Federation of Canada (CHF-Canada). Most provinces have similar organizations for their area, but many are stand-alone members of the CHF-Canada, as opposed to being branches of it. Each such organization charges its member co-operatives a fee based on the number of housing units in the co-op to pay for staff to do its work. This includes lobbying governments, setting up self-help funding and the like.

A co-operative housing project can resemble a traditional apartment building, or it can be the basis of an intentional community.

"Building co-operatives" ("self-build housing co-operatives" in British parlance, which distinguishes them from worker co-operatives in the building trade) are formed by members who cooperate to build their homes but own their houses on completion. Building co-ops were extremely popular across Canada from the 1930s to the 1960s.

In the UK

There are several hundred housing co-operatives in Britain, and most are "par value" rental co-operatives, meaning that the tenants have no equity share in their house or flat. They may or may not be "fully mutual" meaning that all tenants are members and vice versa. They are normally incorporated as industrial and provident societies. While many housing co-operatives occupy permanent accommodation, there has also been a significant sector of "short life" housing co-operatives, especially in London where rents are high. These are formed to alleviate homelessness by making use of empty housing while it is waiting for redevelopment - akin to a form of legalised squatting.

The representative body for Britain's housing co-operatives is the Confederation of Co-operative Housing (CCH).

The government grant aids some housing co-operatives via its social housing agency the Housing Corporation.

Secondary housing co-operatives - co-operatives of co-operatives - may be formed to help with the legal procedures of buying and renovating property.

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