CityLab University: Shared-Equity Homeownership by Benjamin Schneider c/o Bloomberg CityLab

Care of Madison Johnson

Overview

Community land trusts and housing co-ops are alternative forms of homeownership that often serve those shut out by traditional markets.

Quick Definitions

Community land trusts and co-ops are alternative land- and home-ownership structures that provide benefits traditional markets cannot.

Community land trusts are community-run, nonprofit landholding organizations that sell or rent the units atop the land they own, usually with the intent of keeping that housing affordable in perpetuity.

Housing co-ops are organizations of residents in multi-family buildings in which each household owns a share of the building. Shares can be sold at market rates, or below market rates in limited-equity co-ops, where the co-op recoups a percentage of equity earned on every transaction in order to subsidize the next shareholder.

Key Takeaways

An invention born of necessity and inspired by Israel and solutions to India’s caste system

“The community land trust (CLT) is an American invention, pioneered by civil-rights activist Robert Swann, who borrowed ideas from the Gramdan movement in India and Moshavim in Israel. Swann founded the first community land trust in rural Georgia in 1970, providing African-American sharecroppers an opportunity to collectively own the land they worked.”

Beatrice Kambere and Charles Meli, refugees from the Democratic Republic of Congo, smile at their son Jacques outside their shared-equity home in Burlington, Vermont. Care of the Champlain Housing Trust

On builders and land caretakers linking up with government assistance

“The Champlain Housing Trust is the largest CLT in the nation. It was formed by the merger of the Burlington Community Land Trust and Lake Champlain Housing Development Corporation (an affordable-housing developer), both founded in 1984 during the mayoralty of Bernie Sanders. The city government provided $200,000 in seed funding for the Burlington trust, and then in 1988 added a small property-tax increase to provide a sustainable source of funds.”

On sustaining the business and intention of a community land trust

“In addition to taxpayer funds, the trust supports itself by collecting 75% of the increased equity in for-sale properties, which helps keep units affordable. The size of the Champlain Housing Trust—its 2018 assets were valued at $144 million—gives the organization leverage to develop new housing on its own, using the same tax credits and funding streams as other affordable-housing developers.

And despite the fact that trust members (i.e. residents) vote to elect their board members, NIMBYism doesn’t seem to be a problem: All of the projects under way in 2018 were multifamily. Renters and owners are both members of the trust, whose bylaws mandate that at least one of each be represented on the organization’s 15-member board.”

This building in Shelburne, Vermont, is part of a neighborhood called Harrington Village developed by the Champlain Housing Trust. The village includes 42 affordable apartments, 36 apartments for seniors, and four shared-equity homes. Care of the Champlain Housing Trust

On the business of creating and sustaining housing co-ops:

“It works like this: Instead of purchasing a unit in a multifamily building or complex, co-op members purchase shares in the co-op, which grants them the right to occupy a designated unit in perpetuity. Members must pay monthly dues to the co-op for maintenance, insurance, and everything else landlords usually pay for. An elected board makes decisions about how the co-op should be run, and who can buy in. (Like all housing providers, housing co-ops are required to follow anti-discrimination laws.)”

On converting existing housing into Co-Op Housing:

“Landlords, frustrated with low profits, and tenants, frustrated with a lack of maintenance, would come to an ownership transfer agreement, usually over the course of years. Other co-op conversions are initiated by outside investors who buy buildings and sell shares back to tenants.

Tenant buy-in prices are usually about half of the market-rate price, making them a steal for those who can afford them. (There is, however, no law stipulating that the tenant buy-in price must be below market rate; it is usually done as a means of building goodwill during the co-op formation process.)

Initially, co-op conversions resulted in the displacement of tenants who couldn’t afford to buy in. New York and other rent-control cities eventually adopted provisions for these tenants to remain as renters, but inevitably, these kinds of co-op conversions ensure that future tenants are wealthy enough to buy in at market rates. Co-op conversions have resulted in a loss of rent-control housing and have been described as a source of gentrification. Between 1978 and 1988, 242,000 housing units were converted to co-ops in New York City.”

A group of shareholders in front of their building in New York. Between 1978 and 1988, 242,000 housing units in the city were converted to co-ops. Care of UHAB

On housing co-ops as a tool to fight gentrification and build wealth:

“Starting in the 1970s, New York City and Washington, D.C., initiated programs for tenants of tax-delinquent or vacant properties, usually in economically depressed areas, to form co-ops. Residents were able to purchase shares in these co-ops for as little as $250 in some cases, providing a powerful wealth-building tool.

Many of these co-ops formed limited-equity covenants that kept units affordable for future shareholders and renters. In 1978 alone, 11,000 buildings in New York City were converted to limited equity co-ops through these programs, according to Andy Reicher, executive director of the Urban Homesteading Alliance Board (UHAB), which supports limited-equity co-ops.”

The challenges faced by Housing Co-Ops:

“Preserving affordability and keeping up with taxes and maintenance can be a challenge for these co-ops. 

Many were established with huge maintenance backlogs from the previous owners, which, along with inadequate guidance from the city, are at the root of the problem.

Over the years, the fortunes of the co-op rose and fell based on the leadership abilities of the people who lived there.

Limited-equity arrangements prevent households who enter them from earning as much equity as their peers in the private market, leaving them with a smaller nest egg and making it harder to compete in the private market in the future.

And while the sense of community that shared-equity housing instills can be invaluable, self-management can be a headache. It also requires a high degree of competence from non-professionals. People without strong volunteerist sensibilities might want to steer clear.”

Members of a New York co-op celebrate the end of a series of training workshops with a backyard barbecue. Care of UHAB

An example of how co-op shares function:

“The co-op’s limited-equity agreement ensures that share prices can only go up 3 percent per year. When shares are sold, 70 percent of the profit goes to the seller and 30 percent goes back to the co-op, which subsidizes the next buyer.”

Additional Research

New Communities Inc.

Columbia Heights Ownership Project

The Champlain Housing Trust

Urban Homesteading Alliance Board