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Limited Equity Housing Co-ops

One of the most effective ways to help stabilize a base of residents that are at risk of displacement is to give them opportunities to purchase property. But it is difficult for many very-low and low-income households to afford condos or single family homes in transit zones. Limited equity co-ops offer ownership opportunities at a much lower cost than typically available through an individual mortgage or downpayment formulas.

Through the cooperative model, residents share ownership of a multi-unit building. But rather than purchase individual units, participants purchase shares of a building, usually at a much lower price than a typical downpayment. Households also pay “carrying charges,” essentially monthly rents limited to a percentage of income, which cover operating expenses and mortgage debt service. A nonprofit or affordable housing developer can use low-income housing tax credits to make up much of the remaining equity.

Through this model, households not only benefit from the stability of homeownership but also can share in the appreciation of the multi-family building and often have access to tax advantages like mortgage interest deductions.

Limited equity co-ops are also usually set up to ensure long-term affordability. Resale limits are placed on the sale of shares, so that shares sold to subsequent buyers will be as affordable as they were initially.

Local jurisdictions can support limited equity co-ops by making them eligible for local subsidy funding and supporting nonprofits that create and manage them.

Case Studies

Davis, California

In 1985-1986, the Dos Pinos Housing Cooperative Inc. was developed as a 60-unit non-subsidized limited-equity housing cooperative (LEHC), the first unsubsidized LEHC of its kind in California. Dos Pinos exemplifies how the city of Davis, California had obtained one of the most effective models of permanently affordable homeownership in California. The Dos Pinos Housing Cooperative was developed at full-market cost without any local, state or federal subsidy and the costs accrued of Dos Pinos decreases each year relative to similar Davis apartments. All units are owner occupied, mortgage interest and property taxes paid per unit are tax deductible and residents are able to obtain unrestricted homeownership. Residents also obtain cash savings due to Cooperative Homeownership and return on invested capital. Through subsidies on the specific unit, the individual household achieves equity growth over time. In 2004, the Dos Pinos cooperative created savings of over $300,000 per year for the 60 families. Dos Pinos pays all local property taxes and fees and is recognized as the only permanently affordable housing community in Davis that contributes to the tax base. Dos Pinos is unique in this respect, as non-profit tax-exempt affordable housing does not usually pay taxes and fees.

New York City, New York

In Manhattan, the median price of an apartment (sometimes more than $1,000 per square foot) often hinders residents from obtaining homeownership. Most individuals are not able to afford the market rate price of housing, but New York City devised a plan to create affordable housing options for buyers who earn a certain percentage of the area median income. New York City’s Mitchell-Lama Housing Program was created in 1955 to build affordable housing for middle-income residents, but the city’s affordable housing stock for low-income residents was rapidly deteriorating due to corporate disinvestment, increasing social issues and a vanishing tax base. Landlords abandoned their deteriorating buildings, neglected their maintenance responsibilities and refused to pay tax assessments and other fees to the city. By 1992, New York City acquired 45,000 residential units through default, mostly located in low-income, minority neighborhoods. Efforts to form co-ops were initiated by tenants of these buildings and since 1992, tenants and advocacy groups have taken control of more than 1,300 buildings. Two of the most noted programs include the Community Management Program (CMP) which sold buildings to non-profit organizations, and the Tenant Interim Lease program (TIL) which sold buildings to tenant associations. After 20 years in operation, the TIL Program was honored by the New York City Council as “the most effective long-range solution to properties that were foreclosed.” The Council’s $75 million annual investment has assisted in cleaning up buildings and neighborhoods and cultivated civic pride in residents. As of 2007, there are more than 1,300 LEHC’s in New York City, accounting for tens of thousands of affordable units and helping to retain affordable housing units in New York City amidst the inflated housing market.

Washington, District of Columbia

Washington, DC, operates a Cooperative Conversion Seed Money Loan Program that provides assistance to low-income and moderate-income tenant groups with a high potential for successful cooperative conversion. The assistance is in the form of non-interest-bearing loans to help defray certain up-front costs of cooperative conversion.

Resources