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

Gerald W. Sazama

GERALD W. SAZAMA [*]

ABSTRACT. Understanding the history of the affordable housing cooperatives in the United States helps us understand the general history of American affordable housing policy. This paper contains a decade-by-decade summary of the history of affordable cooperatives. The affordable cooperative movement has evolved from ethnic and union groups which developed self-help cooperatives in the 1920s, through the federal funding of low-income cooperatives in the 1960s and 70s, to local nonprofit organizations using ad hoc packages of funds to organize cooperatives during the 1980s and 90s. As this history unfolds, it provides answers to contemporary policy questions affecting both cooperatives and affordable housing in general.

I

Introduction

THE HISTORY OF THE AFFORDABLE HOUSING COOPERATIVE MOVEMENT in the United States is part of the history of the struggles of working people and the poor for decent housing. Understanding this history helps us to understand the general affordable housing movement, and to develop contemporary policies for both cooperatives and the affordable housing movement as a whole.

Circumstances and methods of the affordable housing cooperative movement vary decade by decade, but the objective of this movement is constant: to obtain for low- and moderate-income families decent housing, at an affordable price, with effective resident control. This movement started with ethnic and union groups developing self-help cooperatives in the twenties. It evolved into federal funding of low-income cooperatives in the sixties and seventies, and then into local nonprofit organizations using ad hoc packages of funds to organize affordable cooperatives during the eighties and nineties. The successes of these historical struggles have resulted in about 376,000 dwelling units in affordable housing cooperatives in the United States. [1] This number equals 17 percent of the total number of rent-reduction housing units owned by the nation's public housing authorities (HUD and Census Bureau, 1995; and Table 1).

The history of affordable housing cooperatives is relevant for today's affordable housing movement because, in a world that is increasingly market driven, cooperative housing provides contemporary housing advocates with an alternative that reinforces joint ownership of property (Hays, 1993). Also, affordable housing cooperatives empower low- and moderate-income families, since under the cooperative structure they own and control their own housing (Birchall, 1988; Cooper and Rodman, 1992; and Heskin and Leavitt, 1995). Finally, affordable cooperatives are contrary to the traditional welfare mentality prevalent in so much of subsidized rental housing because with co-ops, residents not only take responsibility for their actions, but they experience the direct consequences of these actions on the cost and quality of their housing (Miceli, Sazama, and Sirmans, 1994 and 1998).

As this history unfolds, it highlights policy questions relevant for contemporary affordable housing policy. Nine policy questions are examined, each at the end of the historical period when the question first became important. Some examples include: Should housing advocates support a federal or a decentralized housing policy? Should rents and monthly housing charges be collected as flat fees or as a percentage of household income? Should affordable housing be developed as co-ops or rental properties? Should emphasis be placed on providing more housing units, as opposed to the development of resident skills to control their own housing?

The following definitions will be used in this paper: A housing cooperative is a cooperative where member-residents jointly own their building. Ideally, member-residents democratically control the cooperative, and receive the social and economic benefits from living in and owning the cooperative. An affordable housing cooperative is available to moderate-, or low-income families. [2] This "affordability" ordinarily results from private or public subsidy or other government action. Limited equity cooperatives (LECs) are affordable cooperatives that have affordability restrictions on the resale of initial membership shares. Affordability restrictions limit the resale of co-op shares to moderate or low-income households, and/or restrict increases in the resale value of these shares.

In the national debate on assuring the availability of affordable housing, many alternative polices have been offered. Some argue that decent affordable housing is best provided by the private market, or by private charitable and civic organizations. Most, however, argue for some form of government intervention. One form of intervention concerns the debate over government regulation of the private market via rent control, zoning, building codes, and the Community Reinvestment Act. A second form of intervention is via tax policy. For example, some argue that a land tax would reduce the cost of urban housing, and thereby increase the availability of affordable housing. Also, there are tax expenditures which subsidize housing via the deduction of property taxes and interest on home loans, accelerated deprecation of investment in rental housing, the federal low-income housing tax credit, and local property tax abatement. A third option is supply side policies, which directly increase the availability of affordab le housing via capital grants, subsidized operating cost, low interest loans, and loan guarantees. Finally, demand side policies subsidize eligible families to rent housing in the private market.

This paper will concentrate on civic organizations, supply side, and tax expenditure policies, because virtually all of the existing affordable housing cooperatives were funded under such programs. To tell the history of affordable cooperatives, the author uses a combination of original source materials, interviews, oral histories, and secondary sources.

II

1910s-1920s: Early Housing Cooperatives

THE EARLY HOUSING COOPERATIVES in the United States grew out of the global cooperative movement. The first cooperative was organized in 1844 in Rochdale, England, as a self-help consumer group of urban workers. The Rochdale Cooperative Principles emphasized democratic control of capital through the principle of one member one vote. [3] By the early twentieth century, working class organizations had sponsored housing cooperatives throughout Europe, but predominantly in Germany and the Scandinavian countries (International Labor Office, 1964). In the United States, however, housing cooperatives did not become well established until after World War I. Housing cooperatives then took two forms: exclusive apartment dwellings for high-income families, mostly developed by private real estate speculators; and cooperatives organized by ethnic-immigrant groups and/or unions to provide affordable housing for their members during the post-World War I housing crunch (Dolkart, 1993).

The first affordable housing cooperative organized in the United States under the Rochdale Principles was developed in Brooklyn, New York, in 1918 by a group of Finnish artisans, the Finnish Home Building Association (Dolkart, 1993). This co-op is still alive and well today (Cooper-Levy, 1998). Other early successful affordable co-ops were developed by Lithuanian and Bohemian groups in New England and the Midwest (Leavitt, 1995).

While many unions sponsored affordable co-ops in the 1920s (Leavitt, 1995), the most well known were sponsored in New York City by the Amalgamated Clothing Workers Union (Siegler and Levy, 1986). This union had strong socialist influences, as well as experience with many self-help projects for working families, including credit unions and an early experiment in social security. Therefore, housing cooperatives were consistent with their other organizing efforts.

Given the general pressure for affordable housing, the influence of the union movement, and the sympathy of professional urban planners, Governor Al Smith pushed for the passage of the New York State Limited Dividend Housing Companies Act of 1927 (Leavitt, 1995). This act supported the development of all types of affordable housing, and was the first relatively large-scale government program available for affordable housing cooperatives. Thirteen cooperatives were built under this Act in New York City, many under the leadership of Abraham Kazan of the Amalgamated Clothing Workers Union.

In 1928, a liberal planning group sponsored an affordable co-op, and offered units to the general public. After difficulty in filling these units, they concluded that with a diverse population their co-op could not achieve the solidarity necessary for success. They proposed that the best chances for co-ops existed among a homogeneous fraternal or racial group (Leavitt, 1995).

This historical experience brings forth the first policy question relevant for today. Policy Question 1: Should membership in a specific co-op be diverse racially and in other ways?

Racial diversity within each project is a goal of many contemporary co-op organizers. For example, Allan Heshkin, a professor at University of California, Los Angles, and a cooperative organizer in Southern California, tells the story of the substantial efforts put into sustaining diversity in a Los Angles co-op (Heshkin, 1995). However, minor issues, like whose turn it is to take out the garbage, put significant strain on the cooperative spirit, even when co-op members have a common racial, ethnic, or cultural background. In Boston, for example, a long-term resident-controlled project which houses three distinct racial/ethnic groups has experienced almost constant conflict (Hexter, 1998). On the other hand, Cooper and Rodman mention successful contemporary homogeneous co-ops in Toronto, Canada, organized for Chilean and Russian-Jewish emitters (1992). The author believes that for co-ops a "rainbow coalition" of racial/ethnic diversity among homogeneous individual co-ops may be a better way to celebrate dive rsity than by a "melting pot."

III

The Great Depression and World War II: Development of New Affordable Cooperatives at a Stand Still

DURING THE GREAT DEPRESSION, existing cooperatives struggled to stay alive. More than 75 percent of the real estate-promoted co-ops in New York City and Chicago went bankrupt, but the affordable co-ops generally survived the Depression (International Labor Office, 1964). Crucial to the survival of the affordable co-ops were: 1) wider market appeal of affordable co-ops, which made temporary rental of vacant units practical; 2) more conservative fiscal practices in the affordable co-ops, which included provisions for accumulation of substantial reserves; and 3) the strong cooperative spirit found in these co-ops (International Labor Office, 1964: 116).

With the boost in union membership between 1935 and 1937, the labor movement became more involved in the fight for affordable housing. This, and the nation-wide pressure from the housing crisis resulting from the Depression, caused Congress to pass the United States Housing Act of 1937. In spite of the success of the union and ethnic co-ops, activists failed to get cooperatives included in the federal government's new affordable housing legislation enacted during the Depression and World War II.

There was a broad-based struggle for the principle of housing as a basic need, but the objective of federal housing policy, as finally enacted, was restricted to providing temporary rental housing for the working poor (Radford, 1996). There are several explanations for this. 1) Many congressmen accepted public housing as only temporary relief for working families that had hit hard times, therefore they saw no need for the federal government to assist low- or moderate-income families gain equity in their own homes (Leavitt, 1995). 2) Real estate interests advocated to the general public that owning a single-family home is a sign of being in the middle class. American acceptance of individualism, and the desire of immigrant groups to be part of the middle class, helped the public to accept ownership of a single family home as a symbol of "having made it" (Leavitt, 1995). 3) Given that some politicians associated affordable co-ops with unions and leftist groups, they may have seen co-ops as politically unaccept able.

In the years immediately following the passage of the 1937 Housing Act, real estate interests and advocates of free market policies fought public housing, and were almost successful in repealing the bill (Leavitt, 1995). The housing needs of World War II defense plant workers saved public housing during the War, However, Senator Lanham (D. Texas) led initiatives for public housing to be sold to private investors at the end of the War, and in 1942, he succeeded in enacting such an amendment to the 1940 Housing Act.

After the War, homelessness among veterans, combined with the general housing shortage, prevented the extensive sale of federal public housing on the private market. Instead, by 1945, a disposition policy was developed amending the 1940 Housing Act, ensuring that those public housing projects not converted to low-income housing, would first be sold to veterans, then to residents, and, lastly, to private realtors (Bailey, 1988). Some of these sales would involve conversion to co-ops. Lessons from this period include the importance of conservative fiscal practices and of the co-op spirit for the survival of specific co-ops, and the difficulty of housing advocates obtaining federal support for a national multi-family affordable housing policy, in spite of its broad-based coalition support.

IV

The Early Post World War II Housing Cooperative Tradition in New York City

ALTHOUGH AFFORDABLE HOUSING COOPERATIVES WERE VIRTUALLY EXCLUDED from the early post-World War II federal housing legislation, trade unions in New York City sponsored affordable cooperatives (Siegler and Levy, 1986). In 1951, under the leadership of Abraham Kazan, these groups formed the United Housing Foundation (UHF). This formation spurred enough activity that by 1965 the UHF and its predecessors had created 23 cooperative housing projects in New York City, ranging in size from 124 to 5,860 units. In 1965, with the support of the mayor of New York City and the Governor, UHF started construction of Co-op City which eventually contained 15,382 units (UHF, 1970). [4] A total of approximately 40,000 units were built in New York by the UHF and by similar programs (Table 1). While the UHF still exists, it has not directly developed any co-ops since the early 1970s.

Activists also succeeded in getting the 1955 New York State Limited Profit Corporations Law passed. This law, popularly known as the "Mitchell-Lama Act," encouraged the development of moderate-income housing through property tax exemptions and through low-interest loans (financed by state revenue bonds) to developers who agreed to restrict their dividends (Sullivan, 1971). As shown in Table 1, about 60,000 units of affordable cooperative housing were organized under this statute, mostly in the 1950s and 1960s.

A lesson from this New York experience is that while strong regional organizations were able to obtain state government sponsorship of multi-family housing for moderate-income families, advocates of subsidized housing were unsuccessful at this on the national level. Again in the 1980s, a housing movement based in the local community development corporations succeeded in obtaining some state and local government funding at a time of federal cutbacks for affordable housing.

Experience with Mitchell-Lama housing brings forth the second policy question relevant for today's affordable cooperative movement. Policy Question 2: Should mature affordable co-ops be allowed to convert to market-rate co-ops or to condominiums? Under the Mitchell-Lama Act, the value of a membership share is limited for 20 years to its initial purchase value, plus the unit's proportion of the paid off part of the co-op's mortgage (Garst, 1996). After the 20-year limit there has been strong pressure from some members of these cooperatives to convert their units to market-rate cooperatives or condominiums. Because of the shifts in the national real estate market and gentrification (the movement of the middle class into well-located urban neighborhoods previously occupied by the poor), current market value of one of these co-op units can be twenty times greater than its restricted share value.

Opponents of this "privatization" argue that residents should not receive capital gains on government subsidized projects, and that after privatization the buildings are no longer available as affordable housing. They also believe that privatization kills the cooperative principles under which these buildings operate by replacing them with individualism and private ownership. Proponents of privatization argue that many co-op occupants have been residents for many years, and that they have taken good care of their buildings. They argue, therefore, that these residents, as individuals, are justified in receiving economic benefits for their efforts. [5]

V

1945-1990s: Direct Federal Funding of Housing Cooperatives

THE SUCCESSES AND FAILURES OF THE HOUSING COOPERATIVE MOVEMENT in securing direct federal funding from 1945 through the 1990s mirrored those of the affordable housing movement in general. Direct federal financing of affordable co-ops occurred in four phases, which are summarized here and are discussed in more detail in the following sections. [6]

The first phase, the post-war adjustment period of 1945 through the 1950s, can be characterized as one of limited direct funding for affordable housing, and privatization of some previous, federally sponsored affordable housing. Consequently, the cooperative movement generally did not obtain federal funding during this period.

The second phase, in the 1960s, occurred during the peak of the liberal policies, symbolized by the Kennedy-Johnson "War on Poverty." During this period, extensive direct federal funding was secured for cooperatives for low-income households, but not for moderate-income ones.

The third phase, in the 1970s, occurred during Nixon's presidency and the early questioning of the War on Poverty. Direct federal funding of new low-income cooperatives was phased out by 1981.

The fourth phase started with the Reagan administration and continues to the present. In the 1980s, as in the 1950s, we find privatization of some of the federally sponsored multi-family housing. However, some of these privatization projects resulted in conversions to affordable co-ops.

From 1945 through the 1970s, direct federal funding was responsible for virtually the only construction of affordable cooperatives in the United States, except for the affordable cooperative development in New York City discussed in Section IV above. Direct federal funding is responsible for about 50 percent of the current units of affordable cooperatives (see Table 1). Such cooperatives exist in more than 29 states.

A. 1945-1950s: Defeat of a General Federal Co-op Program, Early Conversions to Co-ops, and Guarantees of Market Rate Mortgages for Co-ops

During the early post-World War II period, there was a struggle among progressives, liberals and conservatives to define national policy. Some policies supported by progressives and liberals were enacted. For example, in 1946, Congress passed both the National Employment Act, committing the federal government to achieving the goal of full employment, and in 1949, the National Housing Act, committing the federal government to achieving the goal of "a decent home and a suitable environment" for every family.

By the 1950s, however, private market solutions to our nation's policy problems became more dominant. Progressives in and out of the union movement were restricted by actions like the passage of the Taft-Hartley Act and the McCarthy hearings. Also, the middle class, buoyed by a growing economy, eagerly bought single-family houses to reinforce their new identity. Federal housing, tax, and transportation policy strongly fostered the suburban dream. This suburbanization facilitated the decline of urban neighborhoods, and the extended-family systems and ethnic self-help groups in these neighborhoods. Suburbanization also facilitated the growth of the nuclear family and the further individualization of American society. In short, these trends and policies created an inhospitable environment for federal funding of affordable multi-family housing in general, and affordable housing cooperatives in particular.

The height of efforts toward a comprehensive federal policy supporting affordable cooperatives centered on the proposed inclusion of a separate Cooperative Housing Administration in the 1949 Housing Act. It would have been equivalent to the Federal Housing Administration (FHA) within the Housing and Home Finance Agency (HHFA). The latter is the predecessor to the present-day Department of Housing and Urban Development (HUD) (Leavitt, 1995). Some housing reformers reasoned that cooperatives would serve the growing group of families who could not afford housing in the private market, but were ineligible for public housing (Bailey, 1988). The introduction of subsidized cooperatives into federal housing legislation was supported by labor groups, religious and social welfare organizations, consumer groups, and veterans groups, including the Veterans of Foreign Wars and the American Legion. While these efforts undoubtedly helped passage of the low-income housing parts of the bill, lobbying for co-ops was unsuccess ful. White House support ebbed, and Raymond Foley, head of the Housing and Home Finance Agency pushed for private sector housing for "middle" income families (Leavitt, 1995).

In contrast, in the Scandinavian countries, and in France and Germany, a substantial volume of cooperative housing for moderate-income families was built during this period. In all of these countries the existence of strong labor parties was a factor in these policies. In Sweden, Denmark, and Germany, the existence of a strong housing cooperative movement between the two world wars also played a role (International Labor Organization, 1964). The biggest success for the housing cooperative movement was in Sweden where, by the 1980s, 15 percent of all housing units were cooperatives (Berger and Turner, 1991).

Nevertheless, affordable cooperatives were not totally excluded from federal funding in the United States. After World War II, some federal "war housing" was privatized into cooperatives for lower-income families, In addition, in 1950, Section 213 was added to the 1949 Housing Act, allowing FHA market interest-rate loan guarantees for new construction of housing cooperatives. In 1959 these guarantees were extended to cover converting existing projects to cooperatives. During the 1950s and 1960s, Section 213 provided some financing for moderate-income cooperatives nationwide (Willcox, 1995).

In the 1960s, the federal government's Douglas Commission found a high rate of defaults and difficulties with the Section 213 cooperatives developed by realtor speculators. This finding led to a major revamping of Section 213 in order to protect the cooperative members (Leavitt, 1995). The push for these reforms came mostly from the cooperators themselves. In New York City, for example, they organized the Federation of Section 213 Cooperatives to respond to these problems, and it remains a self-help association to this day.

This historical experience introduces policy question #3: Should affordable co-ops be sponsored by for-profit realtors, nonprofits, or members?

The above discussion of Section 213 cooperatives serves as a case study for the potential problems with for-profit realtor-sponsored affordable cooperatives.

Nonprofit-sponsored (frequently called consumer-sponsored) co-ops had enjoyed a better success record than the Section 213 for profit realtor sponsored co-ops. Consumer-sponsored cooperatives are developed by nonprofit organizations that contract private builders, supervise the contractor, and organize and train the cooperative members. The primary example of the success of consumer sponsored cooperatives is the Foundation for Cooperative Housing Services (FCHS), which was organized in 1951 by a group of housing reformers committed to cooperatives. Between 1953 and 1969, FCHS used financing from local public housing authorities, private sources, and Section 213 guarantees to convert 10,388 existing living units to co-ops (Willcox, 1995). These projects contained long-term affordability provisions in their corporate by-laws and received ongoing technical assistance from FCHS. Consequently, cooperatives sponsored by FCHS during this period have had less serious long-term financial problems. [7]

The third way to develop a cooperative is by member-sponsorship, through which the future member-occupants have substantial control over the co-op's design, development, and organization. At no time during the early post-World War II period were member-sponsored cooperatives funded by federal legislation (Leavitt, 1995).

Some contemporary cooperative advocates recommend member sponsored cooperatives as a means to empower residents (Leavitt and Saegert, 1990; and Heshkin, 1991). This helped shape most of the present federal administrative regulations for privatization of public housing requiring membership sponsorship as the only means for residents to control their project.

This author believes that residents of existing buildings that are being converted should have a basic role in the process. Co-op development, however, is too complex a process for unseasoned non-professionals. The legal, architectural, financial, and management skills required simply are not readily available among low- and moderate-income households, When membership-sponsored cooperatives are successful, each group needs to relearn the fundamentals of co-op development. Also, because federal deadlines get passed as a result of this time-consuming process, many of the choice properties end up being sold by the government to private realtor-speculators.

Historical experience indicates that consumer-sponsored cooperatives have the most successful record. They should be given consideration as a contemporary option for the conversion of federally controlled property.

B. 1960s-1970s: HUD Below Market Interest Rate (BMIR) Loan Programs [8]

In the 1960s, the strength of the Civil Rights Movement, the idealism among the young encouraged by their reaction against the Vietnam War, and the increasing problems in our central cities all worked together to create pressure for reforms. The resultant "War on Poverty" meant that the federal government began providing more low-income housing. This increased involvement brought with it a shift from the direct construction of public housing, used from the 1930s to the 1950s, to publicly assisted housing. With publicly assisted housing, the federal government insured private sector loans, provided below-market interest rates, and/or provided other subsides for private groups to build and operate low-income housing. This approach became the mechanism of choice for the explosion of housing programs in the 1960s (Listokin, 1991; Angora Group, 1992). David Krooth, a prominent federal attorney active in the New Deal housing programs, played an important role in the inclusion of cooperatives in these BMIR loan prog rams (Willcox, 1995).

The principal federally assisted housing programs were the Section 221(d)(3) BMIR loan program, which Congress passed in 1961, and Section 236 loans, its 1968 successor. Congress made these BMIR loans available to private developers (who were willing to limit the income they earned on their investments), to nonprofit developers (who frequently were created by local public housing authorities), and to cooperatives for low-income families. These BMIR mortgages could cover up to 100 percent of construction or rehabilitation costs, and for cooperatives, loans were for forty years. The combined effect of all of these provisions was equivalent to a subsidy of approximately 30 percent of project cost (author's estimate).

In order to keep these federally assisted cooperatives available as affordable housing, there are income limits on new members, strong restrictions on increases in share value, and substantial penalties for prepayment of mortgages so that the housing remains under federal affordability regulations for the full term of its HUD-insured mortgage. Members elect a resident board, which sets co-op rules and which contracts with a property manager. In contrast, residents of federally assisted rental properties by definition do not own their properties, and thus only rarely have any real control over them. Basically, these restrictions remain in place for the length of the mortgage, ordinarily 40 years. While 642 of these federal BMIR mortgages were granted to co-ops in 29 states, 48 percent of them were granted in Michigan and Indiana (Calhoun and Walker, 1994). [9]

Historically, most funders pressure affordable housing developers for a rapid increase in number of units. However, fostering the institutional capacity for quality development, and providing appropriate services to new co-ops also are important. The importance of this is illustrated by the Foundation for Housing Cooperative Services (FCHS). From 1960 through the 1970s, FCHS sponsored more than two-thirds of the 59,000 BMIR co-op units (Willcox, 1992, and Table 1). However, after its initial success in the 1950s and 1960s, FCHS tore itself apart with internal conflicts in the early 1970s. One faction pushed for a rapid expansion of FCHS-sponsored co-ops. Another faction urged that this expansion should not move beyond the capacity of experienced staff to responsibly support it (Institute for Community Economics, 1996). After a spurt of expansion in the early 1970s, FCHS experienced problems with these recent co-ops. Then in the mid 1970s, the organization atrophied due to its internal problems and the drying up of federal funds available for co-ops (Willcox interview, 1995).

This historical experience introduces policy question 4: What is the appropriate balance between the quantity of affordable housing constructed and the quality of the total development process?

Many funders and legislators rate developers according to their ability to produce many units in a short period of time. However, quality development takes careful planning and good experience. Also, cooperatives go beyond the development of just buildings--they involve organizing new human institutions that emphasize the residents. This requires patience and follow-up, which unfortunately is compromised in efforts to just produce more units. Research indicates that involving residents in cooperatives results in safer, more efficient, and more satisfying multifamily affordable housing (Sazama and Willcox, 1998).

C. 1970s-1980s: HUD Section 8 Rent Supplements

With the arrival of the Nixon administration we see the early questioning of the liberal programs of the 1960s. Congress passed the National Housing Act of 1974 and subsequent legislation, which introduced sweeping changes in federal affordable housing policy. First, for the construction of affordable housing, there was a shift away from the BMIR and direct subsidy programs toward the provision of Section 8 rent supplements. These rent supplements pay a landlord the difference between the HUD-determined average private market rent for a metropolitan area, and 30 percent of a household's income. By the late 1990s, the vast majority of HUD funds for affordable housing are in the form of this demand side policy, that is, in the form of Section 8 rent supplements. Some of the Section 8 certificates are tied to a specific building (called project-based), but most are portable with the tenant. Households use their portable certificates to rent housing in the private market.

Supporters of the supplements argue that supplements paid to private landlords avoid the inefficiencies of publicly supplied housing. Real estate interests support Section 8 portable certificates because they provide an injection of federal funds at high HUD determined rent levels into the private market for rental property.

In addition to the introduction of Section 8 supplements, the National Housing Act of 1974 and other legislation enacted around that time: 1) repealed the BMIR programs to fund new housing (discussed in the previous section); 2) capped rising flat-fee monthly rents in federally-subsidized projects at 25 percent, and later at 30 percent, of household income; 3) increased operating subsidies to existing public housing, but as part of converting this housing into housing for the very poor; and, 4) shifted urban renewal efforts to state and local governments via block-grant programs (Listokin, 1991).

The demise of the BMIR programs was a major blow to the development of new subsidized cooperatives. However, many of the co-ops already in the pipeline in 1974, as well as some new co-ops, were built with project-based Section 8 funds. This financing remained available until 1981, and funded about 25,000 dwelling units in affordable co-ops (Table 1). Also, because low-income households could use their portable Section 8 certificates to rent previously constructed federally assisted housing, and because of the project-based Section 8 funds, all types of Section 8 funds became important for most existing, federally assisted housing. [10] (See, for example, the data in Table 2 on LECs in California as of 1991.) There has been pressure for HUD to convert all Section 8 project-based funds into portable certificates. This would cause a financial shock to projects relying on these funds, and such projects located in distressed neighborhoods would have trouble surviving.

Net rent in publicly assisted housing, including Section 8 supplements, was capped at 30 percent of household income. This was enacted to insure that federally assisted housing remained affordable to low-income families. However, this policy has a negative secondary effect on these subsidized families because it eliminates the economic incentive to keep their project's operating costs low. [11] Rent is 30 percent of income regardless of whether a household is careful or careless. In contrast, in all of the cooperatives units not receiving Section 8 funds, members have paid flat-fee monthly charges to cover the unsubsidized portion of these costs. With flat fee charges residents directly experience and control the economic and social consequences of their individual and joint activities. [12]

This historical experience introduces policy question # 5: Should rents and monthly housing charges be collected as flat fees or a percent household income?

Essentially this becomes a question of how to best balance the equity and efficiency goals for rent payment in affordable housing. One solution would be to provide the project or cooperative subsidies in the form of a block grant, in order to maintain the housing as affordable. The remaining costs of the project would be paid by the residents as flat fee rent or housing charges. These charges could vary according to several income categories within a specific project, but the total subsidy given to the project is fixed. This would restore economic incentives to the residents, because by efficient group behavior, they could lower their monthly fixed fees. The Canadian government cooperative program has been successful with such a policy for their monthly charges (Cooper and Rodman, 1992).

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.

The low-income housing tax credit, enacted in the 1986 tax code, is an important source of funding for "Third Sector" housing. [16] This tax expenditure involves large tax breaks for corporate and high-income investors (Stegman, 1992). It is the current major source of federal government funds available for increasing the supply of affordable housing. However, cooperatives are not directly eligible for tax credit funds because these funds are restricted to rental properties, and co-ops are resident owned. [17] Cooperative groups have been organizing to amend the legislation so that they are eligible for these funds. Some co-ops receive tax credit funds as "lease-hold" cooperatives. A "lease-hold" co-op leases its building from the tax credit subsidized owners, but many co-op advocates question this lease-hold arrangement because it places another layer of restrictions in the way of direct residents control (Willcox, 1994).

As a result of pressure from the housing market of the 1980s, and from housing activists, some states and large cities have appropriated their own funds to compensate for some of the decrease in federal funds for affordable housing. As part of this process, coalitions of nonprofit organizations worked in conjunction with their state departments of housing to develop state government limited equity cooperative programs. In 1979, California became the first state to pass a statute for the formal chartering of a limited equity cooperative (Angora Group, 1992). The District of Columbia and approximately 11 other states, mostly in the Northeast and the Midwest, have since passed similar legislation (Willcox, 1994). [18] The creativity and innovation of the affordable housing program in Burlington, Vermont, have made it a model "Third Sector" program for the development of LECs. This program has done some of the early work in scattered site small co-ops, and has developed good technical support for its co-ops (Dav is, 1993: Chapter 6).

In addition to federal, state, and local government funds, some private sector funds also are available for affordable housing. Through the federal Community Reinvestment Investment Act, affordable housing advocates continue to put pressure on private banks to fund affordable housing. The National Cooperative Bank, a federally charted cooperative enterprise founded in 1978, increasingly funds affordable cooperatives. Fannie Mae, the federally charted enterprise to develop the secondary market for housing mortgages, also is working to increase the availability of funds for affordable housing, including cooperatives. Finally, with the renewed activism in the union movement, some unions are paying attention to affordable housing. The AFL-CIO, for example, now has a Housing Investment Trust, which tries to funnel the investment of union pension funds into affordable housing.

These private sources, however, charge market rates of interest, which means increased operating costs for the project, and therefore less availability to low-income families, although there still is substantial demand for affordable housing by moderate-income households. [19]

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.

Policy Question 8: Are "Third Sector" cooperatives too small?

While affordable co-ops funded under the federal direct programs of the 1960s and 1970s generally range from 50 to 300 units, with an average size of about 100 units (for example, see Table 2), "Third Sector" co-ops range in size from 3 or 4 to 150 units, and are usually in the 5 to 40 unit range. There are significant diseconomies of scale in the development of these small projects. Smaller co-ops also have difficulty absorbing the financial shock of a few vacant units and difficulty in developing leadership from within the co-op itself (Cooper-Levy, interviews, 1996). Advocates for smaller co-ops argue that they allow for more resident control, self-help, and opportunities for residents to learn. Given current limited funding and nonprofit staff size, small projects seem to be the best alternative.

VII

Conversion of Properties to Co-ops in New York City and Washington, D.C.

NEW YORK CITY AND WASHINGTON, D.C., have had extensive co-op conversion programs. These resulted from organizational successes of building residents and community activists. In the 1970s, New York City became the owner of thousands of occupied buildings taken from private landlords who failed to pay their real estate taxes (Task Force, 1993). Finding themselves with an undesired inventory of properties, city officials tried to sell as many of these buildings as possible to private owners. Many of the buildings, however, had strong tenant organizations that pre-dated the City's foreclosure. These tenant groups, working with community organizers, proposed that residents have the ability to buy the buildings themselves as limited equity cooperatives. Approximately 20,000 living units in these buildings have been converted to LECs (Reicher, interviews, 1994 and 1996). [22]

By 1993, funds for initial capital expenditures and training and follow-up were scarce while fees charged by the City were increasing. About 20 percent of the 1,000 properties converted to LECs (formerly owned by New York City) were experiencing some financial difficulty. Another 43 were close to bankruptcy. Due to a new voluntary association of the LECs, and the improved economy, most of these co-ops were doing somewhat better in 1996 (Task Force, 1993: 65-73; and Reicher, interviews, 1994 and 1996).

In Washington, D.C., the crucial factor in the conversion of about 4,000 units in multi-family buildings to affordable co-ops is a District law which specifies that residents have the first right of refusal if an owner wishes to convert his or her property to an alternate use. This law came about as a response to the substantial displacement of moderate- and low-income families resulting from gentrification and the conversion of buildings into condominiums that started in the 1970s. A strong tenant's movement and the District's pride in "home rule" helped to pass the law. Similar laws exist in Tacoma Park, Maryland, and Berkeley, California, but these cities have experienced much fewer co-op conversions than has Washington, D.C..

A group of nonprofit organizations in Washington, D.C. help moderate- and low-income renters exercise their first right of refusal. Residents buy their building and convert the units into co-ops. Washington, D.C's city government financed these conversions with loans generated mostly from its federal Community Development Block Grant assistance. The city requires that LECs maintain long-term affordability to qualify for these loans (interviews of Eden, 1994; Waxman, 1996; and Cooper-Levy, 1996).

The successes of the "Third Sector" housing movement in general, and in New York City, Washington, D.C., New England, and California specifically, show the importance of a strong grass-roots affordable housing movement. When federal funds were initially cut back, organizations in these areas were particularly effective in getting state and local governments, as well as private funders, to come forward with their own affordable housing programs. Now in the late 1990s, the federal government is further reducing its efforts to supply affordable housing, and most state government departments of housing are also reducing their support, particularly for low-income families. As a consequence, local nonprofits have found the availability of funds for affordable housing, both rental and co-ops, substantially reduced. In this restricted environment, nonprofits are learning that development of single-family and low-density affordable housing is the new "in way" to get funding. In spite of these current funding reductio ns for the direct supply of subsidized/affordable housing, an extensive network of local nonprofits still exists, and they remain important institutionalized advocates for such housing.

VIII

Associations of Housing Cooperatives and Secondary Cooperatives

As THE GENERAL AFFORDABLE HOUSING MOVEMENT has formed support organizations such as the National Low-income Housing Coalition, housing cooperatives have formed national, regional, and local support associations. These organizations for cooperatives serve both as mutual self-help organizations, and as lobbyists for legislation favorable to housing cooperatives.

The most important national group is the National Association of Housing Cooperatives (NAHC), formed in 1950 under the leadership of people from the Foundation for Cooperative Housing, the United Housing Foundation, the Cooperative League of the USA, the AFL/CIO, Nationwide Insurance (a co-op) and other groups. The NAHC and affiliated regional associations are primarily service organizations for member co-ops built in the 1950s through the 1970s.

The "Third Sector" co-ops of the 1980s and 1990s are generally isolated from one another, or occasionally served by regional groups in a few parts of the country. [23] However, the Institute for Community Economics (ICE), based in Springfield, Massachusetts, does provide a nationwide network for local groups interested in land trusts to preserve urban and rural land, and some of these land trusts sponsor affordable cooperatives (ICE, 1995). The Center for Cooperatives at the University of California at Davis provides studies that are helpful for housing co-ops of all vintages.

The above groups are voluntary associations, therefore they do not have the right to intervene with troubled cooperatives. In contrast, the Vermont Cooperative Housing Federation, as a secondary co-operative (a co-op of cooperatives), has the legal right to intervene in the affairs of member co-ops. Community organizers employed by the City of Burlington found that many of their small co-ops required frequent technical assistance (Colburn, interview, 1992). Private financial institutions were also more willing to participate in financing LECs if assured that some formal oversight of the individual LECs existed. Given this experience, and a dialogue with the Toronto, Canada, co-op movement, a secondary co-op was formed. As a secondary co-op, the Federation develops new co-ops, and intervenes in the internal affairs of a member LEC, if that LEC is having substantial financial or interpersonal problems. To assure resident control, a majority of the Federation's board must be resident-members of member co-ops.

This historical experience introduces policy question 9: How can technical assistance be provided more effectively for existing affordable cooperatives and for the development of new affordable cooperatives?

Most residents of affordable cooperatives do not have the professional skills or experience to run their co-ops completely on their own, and frequently need outside technical assistance. The National Association of Housing Cooperatives, the Institute for Community Economics, and some of the regional associations and local nonprofits provide some technical assistance for the development of housing cooperatives, but in the contemporary affordable housing environment their resources are limited, Their effectiveness also is restrained by the limitations on voluntary membership organizations discussed above. On the other hand, the Vermont model of a secondary co-op is very effective for resolving these problems. Member co-ops pay sufficient dues, and the federation has successfully intervened in the affairs of troubled member co-ops.

Finally, the National Cooperative Bank in Washington, D.C., and the Institute for Community Economics based in Springfield, Massachusetts, provide some technical assistance for the development of co-ops, but again funding is limited.

IX

Summary and Conclusions

THIS BRIEF HISTORY of the affordable cooperative housing movement in the United States is a case study of an alternative affordable housing movement. The affordable cooperative housing movement started with the pooling of funds by ethnic groups, and with the availability of financing from union pension funds in the 1920s and then again in the 1950s. With the weakening of these institutions in the 1960s through the 1980s, cooperatives had to rely on public subsidy programs as the major source of funds. Affordable housing advocates did succeed in obtaining federal funding for low-income, but not for moderate-income housing during the "War on Poverty" of the 1960s. By the 1980s, however, the emphasis on private market solutions to our nation's affordable housing problems resulted in the virtual end of federal direct funding for the supply of all low-income housing, including co-ops. In the 1980s, local nonprofits used grass roots organizing and ad hoc packages of funding to sustain the development of the next ge neration of affordable housing cooperatives. In the 1990s, funds for nonprofit housing from state and local governments, as well as from federal community block grants, are being cut. As a result, the pace of the development for all affordable housing including cooperatives has been reduced to its lowest level since the 1950s.

The following conclusions resulted from our examination of policy questions introduced by this historical experience:

1. Because cooperative boards need to resolve many problems directly effecting peoples' living space, a "rainbow coalition" of racial/ethnic diversity among homogeneous individual co-ops may be a better way to celebrate diversity than by a "melting pot" within each individual co-op.

2. Many cooperative advocates recommend that permanent affordability restrictions be placed on the sale of equity shares in all housing that was federally assisted.

3. Cooperatives developed by nonprofit sponsors (consumer sponsored) have a more successful record than cooperatives developed by realtor speculators or member-sponsored groups. Unfortunately, consumer sponsorship is not easy to do under current federal administrative procedures.

4. The pressure to produce more units of affordable housing frequently conflicts with the need for more human capital investment in the residents themselves. The cooperative experience is a way to develop simultaneously affordable housing and this human capital.

5. The present federal policy of capping rent in assisted affordable housing at 30 percent of household income eliminates resident economic incentives to reduce project-operating costs. A structure of flat fees for residents combined with sufficient block subsidies to the project can balance efficiency and equity goals.

6. Because cooperatives require training and follow-up technical assistance for residents, they are more difficult to develop than rental properties. But cooperatives have lower operating costs and a better social environment than rental properties.

7. Decentralized development of affordable housing provides broad-based learning experiences and support for affordable housing, but it currently lacks the financial resources that flowed from the more centralized federal housing programs.

8. Development of small cooperatives, and small projects in general, results in diseconomies of scale in development costs and in problems of management and the provision of technical assistance after project completion.

9. Volunteer membership cooperative associations do not have the resources to provide, or authority to require, the ongoing technical assistance required by most affordable housing cooperatives. Also, they do not have the resources necessary to provide the technical assistance needed for the formation of new cooperatives. The formation of secondary cooperatives could help to solve these problems.

In conclusion, this examination of the history of affordable housing cooperatives indicates that they are a viable way to meet part of our nation's affordable housing needs. Housing cooperative residents control their housing, and when their cooperatives are structured properly, residents experience the consequences of their actions. Therefore, housing cooperatives are an answer to the calls of many politicians for a reduction in the passivity of welfare dependency that is linked to criticism of subsidized rental housing. Also, with the current emphasis on private market solutions, as in the 1950s, co-ops can be an answer to the pressure to convert government owned housing to private ownership.

Affordable housing cooperatives exist throughout the country because of the federally assisted cooperatives of the 1960s and 1970s, combined with the "Third Sector" housing movement of the 1980s and 1990s. These historical accomplishments provide part of the theoretical and organizational base, which could reinvigorate the affordable housing cooperative movement, and the affordable housing movement as a whole.

(*.) Gerald Sazama is an Associate Professor of Economics at the University of Connecticut at Storrs. He has published articles on affordable housing cooperatives and the economics of education. Professor Sazama wishes to thank Roger Willcox for the rich information on housing cooperatives he has shared over the years and for his comments on a previous draft of this paper. He also wishes to thank Ernie Eden, Herbert Levy and Nancy McDowell for their information and helpful suggestions.

Notes

(1.) In addition to the 376,000 dwelling units in affordable housing cooperatives, there are approximately 625,000 dwelling units in market-rate cooperatives (NAHC, 1995). With a market- rate co-op the value of membership shares is proportionate to the market value of the co-op's property. Middle- and upper-income families primarily occupy market-rate co-ops.

(2.) Moderate-income can be defined as household income from 100 to 80 percent of area median income, and low-income as below 80 percent of area median income.

(3.) The Rochdale principles are the founding principles of the first cooperative, organized in England in 1844. These principles, as restated in 1995 by the International Cooperative Alliance, are: 1) voluntary and open membership; 2) democratic member control; 3) member economic participation; 4) autonomy and independence; 5) education, training, and information; 6) cooperation among cooperatives; and 7) concern for community (Welty, 1996).

(4.) Co-op City, unfortunately, has experienced substantial difficulties. It is a testimony to the problems of grandiose size for a single housing cooperative, and of removing cooperative development and administration from a grass-roots base.

(5.) For more information on the issues surrounding privatization see a paper by Sazama and Willcox (forthcoming).

(6.) For general histories of federal low-income housing policies see work by Meehan (1979), Listokin (1991), and HUD (1995).

(7.) For more on the success of consumer sponsored cooperatives see an article by Willcox (1995). This approach is not without its own problems. For example, in the late 1960s, FCH was embroiled in an internal struggle of how rapidly to expand. Cooperatives that were sponsored after FCH changed management and rapidly increased rate of sponsorship were not as successful as previously sponsored cooperatives. Also, consumer sponsored cooperatives need to put the cooperative concept first by engaging in sufficient resident training and technical assistance, otherwise the co-op can easily degenerate into a de facto rental unit.

(8.) Much of the material in this section relies on information from Roger Willcox contained in a memo to me on August 11, 1993, and from The Angora Group (1992).

(9.) Besides Sections 221(d)(3), and 236, two other federal below market interest rate mortgage insurance programs are available to affordable cooperatives. They are the Section 202 program for residents over 62 or disabled, and several Farmers Home Administration programs. When the Section 202 program was passed in 1959, it was a BMIR direct-loan program. In 1991, it was changed into a direct grant program. About 10,000 dwelling units of affordable co-ops have been built under the Section 202 programs, many of these in the 1990s. There are several Farmers Home Administration programs for affordable rural housing cooperatives. They have financed about 5,000 dwelling units (Angora Group, 1992; Battelle Group, 1981a and b; and Table 1).

(10.) The proportion of Section 8 project based co-ops in California is higher than in the nation as a whole.

(11.) For evaluations of the economic consequences of cooperative housing see articles by Miceli, et. al. (1994) and Sazama and Willcox (forthcoming).

(12.) Because of the initial project subsidies, inflation and the growth in market rents, co-op monthly carrying charges are far lower than market rents for equivalent units.

(13.) Sources of funding for "Third Sector" housing include: a) Moneys from federal community block grants to state and local governments; b) State and local governments using their tax dollars and revenue bonds; c) Loans from a few far sighted private financial institutions, but more commonly from financial institutions pressured to invest back into their communities by community groups working with the federal Community Reinvestment Act; d) Private funds invested to obtain tax savings via the Low-Income Housing Tax Credit; e) A more active policy by the federal agencies responsible for developing secondary markets for mortgages on properties that are available to low-income families (Fannie Mae and Freddie Mac); and f) Explicitly for cooperatives, the federally chartered National Cooperative Bank. For a discussion of these sources of funding, and of local nonprofits, see research by the Angora Group (1992), Rasey (1993), Walker (1993), and HUD (1995).

(14.) Recently, there has been an initiative to rename such housing as PARCC housing, that is privately owned housing that is "permanently affordable, resident or community controlled" (Institute for Community Economics, 1995).

(15.) For a discussion of the various institutional forms available to local groups for their provision of affordable housing see chapter 3 of the Davis book (1993) and an article by Willcox (1994).

(16.) The 1986 tax reform closed significant loopholes for investing in real estate. However, housing advocates argued that these loopholes were also an important stimulus to private sector investment in low-income rental housing. Therefore, Congress passed a special tax credit to stimulate such private investment. State governments using federal guidelines regulate these tax credit funds. For a summary and critical evaluation of the Low-Income Housing Tax Credit see an article by Michael Stegman (1992).

(17.) In order to bypass the restriction against co-ops under the low-income housing tax credit program, several hundred co-ops have been recently built that lease their property from another corporation which owns it, and receives the benefits of the tax credits (Willcox, 1994). "Leasing" co-ops are not popular with many co-op advocates because the lease introduces yet another barrier to full resident control. For a further description of leasing co-ops see work by the Angora Group (1992) and Willcox (1994).

(18.) The eleven state departments of housing that have been especially active in funding LECs are: Massachusetts, Vermont, Connecticut, New Jersey, Ohio, Michigan, Wisconsin, Minnesota Illinois, South Dakota, and California (NAHC, 1991, and authors contacts with various state departments of housing).

(19.) Rates of homeownership in 1992 remained below 1982 levels for all age cohorts below 54 years (Gabriel, 1996).

(20.) The rough estimate of 300,000 units of affordable housing produced by local nonprofit organizations is made by the author on the basis of some annual data presented in Rasey (1993).

(21.) Parallel to the development of LEC ownership of multi-family buildings is the formation of cooperative mobile home parks, usually by conversions, and mutual housing associations as additional sources of resident managed housing (Willcox, 1994). In cooperative mobile home parks, individual families own their mobile homes, but the land is owned cooperatively, and the park is managed cooperatively. Cooperative mobile home parks prevent the land from being sold out from under the residents by landowners wishing to sell the land for shopping centers or lots for higher income housing. In recent years there has been substantial development of the cooperative manufactured home parks. Currently, there are about 140 such parks, of which 60 are in Florida, 40 in California, 20 in the Southwest, and the balance in the Northeast (Levy, 1996).

Mutual housing associations (MHAs) of the German type have been encouraged by a federally chartered public enterprise called the Neighborhood Reinvestment Corporation (NRC). While there are no equity shares in these MHAs, similar to co-ops they have strong resident rights and tenant security. Between 1980 and 1991, 1,400 MHA units have been constructed in a total of 9 municipalities throughout the country (NRC, 1991). Since 1991, the Neighborhood Reinvestment Corporation has extended its activities to provide general assistance to local nonprofits. As of November 22, 1995, it had provided some form of assistance for 133,000 dwelling units in 330 municipalities (NRC, interview, 1996).

(22.) The Urban Homestead Assistance Board (UHAB), a community non-profit organized in 1973, became an important source of technical assistance for tenant groups in New York City who wished to convert their buildings to LECs. A grass roots organization, UHAB has contributed to the development of a very creative set of institutional rules for the economic functioning of LECs. Special features of these rules include: 1) monthly carrying charges are fixed by project costs, rather than as a percentage of resident income; 2) residents neither have to leave the building, nor are otherwise penalized, if they become "over-income"; 3) there are low rates of increase in share values; 4) there are few restrictions on the board of directors, which is composed of resident LEC members; and 6) there are long-term restrictions on property resale.

(23.) Some examples of independent state-wide LEC associations are: the Association of Resident Controlled Housing (ARCH) in the Boston area, the California Association of Housing Cooperatives, and the Connecticut Cooperative Council.

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