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

American Journal of Economics and Sociology, The,  Oct, 2000  by Gerald W. Sazama

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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.