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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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).