This excerpt is from Beautiful Solutions: A Toolbox for Liberation, edited by Elandria Williams, Rachel Plattus, Eli Feghali, and Nathan Schneider. Copyright 2024 by OR Books. All rights reserved. Reprinted here with permission (CC-BY-NC 4.0).

With a 100-unit limited equity housing cooperative, you don’t own your apartment. You own 1/100 of all the apartments.

                        David J. Thompson, Twin Pines Cooperative Foundation

There is an accessible alternative to a lifetime of high rent payments to landlords: limited-equity housing cooperatives (LEHCs).

A limited-equity housing cooperative is a form of shared housing in which many individuals or families jointly purchase housing, often a multi-unit home. Instead of owning a particular unit within it, each party owns a share of the property as a whole, which expands access to home ownership for lower-income people.

In many countries, home ownership is a time-tested path to financial security. But today, rental costs in urban centers across the globe continue to rise at a rate faster than income, making it nearly impossible to save enough for a down payment on a house. Expensive down payments and the skyrocketing cost of urban real estate have pushed home ownership further out of reach for many on low to moderate incomes. Communities need a model which serves the housing needs of these income groups over time. There is an accessible alternative to a lifetime of high rent payments to landlords: limited-equity housing cooperatives (LEHCs).

Buying housing as a group presents many advantages. The most obvious is that buying a share in a housing cooperative costs less than buying an individual unit. Members of a housing cooperative have joint control over the governance of common areas like green spaces and playgrounds, and in the US, owners of a share in a co-op are entitled to the same tax deductions as homeowners.

Limited equity allows co-op residents to reap the benefits of home ownership, while also keeping housing affordable for generations to come.

Housing co-ops have a board of directors composed of member-residents which is responsible for overseeing the management of the property and planning for future renovations, much like a homeowner association.

A limited-equity co-op is one in which the resale value of shares is limited. This means that if someone decides to leave the co-op and sell their share, they will receive the purchase price plus interest which is capped at a certain amount. Limiting equity helps to keep homeownership accessible to low- to moderate-income families by protecting share prices from the speculative market. Most members end up paying the equivalent of 5 to 10 percent of the unit’s total cost for their initial share as opposed to the 20 percent down payment generally required to get a mortgage.

Not all housing co-ops impose restrictions on resale value. In fact, most co-op housing units are sold at the market rate. Some only restrict resale value until the first mortgage is paid off, which normally takes 30 to 40 years. Limited equity allows co-op residents to reap the benefits of home ownership, while also keeping housing affordable for generations to come. Many limited-equity co-ops have income restrictions, where membership is restricted to lower-income applicants to prevent wealthier buyers from crowding others out. Laws and regulations supporting LEHCs vary from state to state and country to country.

In effect, the resident board members are overseeing a sizable ongoing business and stewarding a multimillion-dollar asset.

In the 1960s and ’70s, LEHCs experienced explosive popularity in major US cities like New York, Washington, DC, and San Francisco, thanks to a broad range of financing options including low interest rates and affordable loans for prospective builders of new co-ops. However, after their first mortgages were paid off, many LEHCs transitioned to market-rate cooperative housing. The number of accessible, limited-equity co-ops in the United States has dwindled. Yet the model still shows its promise. In 2005, a building slated for demolition in the Chinatown district of San Francisco became the center of a long, difficult fight for a limited-equity housing opportunity. The San Francisco Community Land Trust, Asian Law Caucus, and Chinatown Community Development Center teamed up to buy the building and transform it into a cooperative. The tenants were able to avoid eviction and are now owner-residents of their limited-equity co-op.

Establishing a LEHC entails a lot of heavy upfront costs and efforts such as buying land, funding new construction, and navigating housing code and laws. The journey from idea to occupancy is normally about five years, which can deter those who might benefit the most from being part of a co-op. To make matters worse, traditional banks often refuse to finance blanket mortgages to groups of lower-income people because they perceive them to be high-risk borrowers.

In the United States, when the size of a LEHC is above 20 units, it usually requires a professional management company. In larger co-ops, the board members need training in governance, financial planning, management oversight, and conflict resolution. In effect, the resident board members are overseeing a sizable ongoing business and stewarding a multimillion-dollar asset. The turnover of board members means that the latter need continuous training to ensure their capacity keeps up with the organizational and corporate needs of the cooperative.

The limited-equity model is most common in the United States, but housing cooperatives with many different structures and models have developed and proven viable all over the world. Furthermore, this idea of established institutions creating housing opportunities can be seen in several other countries such as the Philippines, India, Turkey, Egypt, and Singapore. In Italy, housing cooperatives are managed by four national groups. Social housing cooperatives throughout the country provide accessible homes for the elderly and for people with disabilities. Over 200,000 people in the Emilia Romagna region of Italy live in housing cooperatives.

In some places in Scandinavia, 15 to 20 percent of all homes exist in some form of housing co-op. Two national organizations in Sweden, HSB (founded by consumer co-operatives) and Riksbyggen (founded by the construction trade union movement) leveraged their access to land and assets to become the two main developers of the nation’s co-ops. Prior to 1991, national and local government policies enabled the development of municipal or limited-equity housing cooperatives in Sweden through the provision of land at below market price and loans below market interest rates. By having prospective members fund capital accounts, HSB and Riksbyggen raised the capital to provide their members with access to affordable housing. With their resources, these national organizations set up housing units and then transferred management responsibilities to the cooperative. In Sweden, applicant members of HSB must fund a deposit account with the organization to be in line for a new co-op apartment. The funds of these 120,000 non-housed members are a key supplier of funds for HSB to build new cooperative apartments.

In Uruguay, Federación Uruguaya de Cooperativas de Vivienda por Ayuda Mutua (FUCVAM) [the Uruguay Federation of Housing Cooperatives for Mutual Aid] brings together over 500 mutual aid housing cooperatives comprising more than 25,000 families across the country. Their model is built on five core principles: solidarity, democratic participation, self-management, mutual-aid, and collective ownership (i.e., limited equity). Founded in 1970 to unite and build the power of the housing cooperative movement, FUCVAM has shaped housing policy across Latin America, supported the formation of housing federations, and, most importantly, provided access to housing for hundreds of thousands of people across the continent.

With the support of funding entities and government policy, LEHCs could bring the dream of permanently affordable home ownership to many more people. Co-ops like these also transform the dream itself from one of individual ownership, to co-owned and co-managed communities.