In the last handful of years Pittsburgh City Council has taken up a series of new ways to preserve and create affordable housing: from a pilot to allow more buildings on less land to expanding mandatory inclusionary zoning.
Now two city councilors want to explore an old idea too: housing cooperatives. It’s an approach that allows a resident to make a payment up front for protection against high monthly housing costs in the future.
When people become members of a limited-equity cooperative, they don’t own the real estate. Instead, they own a share in the housing cooperative corporation that holds the deed. The share gives them the right to live in a designated unit for as long as they make subsequent payments.
The cost of a share can be as low as $1,000 or $2,000 for some buildings — closer to an apartment security deposit than to the downpayment on a typical mortgage. And the monthly costs that follow are also typically much lower than mortgage or rent payments.
Pittsburgh once boasted a wealth of co-ops – it was hailed as a leader in the approach after World War II – though only a few still exist. Now City Council President Theresa Kail-Smith and Councilor Deb Gross are eager to see how limited-equity cooperatives could help create long-term stability, Gross said.
“People who are trying to not pay all their money in rent, want to be [owners], but need a lower barrier to entry,” she said.
Pittsburgh residents, she said, are under increasing pressure whether they buy or rent.
According to real estate aggregator RedFin, the median sales price for a single-family home is $240,000 – an increase of nearly 5% in just the last year. Not everything is that expensive, but “The low-cost housing stock is falling apart,” Gross said, which could mean repair or renovation costs that put it out of reach. “Or it’s housing stock that you just cannot afford, especially as a first-time home buyer.”
And the hot housing market often means increased prices for renters or the loss of a home when a landlord decides to sell. Instead of seeing that sale made to a developer or an institutional buyer, Gross said she would love to see renters convert three- or four-unit buildings into limited-equity cooperatives.
“It removes that housing from the risk of being bought by these deep-pocketed, Wall Street-fueled private equity groups,” she said, acknowledging that it’s unclear what role such firms are playing in driving costs for the city’s housing market.
Pittsburgh is not alone in considering such options, said Amanda Huron, an associate professor at the University of the District of Columbia who has studied limited equity co-ops. She said there’s a growing awareness that the country is in a “massive housing crisis … that’s not going away.”
“Cities are looking for creative solutions and really trying to think about, ‘How do we give working people, tenants, control over decisions around where they’re able to live?’”
Huron, who herself lived in a coop and served on its board, said the approach may not be suitable for the three- or four-unit buildings that Gross envisions converting.
“There’s a certain amount of work that goes into creating any co-op and so you’re going to get less bang for your buck if you’re creating an eight-unit co-op versus a 40-unit,” she said. “It’s hard.” And in fact, she said, while there are roughly 100 limited-equity cooperatives in Washington, D.C., “These co-ops could not exist without pretty significant financial assistance from the city,” both to purchase as well as rehabilitate the building.
Without that help, a cooperative can be dragged down by the upfront cost of converting the building: “You’re setting them up to fail,” Huron said.
The co-op movement in D.C. has been helped by a law that says that when a landlord puts a building up for sale, the people who live there get first dibs on buying it. But that law is rare, and cooperatives are not a panacea. For one thing, they do little to build wealth. If a co-op member chooses to leave, the share the member purchased can be sold – but there are usually limits on the price that can be asked. That helps assure that the housing remains affordable for future owners, but it also means tenants aren’t building a nest egg as homeowners do when they pay off a mortgage.
Still, the member typically recoups the share and accrued interest, and Huron said research shows members tend to have an easier time building savings: the co-op model provides both a lower cost of living and a predictable cost over time. Another exciting possibility is to organize a co-op over scattered sites in a given neighborhood, Huron said. However, wherever a co-op is organized, she said cities would ideally provide a central point of contact to answer questions and provide support to members.
Pittsburgh City Council members are expected to discuss limited-equity cooperatives at a meeting Wednesday. And by the end of August, Gross and Kail-Smith have also asked the Department of City Planning to prepare a report on the city’s existing co-operatives, and any potential regulatory hurdles to address.
