Housing cooperatives have become nearly synonymous with affordable multi-unit housing in certain circles over the last few decades. However, the question remains, do housing cooperatives actually decommodify housing? And a related question do they always result in more affordable units than market-rate housing? The answer to this question is… it depends. In general, housing cooperatives are more affordable than market-rate housing by 20 to 30 percent, except in NYC where high-end apartment co-ops abound. Whether or not it is affordable for those of low and moderate income depends on whether or not the co-op is a market-rate stock co-op (the most popular type in NYC and California), a limited equity housing co-op (LEHC), or a zero-equity co-op (ZEC) stewarded by a community land trust (CLT).

The original and most widespread housing co-op in the U.S. is the stock cooperative (SC) or stock corporation (as it was originally called), where each individual owner pays a monthly fee (like rent paid by a tenant) and controls a share in equity of the entire housing stock. Under the SC model, a tenant-owner or shareholder has the ability to exercise certain decision-making powers over the future membership and development of the community. The cooperative holds the title to all the housing units, land, and common areas, rather than its individual members, and then leases individual units to its shareholders. The cooperative is managed by a board of directors, who, according to their articles of incorporation and bylaws, makes the following types of decisions: the criteria for membership in the housing cooperative; approval of all new membership; the parameters of each shareholder/ tenant-owner or tenant (where the shareholder has rented the premises) entitlements of use, exclusion, and transfer. The board also holds other responsibilities (voluntary or mandatory) such as budgeting and establishing maintenance fees, maintaining common areas and amenities, and resolving disputes among shareholders and/or tenants.

While the SC looks and acts like a co-op, whether or not it is committed to affordability depends on whether it has adopted resale restrictions in its bylaws or by some other means. Most stock co-ops in places like NYC act just like market-rate condos, and their owners are able to sell them at full market-rate. This has led, for example, in places like NYC, to “elite co-op havens,” which are luxury communities rather than mission-oriented co-ops. Some of these “co-ops” have been cited for civil rights violations dues to their discriminatory practices in retaining a certain “high profile” character to their co-op.

On the other hand, LEHCs and ZECs, are markedly different from a SC, in that the purpose of the LEHC and ZEC is to create affordable housing primarily for those of low to moderate income. ZECs, are similar to LEHCs in that their primary purpose is to create affordable collective housing however using a rental model. ZECs unlike SCs and LEHCs are effectively rental housing where the CLT effectively acts as a non-profit landlord. Sometimes ZECs are seen as a transition to LEHCs taken on when tenants feel ready to take on more responsibility in terms of decision-making, maintenance and finances.

The LEHC, while never defined in federal law, was defined for the first time in the U.S. in California state law in 1979 in Civil Code Section 817. It was later amended in the California Business and Professions Code to be exempt from the laws on stock cooperative so long as they were:

1) incorporated as a non-profit entity,

2) did not offer more than 10 percent of the development cost in the form of membership shares, and

3) the appreciation of share values cannot exceed 10 percent per year.

Unlike with CLTs, the LEHC has no requirement to serve those exclusively in low to moderate income. However, LEHCs that exist on CLT-owned land, particularly in California, have additional affordability requirements imposed by the CLT. These are put in place so that LEHCs comply with 501(c)3 safe harbor requirements, which mandate that 75 percent of the units serve those of low to moderate income (those earning less than 80 percent of the area’s median income (AMI)). In order to keep initial share-rates affordable, CLTs developed the practice of further limiting 10 percent of the development cost cap to less than $10,000 for each individual’s total shares. In most cases, this is less than 50 percent of what state law allows. Furthermore, CLTs implemented the practice of pegging the annual share dividend to an index like the Consumer Price index or the AMI.

These caps on equity in an LEHC both for the amount of equity buy-in, as well as appreciation, keep the model affordable for those of low and moderate income. Although both LEHCs and SCs have co-op in their name, we see they have nothing to do with one another except for some basic aspects of their legal structure with regard to decision-making. The determination of whether or not a co-op can decommodify housing has to do with whether or not these co-ops restrict transfer at market rate and cap equity.