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Policy Priorities:
Policy Opportunities
Additional Opportunities
More Strategies
Local Policy Opportunities
State Policy Opportunities
Financing
Use Temporary Assistance to Needy Family (TANF) funds for housing. Regulations published in 2000 (expiring in 2002), make TANF funds available for co-op purchase. TANF can provide both a down payment and a modest subsidy to low-income families. States can also use TANF money for housing preservation, including assistance to troubled LEHCs. The Philadelphia Housing Authority is proposing to spend surplus TANF money on rehabs, with an emphasis on LEHCs. TANF money can also be used to create loan funds for co-ops [or for individual cooperators].
Advocate co-op eligibility for Low-income Housing Tax Credit (LIHTC). The main finance mechanism for affordable housing development currently is the Low-Income Housing Tax Credit. This program does not permit tenant ownership, rather it requires outside investor partnerships, with the general partner being the nonprofit housing developer, and the limited partners consisting of investors who reap tax advantages over the course of 15 years. Buildings are owned by the partnership and then leased to the co-op association, sometimes with an option to buy after the 15 years are up.
Creating and maintaining a LIHTC requires a high level of technical expertise. However, it does not permit true ownership. The partners are often hesitant to yield control to co-op lessors and this can create a significant barrier to good co-op development.
Require conversion to co-ops of rental buildings financed through the LIHTC. LIHTC tax credits only last for 15 years, and have limited long-term effect on the stock of affordable housing. A better approach might be to condition the tax credits on the eventual conversion of developments to limited equity co-ops at the conclusion of the program. Such a policy would produce less displacement at the expiration of the tax credit, and residents could gain valuable experience in self-governance years before the conversion takes place. In too many cases, limited agreements are less than effective, or even ignored.
Urge HUD to vigorously implement the 203n program. Legislation for the 203n FHA co-op share loan-financing program has long been on the books, but HUD has failed to implement the program in any meaningful way. Market acceptance of cooperative ownership would be greatly increased by an active 203n program for unsubsidized co-ops.
Advocate greater funding for Section 8 Project-Based Rental Assistance. These subsidies could be used to create lower buy-in costs to LEHCs.
Restore project-based access to Section 8 homeownership funds. In the past, Section 8 funding was available to projects and to individuals. Today, only individuals can take advantage to these substantial subsidies. Because Section 8 certificates are portable, when a family moves, the home price goes up to market rate unless another family qualifying for Section 8 is found. Having to find immediately another qualifying family complicates the waiting list process and is counter productive. More problematic, this type of structure does not really permit a neighborhood stabilization strategy. Before about 10 years ago, there was more project-based Section 8. Now that it is virtually all portable, it ends up helping the families but not the homes and neighborhoods in which they live, in the long run.
Urge states to provide mortgage credit certificates. State funds can be used for LIHTC or for mortgage credit certificates, allowing homeowners, a credit on their federal income taxes without itemization. Some states have given tax breaks to developers. They should be encouraged to also support lower-income families and individuals.
Urge the White House and Congress to make grants available for closing costs for first-time co-op buyers. Current proposals call for $1,500 grants for closing costs on new single-family houses. These grants would be most helpful to co-op purchasers, and should be made available for down payments as well.
Homeownership Tax Credit. The Bush Administration is proposing a tax incentive program for construction of new homes for low-income families. The initial language includes co-op development. Throughout the legislative process, advocates must work to protect the co-op inclusive language.
Property tax exemption or deduction for limited equity co-ops. New Jersey has a statewide real estate tax reduction for limited equity co-ops. While cities could enact similar measures, state programs could produce greater benefits. State intervention is preferable.
Increase per unit mortgage limits under Section 213 of the National Housing Act. The last across- the-board increase in FHA multifamily programs was 1992. The National Association of Housing Cooperatives, the Mortgage Bankers Association, and the Cooperative Housing Coalition propose a 23% increase in the Section 213 per unit mortgage limits. It is important to note that 213 requires no congressional appropriation and no credit subsidy because of its unique status as a separate mutual fund.
Authorize VA guaranteed co-op share loans. The Department of Veterans Affairs lacks statutory authority to guarantee "no money down" VA loans for veterans wanting to buy a share in a co-op. Veterans deserve access to such a program. Although past attempts have failed to correct this, advocates should continue to pressure Congress for this change.
Secure the use of housing counseling funds for co-ops . Legislation (HR.1776 and S.1452) passed in the House in 2000 to explicitly permit housing counseling funds to be used to assist co-op purchasers, and because of the special role of co-ops in home maintenance, to allow use of counseling funds for training co-op boards of directors.
Urge Appropriation of funds for training FHA and VA staff. Underwriting co-op loans and appraising co-op buildings involve specialized knowledge that can be easily transferred with training.
Promote Homestead exemptions for co-ops. A certain portion of the property you own is exempt from taxation and from bankruptcy. This is usually the first $15,000 worth of value.
Encourage banks to provide secondary mortgages for LEHCs . These "Soft seconds." are designed in such a way that if the co-op member sells shares on the market prior to a certain time, you then have to pay the city back. The loan (principal and interest) is forgiven if the co-op member remains.
Develop community land trusts to go beneath LEHCs. A land trust approach brings down the cost of new affordable housing developments and provides more long-term benefits than government financing allows.
Encourage credit unions to provide more loans to co-ops.
Other Funding Initiatives
Currently, foundations and housing groups look to homeownership as an important solution to wealth-building in low-income families. Research shows that nearly 100% of family wealth is home equity. A range of initiatives exists to promote homeownership, led by several key national foundations. Not all of these foundations consider LEHCs a form of homeownership, viewing the limited equity aspect as preventing asset accumulation. In reality, LEHC owners do get some equity; they also get extra cash each month due to savings; and they would not have other opportunities for homeownership based on their income. UHAB and other nonprofit groups around the country are leading educational efforts with national philanthropy.
The Co-op Housing Coalition, NAHC and NCBA all have subcommittees set up to try to get a Federal program that explicitly promotes co-ops.
The enormous diversity of local
land use and finance law is beyond the scope of this website. However, there
are several universal policy principles that should be considered in regard
to limited equity housing cooperatives.. State enabling legislation, where
it exists, is key to encouraging additional limited equity housing cooperatives.
Local laws should be structured to complement this legislation. Care must
be taken to prevent local legislation that runs counter to the fundamental
tenets of LEHCs. One example of a detrimental local policy would be a provision
that allows co-ops to sell vacant units on the market to families with up
to 165% of the median area income.
At the local level, community organizations can play a key role in by combing
cooperative housing with other strategies, such as community land trusts.
The ability to combine strategies depends both on the prevailing local conditions
as well as the capacity of the organizations involved to maintain multiple
strategies.
Policy opportunities will vary by state. Various types of legislation, highlighted elsewhere in the tool, can create conditions that encourage the development of cooperative housing. There are additional regulatory and financing policy options that can improve these conditions.
In New York, there is intensive regulation on co-ops of all kinds because there are so many of them. Regulations require disclosure since they sell stock. This is an important consumer protection: it also challenges the co-op development process. Various types of tenant-sponsored co-ops have been able to exempt themselves from this disclosure through a "no-action letter." Legal services groups have continuously negotiated with the Attorney General to get different types of LEHCs exempt. Such disclosure requirements actually can make or break the efforts to become a co-op. Up to 800 pages of documentation is required and legal and financial experts are necessary. One building was asked for two years of financial statements as part of the process. The tenants had purchased the building recently, and did not have any financial history (the building was owned by the city) and that means they would need to wait 2 years before becoming a co-op if they cannot get an exemption.
Some states, including California, Hawaii and Nevada, have laws that are favorable to co-op mortgages. And while there are no specific programs in New York State that promote co-ops, the housing trust fund and other housing finance tools all allow co-ops. Elsewhere, limited familiarity with the co-op model often inhibits finance opportunitiesThus, advocates must undertake vigorous public education campaigns.Other states, including California, Hawaii and Nevada have co-op laws that provide encouraging conditions for co-op finance.
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