Lessons from the History of Affordable Housing Cooperatives in the United States: A Case Study in American Affordable Housing Policy

Sazama, Gerald W., The American Journal of Economics and Sociology

GERALD W. SAZAMA [*]

ABSTRACT. Understanding the history of the affordable housing cooperatives in the United States helps us understand the general history of American affordable housing policy. This paper contains a decade-by-decade summary of the history of affordable cooperatives. The affordable cooperative movement has evolved from ethnic and union groups which developed self-help cooperatives in the 1920s, through the federal funding of low-income cooperatives in the 1960s and 70s, to local nonprofit organizations using ad hoc packages of funds to organize cooperatives during the 1980s and 90s. As this history unfolds, it provides answers to contemporary policy questions affecting both cooperatives and affordable housing in general.

I

Introduction

THE HISTORY OF THE AFFORDABLE HOUSING COOPERATIVE MOVEMENT in the United States is part of the history of the struggles of working people and the poor for decent housing. Understanding this history helps us to understand the general affordable housing movement, and to develop contemporary policies for both cooperatives and the affordable housing movement as a whole.

Circumstances and methods of the affordable housing cooperative movement vary decade by decade, but the objective of this movement is constant: to obtain for low- and moderate-income families decent housing, at an affordable price, with effective resident control. This movement started with ethnic and union groups developing self-help cooperatives in the twenties. It evolved into federal funding of low-income cooperatives in the sixties and seventies, and then into local nonprofit organizations using ad hoc packages of funds to organize affordable cooperatives during the eighties and nineties. The successes of these historical struggles have resulted in about 376,000 dwelling units in affordable housing cooperatives in the United States. [1] This number equals 17 percent of the total number of rent-reduction housing units owned by the nation's public housing authorities (HUD and Census Bureau, 1995; and Table 1).

The history of affordable housing cooperatives is relevant for today's affordable housing movement because, in a world that is increasingly market driven, cooperative housing provides contemporary housing advocates with an alternative that reinforces joint ownership of property (Hays, 1993). Also, affordable housing cooperatives empower low- and moderate-income families, since under the cooperative structure they own and control their own housing (Birchall, 1988; Cooper and Rodman, 1992; and Heskin and Leavitt, 1995). Finally, affordable cooperatives are contrary to the traditional welfare mentality prevalent in so much of subsidized rental housing because with co-ops, residents not only take responsibility for their actions, but they experience the direct consequences of these actions on the cost and quality of their housing (Miceli, Sazama, and Sirmans, 1994 and 1998).

As this history unfolds, it highlights policy questions relevant for contemporary affordable housing policy. Nine policy questions are examined, each at the end of the historical period when the question first became important. Some examples include: Should housing advocates support a federal or a decentralized housing policy? Should rents and monthly housing charges be collected as flat fees or as a percentage of household income? Should affordable housing be developed as co-ops or rental properties? Should emphasis be placed on providing more housing units, as opposed to the development of resident skills to control their own housing?

The following definitions will be used in this paper: A housing cooperative is a cooperative where member-residents jointly own their building. Ideally, member-residents democratically control the cooperative, and receive the social and economic benefits from living in and owning the cooperative. An affordable housing cooperative is available to moderate-, or low-income families. [2] This "affordability" ordinarily results from private or public subsidy or other government action. Limited equity cooperatives (LECs) are affordable cooperatives that have affordability restrictions on the resale of initial membership shares. Affordability restrictions limit the resale of co-op shares to moderate or low-income households, and/or restrict increases in the resale value of these shares.

In the national debate on assuring the availability of affordable housing, many alternative polices have been offered. Some argue that decent affordable housing is best provided by the private market, or by private charitable and civic organizations. Most, however, argue for some form of government intervention. One form of intervention concerns the debate over government regulation of the private market via rent control, zoning, building codes, and the Community Reinvestment Act. A second form of intervention is via tax policy. For example, some argue that a land tax would reduce the cost of urban housing, and thereby increase the availability of affordable housing. Also, there are tax expenditures which subsidize housing via the deduction of property taxes and interest on home loans, accelerated deprecation of investment in rental housing, the federal low-income housing tax credit, and local property tax abatement. A third option is supply side policies, which directly increase the availability of affordab le housing via capital grants, subsidized operating cost, low interest loans, and loan guarantees. Finally, demand side policies subsidize eligible families to rent housing in the private market.

This paper will concentrate on civic organizations, supply side, and tax expenditure policies, because virtually all of the existing affordable housing cooperatives were funded under such programs. To tell the history of affordable cooperatives, the author uses a combination of original source materials, interviews, oral histories, and secondary sources.

II

1910s-1920s: Early Housing Cooperatives

THE EARLY HOUSING COOPERATIVES in the United States grew out of the global cooperative movement. The first cooperative was organized in 1844 in Rochdale, England, as a self-help consumer group of urban workers. The Rochdale Cooperative Principles emphasized democratic control of capital through the principle of one member one vote. [3] By the early twentieth century, working class organizations had sponsored housing cooperatives throughout Europe, but predominantly in Germany and the Scandinavian countries (International Labor Office, 1964). In the United States, however, housing cooperatives did not become well established until after World War I. Housing cooperatives then took two forms: exclusive apartment dwellings for high-income families, mostly developed by private real estate speculators; and cooperatives organized by ethnic-immigrant groups and/or unions to provide affordable housing for their members during the post-World War I housing crunch (Dolkart, 1993).

The first affordable housing cooperative organized in the United States under the Rochdale Principles was developed in Brooklyn, New York, in 1918 by a group of Finnish artisans, the Finnish Home Building Association (Dolkart, 1993). This co-op is still alive and well today (Cooper-Levy, 1998). Other early successful affordable co-ops were developed by Lithuanian and Bohemian groups in New England and the Midwest (Leavitt, 1995).

While many unions sponsored affordable co-ops in the 1920s (Leavitt, 1995), the most well known were sponsored in New York City by the Amalgamated Clothing Workers Union (Siegler and Levy, 1986). This union had strong socialist influences, as well as experience with many self-help projects for working families, including credit unions and an early experiment in social security. Therefore, housing cooperatives were consistent with their other organizing efforts.

Given the general pressure for affordable housing, the influence of the union movement, and the sympathy of professional urban planners, Governor Al Smith pushed for the passage of the New York State Limited Dividend Housing Companies Act of 1927 (Leavitt, 1995). This act supported the development of all types of affordable housing, and was the first relatively large-scale government program available for affordable housing cooperatives. Thirteen cooperatives were built under this Act in New York City, many under the leadership of Abraham Kazan of the Amalgamated Clothing Workers Union.

In 1928, a liberal planning group sponsored an affordable co-op, and offered units to the general public. After difficulty in filling these units, they concluded that with a diverse population their co-op could not achieve the solidarity necessary for success. They proposed that the best chances for co-ops existed among a homogeneous fraternal or racial group (Leavitt, 1995).

This historical experience brings forth the first policy question relevant for today. Policy Question 1: Should membership in a specific co-op be diverse racially and in other ways?

Racial diversity within each project is a goal of many contemporary co-op organizers. For example, Allan Heshkin, a professor at University of California, Los Angles, and a cooperative organizer in Southern California, tells the story of the substantial efforts put into sustaining diversity in a Los Angles co-op (Heshkin, 1995). However, minor issues, like whose turn it is to take out the garbage, put significant strain on the cooperative spirit, even when co-op members have a common racial, ethnic, or cultural background. In Boston, for example, a long-term resident-controlled project which houses three distinct racial/ethnic groups has experienced almost constant conflict (Hexter, 1998). On the other hand, Cooper and Rodman mention successful contemporary homogeneous co-ops in Toronto, Canada, organized for Chilean and Russian-Jewish emitters (1992). The author believes that for co-ops a "rainbow coalition" of racial/ethnic diversity among homogeneous individual co-ops may be a better way to celebrate dive rsity than by a "melting pot."

III

The Great Depression and World War II: Development of New Affordable Cooperatives at a Stand Still

DURING THE GREAT DEPRESSION, existing cooperatives struggled to stay alive. More than 75 percent of the real estate-promoted co-ops in New York City and Chicago went bankrupt, but the affordable co-ops generally survived the Depression (International Labor Office, 1964). Crucial to the survival of the affordable co-ops were: 1) wider market appeal of affordable co-ops, which made temporary rental of vacant units practical; 2) more conservative fiscal practices in the affordable co-ops, which included provisions for accumulation of substantial reserves; and 3) the strong cooperative spirit found in these co-ops (International Labor Office, 1964: 116).

With the boost in union membership between 1935 and 1937, the labor movement became more involved in the fight for affordable housing. This, and the nation-wide pressure from the housing crisis resulting from the Depression, caused Congress to pass the United States Housing Act of 1937. In spite of the success of the union and ethnic co-ops, activists failed to get cooperatives included in the federal government's new affordable housing legislation enacted during the Depression and World War II.

There was a broad-based struggle for the principle of housing as a basic need, but the objective of federal housing …

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Publication information: Article title: Lessons from the History of Affordable Housing Cooperatives in the United States: A Case Study in American Affordable Housing Policy. Contributors: Sazama, Gerald W. - Author. Journal title: The American Journal of Economics and Sociology. Volume: 59. Issue: 4 Publication date: October 2000. Page number: 573. © 1999 American Journal of Economics and Sociology, Inc. COPYRIGHT 2000 Gale Group.

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