There is room for innovation in cooperative housing

I’ve explored homeownership through a co-op as an alternative to the 30-year mortgage, a financial vehicle that I believe is far from ideal for many individuals and families trying to create wealth through homeownership. At the time of this publication, I have not yet found any examples of publicly funded housing cooperatives. Typically, housing cooperatives are formed in existing buildings; I haven’t found many examples of large-scale new housing development, particularly single-family, townhouse, or other multi-family typologies. The question is how can individuals and families borrow money at a reasonable rate and use cumulative monthly housing payments with others to ultimately own the real estate and building in which they live ?

It is worth looking at different concepts to capitalize on a cooperative housing project.

Neighborhood Real Estate Investment Trust

In 2012, I suggested the concept of a neighborhood real estate investment trust as a response to concerns about “gentrification.” Instead of complaining about outsiders buying a building, what if the community sold shares to raise money to buy the building, using crowdfunding to buy a building directly or creating a company to finance the purchase? I based this idea on the concept of a Real Estate Investment Trust, a mechanism by which individuals can purchase shares of real estate and earn dividends from funds from operations (FFO) and appreciation. When a property purchased in this manner makes a profit and increases in value, the stock price increases and shareholders may receive a cash benefit.

Direct public offering

A direct public offering (DPO) differs from an initial public offering (IPO) because a DPO issues shares without the use of a bank or intermediary. The issuer of a DPO sets conditions such as the offering price, minimum investment, the number of shares an investor can purchase, the duration of the investment, and the stock purchase period. However, there are still many rules, and I have not yet found an example of issuing shares to capitalize a housing project via a DPO.

Real estate investment cooperatives

The New York Real Estate Cooperative (NYREIC) is an example of a REIC. Here’s a short video explaining how it works.

This model works exactly as I described how a neighborhood real estate investment trust might work. But although the group was approved by New York State to “raise funds and provide long-term financing for affordable, community-controlled spaces for cooperative businesses, art, culture and organization”, it does not appear to have financed anything. acquisitions. And there is no mention of housing in their goals.

Community Capital Fund

Many organizations call themselves “community capital funds.” Typically, these groups operate as local or regional foundations, supporting philanthropic contributions or even low-interest loans to small-scale entrepreneurial projects. These funds are often community development financial institutions.
FISI
(CDFI) or are supported by a CDFI. The CDFI Fund is a federal fund that “serves mission-driven financial institutions that take a market-based approach to supporting economically disadvantaged communities.” I have not found a CDFI that makes loans or supports the purchase of real estate. And there are many community charities like Ujima in Boston that raise money and support local small businesses, but don’t fund housing.

Room for innovation: pooling community capital for housing

There are many housing cooperatives and a myriad of other community interests. And many of these cooperatives are crowdfunded or raise capital in smaller increments, allowing for varying levels of participation and oversight by community investors. The desire and instinct to end the banking system to finance small businesses is old: read Thomas Park’s excellent explanation (you’ll need to connect to LinkedIn) on the Korean-American Gae system, a mechanism driven by community that distributes risks and rewards among others. community members rather than the banking system. And buying a house with a friend continues to trend on Google. But I need to find an effort to expand real community development for cooperative housing.

This is promising for cooperative housing. But to avoid the banking system and generate enough capital to buy land and build housing, the government will have to intervene either through land donations, direct financing, low-interest financing, or by all three. I’ll come back to this in later articles, but the key elements here are capital and risk. Borrowing and lending is essential to maintaining a growing economy and generating wealth. The problem is how to support wealth creation among the poor who are inherently a risk group. As I said last year,

“Lending is risky, both personally and institutionally. There is another common principle: “If you can afford to borrow, you don’t need to.” ” That is, if you have enough money to be less risky to a lender, you probably won’t need or want to borrow, while poor people who need to borrow money because they don’t have a lot of money, they run more risks.

We need to reallocate the billions we already spend on housing across the board and reallocate them to offset the problem of risk among people who have less money. We have been subsidizing the banks and the housing shortage with 30 year mortgages for quite a long time.