Housing Co-op Equity Models

There are a few different ways to categorize housing coops, which generally relate to how they deal with their ownership structure and who they are intended to serve.  This article is intended to give a quick overview of some of the more common models of housing coop equity, and explain a bit about how they differ from one another.

There are student-specific coops, which are near to campuses and house a community related to higher education.  There are coops for families or single parents.  Some coops are explicitly for retirees.  A housing coop can be set up to serve any population, but most of the coops that NASCO has worked with over time tend to either be student-focused coops, or “community coops”, which is a catch-all term for coops which tend to have a younger membership, but are not specifically intended for students.  Many “community coops” serve a post-graduate population who have not settled into a career yet, with some residents choosing to intentionally remain in a cooperative community into adulthood, and some still in school, but looking for a non-campus-life housing environment.

The different ways of dealing with ownership structure are usually related to how the equity in a house is treated, since this, for most housing coops, is by far the most financially valuable asset of the coop.  In a “Market Equity” coop, a member joins the coop, buys a share, and lives in a unit.  This is similar to something like a condo complex, but instead of owning one condo, you own a share in the whole complex.  When you decide to leave the coop, you can sell your share at whatever the market will pay for it.  The coop sets policies which affect all members, and the cost for each member to live in the coop depends mainly on when they bought a share, and at what price, as they would have a fairly traditional mortgage on their share of the coop in their own name.  This type of coop is normally dealt with by the National Association of Housing Coops.
In a “Limited Equity” coop, the coop and the member each have a stake in the equity of the property.  When a member joins, they purchase a share in the coop in order to move in, just like in a Market Equity coop.  As the value of the share changes, though, there is a relationship between the coop and the member for ho this change in value is divided.  One example might be that 25% of the change in the value goes to the member, and 75% goes to the coop.  The idea behind this is that by diverting some of the value to the coop, housing prices can be kept affordable by the coop, which has access to some of the equity in the building.  A second major reason for the split of the value is to give members in the coop less of a financial incentive to sell with the market, so that a spike in housing values does not cause a wave of sales, followed by much higher costs to live in the coop.  Limited Equity coops are often used to provide affordable housing, while allowing members to build some wealth with the increase in the value of the property.  While NASCO has worked with a few Limited Equity coops, the National Association of Housing Coops has dealt with Limited Equity coops in more detail.
Most of the groups that NASCO and NDS work with use the “Group Equity” coop model, where the assets of the coop are owned by the group as a whole.  In a group equity coop, members either pay a deposit to move in, as one would in a rental apartment, or else they pay a “share”, but in these cases the price of the share is roughly the same as a deposit on a similar space, as opposed to the actual cost of, say, 10% of the value of the coop.  In either case, when the member moves out, they typically do not profit from their time in the coop, but get their deposit or share returned minus any charges made to this money.  This means that the cost to get into a Group Equity coop is generally much lower than the cost of other types of coop.
 The Group Equity model came out of the student cooperatives, but has been adopted by non-student coops in recent years because of the low cost to get into the coop.  Group Equity cooperatives tend to be better than other types of housing coops at making sure that the coop stays affordable for future members - and that the coop perpetually operates as a cooperative.  The reason for this is that as the coop develops assets, those assets go to the coop, not returned to the members as cash.  Because the coop is able to hold onto this value as it grows, a Group Equity coop is better able to fund its own growth, and build an economy of scale quickly.  It is also able to resist the need to raise rents, because of the financial stability in the coop.  
 While Group Equity coops have been very successful in specific markets, such as in university towns, they still represent a tiny fraction of the total coop population, and the non-student group equity coops are a tiny fraction of that fraction.  In total, Group Equity coops make up about a tenth of 1% of the housing coops in the US.  
 Originally, the Group Equity model came out of student coops because at the time, students were one of the few groups in society not concerned with building equity through the purchase of property.  For similar reasons, many Senior Retirement Cooperatives used this same model, because the members were at a stage in their life when they were not concerned about personally profiting from the value of their housing.  As the housing market changes, more young people are looking at alternatives to the traditional path of buying a first home while young.  A Group Equity coop allows people to live affordably while giving them the flexibility that people increasingly want from their housing.  
Keep in mind that all coops are different —and take everything you see, hear, read, and experience with a grain of salt. Knowing which aspects of other housing cooperatives make sense to the group is useful during the process of creating a set of share goals and system of operations.  Members can learn about housing cooperatives via fellow organizers, road trips, and educational conferences. There may be a coop alumni in the group, who can provide valuable information but should not be relied upon as the only source of knowledge. Group road trips to other housing cooperatives are fun and provide an opportunity for members to get to know each other better. Most coops, in the spirit of the movement, are quite willing to host guests overnight, but plans should be made in advance. Road trips provide a organizers with flavor for what others have done. The annual NASCO Institute and regional conferences organized by local cooperatives are unique opportunities to meet cooperators, discuss strategies, learn about new ideas, and energize the group.