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Cooperative housing thrives in DC

DC has a rich history of housing cooperatives, in which each resident owns a share of the entire property, not just their unit. While relatively unknown, there are at least 120 co-ops in DC, many of which are a great source of stable, affordable housing.


Residents of Kenyon Yes We Can Co-op. Photo from LEDC.

In a cooperative, each resident owns a share in the corporation that owns their property, entitling them to reside in a specific unit. The corporation has a board of directors and a management company, which maintains the property, screens new residents, and determines monthly fees or carrying charges.

Nationally, cooperative housing began in the late 1800s, but contemporary co-ops first appeared here in 1920. Banks would not finance the purchase of co-op units and condominiums did not yet exist, so early co-ops were a way for wealthy urban dwellers to own their homes and have control of their buildings. DC's earliest cooperatives were built along Connecticut Avenue, and the most famous example may be Watergate East, built in the 1960s.

Today, the creation of a co-op in DC usually takes a different path. Empowered by the Tenant Opportunity to Purchase Act, many residents of low and moderate incomes consider cooperative ownership when their apartment building goes up for sale.

The DC government supports some tenants who choose this route by committing public funds for the purchase and rehabilitation of these buildings to make them affordable to the current tenants. Previously, federal Community Development Block Grants were a major source of funding for co-op development; now, the most likely source is DC's locally-funded Housing Production Trust Fund.

The cooperatives created with public funds are limited equity co-ops, meaning that there are restrictions on the price and resale value of a membership share. This ensures that cooperative units remain affordable in the long term.

Public investment in co-ops makes ownership available to low-income residents and helped maintain a much more diverse group of co-op residents. Today, there are co-ops in every ward of the city, with 3,000 residents living in 86 limited equity cooperative buildings.

Co-ops are tucked into neighborhoods around the city: garden apartments like Brightwood Gardens in Ward 7, an eight-story building in Logan Circle, a cluster of apartments in Columbia Heights named after civil rights worker Ella Jo Baker. These housing co-ops were created to preserve affordable housing and provide opportunity for residents of low and moderate income around the city.

Although many are skeptical that these tenants can own and maintain their own properties, 61% of DC's limited equity co-ops have been around since before 2000. This proves that co-op residents can own, maintain, and revitalize homes and communities.

On Saturday, organizations that support DC's co-ops will hold a DC Co-op Clinic to help strengthen the internal functions of DC's housing co-ops. Workshops will focus on how to be strong stewards of a collective property for this unique form of home ownership. For more information, check out this flyer.

Many DC renters can't access the tax benefits, stability and capital that a limited equity co-op provides, and traditional homeownership may not be possible either. Cooperative housing started as an option only for the wealthy, but today it's a gateway to homeownership and financial stability for those who need it most.

Elizabeth Falcon is the campaign organizer for the Coalition for Nonprofit Housing and Economic Development (CNHED), an association of affordable housing developers, community organizations, government agencies and more in DC. She writes about how policies affect affordable housing at the Housing For All blog. 

Comments

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It's harder to get a loan on a coop purchase. Technically speaking, you cannot mortgage your interest, though you can pledge it.

by Crickey7 on Sep 19, 2013 2:11 pm • linkreport

I don't think it's harder to get a loan, it's just there are fewer companies that offer them so it's harder to shop around for a good rate (and rates tend to be higher because of that). Not sure what you mean by not being able to mortgage your interest?? You get a loan and the mortgage interest is tax deductible like any other mortgage. Granted, it's a "share loan" because the collateral is your share in the corporation that owns the building but it is for all practical purposes the same as any other mortgage.

Other benefit: because property taxes are paid collectively, and these buildings have't been re-sold in decades, the taxes tend to be a fraction of what you'd pay for a comparable market rate condo unit (although I think DC is starting to put the squeeze on some co-op's where the perception is that they have gentrified).

Many co-ops are market rate too, though, and while they are priced lower than condos (and often in some good locations) it is not for the faint of heart. I'm an ex-co-op owner and will never go back. My home/investment/financial well being was too tightly entwined with my crazy neighbors and I had to get out. People don't understand that most management companies do little more than collect fees and pay bills. You need to have some really dedicated people to serve on the board and contribute to the building's operation. I found that 99% of the residents had no desire to do this and left the heavy burden to a few. It sucked.

Another big negative: DC's laws governing Co-ops are archaic. Each shareholder is considered a tenant of the corporation, so if someone doesn't pay their fees the Co-op has to sue them in landlord-tenant court which is ridiculous. So you have cases where owners can choose not pay their fees but get the protections of being tenants.

by dl on Sep 19, 2013 3:02 pm • linkreport

The building is owned by the association, and you own you interest in the association, which gives you, among other things, the right to possess your unit. When you borrow to buy a condo unit, the bank gets a mortgage secured by real property, a separately described condo unit. When you borrow to buy a coop, as you mentioned, the bank gets a pledge of your shares in the coop association. They record their security interest with a financing statement and an entry in the association's books and records.

Banks aren't big into thinking outside the box. If it's not a mortgage, they don't want it.

by Crickey7 on Sep 19, 2013 3:14 pm • linkreport

Connecticut Avenue co-op owner here. My wife and I had no problem getting a mortgage to purchase our co-op apartment (with a great interest rate at that time), and we refinanced last fall with a different lender at the best rate available then. Yes, there are fewer lenders to work with, but assuming good credit, there are still numerous lenders to choose from, and great rates to be had depending on current market conditions of course. The property tax being rolled out into your co-op fee is a wonderful aspect of co-op ownership. Our costs are significantly lower than if we owned a condo. Of course, our building has no amenities, but it's nice to have options such as that in good neighborhoods. I think it's too bad there aren't more options such as the building I live. Choices for ownership in D.C. seem to be trending toward condos with lots of amenities. Not everyone needs that. It's great to be able to own in a basic building and creating some equity as we raise our child in our home without having to worry about rent rising every year.

by Sandy Zuckerman on Sep 19, 2013 3:26 pm • linkreport

I'm a current co-op owner in Petworth, and I echo the sentiment that financing is available, just not from every single bank. I recently re-financed with no problem.

One benefit over condos is that when a capital investment must be made in the building, the owning entity can take out credit on the building, spreading out the cost over time. Contrast this with condo owners getting hit with giant a "special assessment" when they need to replace the roof.

Secondly, they are affordable since they are often sheltered from investors (boards typically have a strong preference for owner occupancy) so if you are seeking a place to actually live, but are priced out of condos by cash-flush investors, seek out a co-op. If you want an investment property to rent out, get a condo.

by Larchie on Sep 19, 2013 3:49 pm • linkreport

I've always found co-ops to have low asking prices (for units, or right-to-occupy a unit) but very high HOAs-much higher than comparable condo buildings, which end up making the monthly payment about the same for similar property. Though probably the co-ops I looked at don't have the low income/affordable housing protection structured in like those described in the article.

by Tina on Sep 19, 2013 4:27 pm • linkreport

Tina, I can tell you that the co-ops on Connecticut Ave generally have lower fees than the condo buildings. However, the co-ops probably wouldn't be considered "comparable" to the condo buildings on Connecticut Ave. It's true the co-ops just aren't as nice, typically, and with few to no amenities. But in my area, the co-op fees are usually lowers than the condo fees, and we don't have to pay a separate property tax.

by Sandy Zuckerman on Sep 19, 2013 4:34 pm • linkreport

There are lots of coops in Southwest DC with similar issues to what Tina described--the place looks cheap but the fees can be over $1000 a month for a 1 or 2br! Even if it includes taxes and utilities that is not cheap.

It's not a problem unique to coops--many condos in the neighborhood have the same issue, probably because they were built in the 60s and have lots of maintenance needs, but it is a big issue and I bet it pulls down the pool of potential buyers. Even though most people move around a fair amount, I think there's still a feeling of "I could live here for 30 years and my mortgage would be paid off and it would be so cheap to live here!" when people buy a place, and that doesn't work in most coops.

by sbc on Sep 19, 2013 5:07 pm • linkreport

it is a big issue and I bet it pulls down the pool of potential buyers.

Yes b/c buyers are looking at cash flow; what they can afford to pay each month. I tend to think high HOAs are an indication of historic bad governance/stewardship. the reserves should be high enough that the HOA can stay low enough to keep affordable units actually affordable.

by Tina on Sep 19, 2013 6:14 pm • linkreport

A few thoughts:

It's interesting that there's a decent number of co-op lenders today. Back in 1988, I lost a contract on an Adams Morgan co-op because I was getting housing assistance from DC Housing. The one and only lender didn't like that and kept raising the bar on debt-to-income until the deal fell through.

I now have a condo in SW DC, and yes, the fees are high throughout the neighborhood. My building has never been particularly well-run, but I find it hard to believe that's true of all of them. More likely a maintenance issue, as stated.

I think a co-op structure is better in older buildings than in newer ones. A co-op can take out a blanket mortgage for major repairs/upgrades, whereas a condo must rely on special assessments that most owners are unwilling/unable to pay. My building is 45 years old; in 25-30 years, I expect there'll be nothing keeping it up but duct tape and Krazy Glue.

by aces on Sep 19, 2013 8:26 pm • linkreport

Question: How does the 61% figure support the argument that limited equity co-ops are sustainable? Not saying that they aren't, but the statistic cited by the author doesn't seem nearly as relevant as how many of the limited equity co-ops ever created are still in existence.

by Ted on Sep 19, 2013 9:06 pm • linkreport

The coop fee issue is always complicated. The high fees reflect places that have made large capital investments and the fees go down (unlike condos) overtime as the principal for the underlying mortgage for the improvements is paid down over time.

Mortgages have sometimes been more difficult to get. FHA required larger down payments than condos for awhile about 5 years ago. Interest rates are typically a little higher than for condos. there used to be benefits to condo buying like no title transfer fee, but DC Council eliminated this break w/o debate and only tepid protest by Jim Graham (whose ward has a lot of coops).

The emphasis here is on low cost buildings, but some of the most prestigious buildings like the Ontario are coops. Some are very bare bones and were really designed to promote affordable ownership.

There are several different kinds of coops, in terms of building history. A few buildings were built that way as long ago as the 20s. Some were converted in the 50s to get around rent control laws. Others were converted in the 80s and 90s when DC encouraged conversions to encourage modest income home ownership. Some of the latter faltered, because of poor technical assistance to the new coop associations.

Coops generally are more stable buildings and make sense for people who are in it for the long haul. When there's a substantially lower initial price, it often comes with higher fees which diminish over time. All things considered, the purchase price is usually lower even when fees are comparable to condos, but the interest rates are a little higher and the lower property tax means less of a tax deduction. In the end, for most people who make a long term investment, the coop will perform comparably or better than a condo.

by Rich on Sep 19, 2013 11:11 pm • linkreport

The coop fee issue is always complicated. The high fees reflect places that have made large capital investments and the fees go down (unlike condos) overtime as the principal for the underlying mortgage for the improvements is paid down over time.

Yes, and the portion of corporate debt assigned to a particular unit (which partially generates the high fees) is an offset to the purchase price. So if you're buying a co-op for $250,000, and the pro-rata portion of the corporate debt is $100,000, you assume that debt (and the "high hoa fees") and only have to "pay" (either through a mortgage or writing a check) $150,000. If you don't know that, the fees can appear exorbitantly high.

by dcd on Sep 20, 2013 8:10 am • linkreport

I guess I have to learn more about co-ops in the area and how the corporate debt/pro-rata works. Anything mid-rise or bigger seems wholly inaccessible unless you've got money to burn on both the cost of the shares and the monthly fees, which are monstrous at every one I've checked out.

by worthing on Sep 20, 2013 9:36 am • linkreport

Co-op vs. condo:

As an ex-New York co-op owner (where co-ops are common)and now a DC co-op owner I'll add a bit on the technical differences between condos and co-ops. As pointed out, fewer banks make co-op loans to individual shareowners but it is generally easier for co-ops to borrow for building wide improvements and repairs than it is for condos. Co-ops tend to have higher monthly common charges because many co-ops have underlying mortgages (for improvements or even construction). Condos do not have underlying mortgages added to the monthly common charges. While these underlying mortgages are less common in DC than in NY, they can be found in DC co-ops. My DC building has an underlying mortgage and the building will pay this off in 3 or 4 years. The monthly maintenance will then drop to a level comparable to a condo with the same level of services and amenities.

Technically co-ops can also approve or reject purchasers (subject to applicable anti-discrimination laws) while condos cannot. Again in NYC co-op boards interview apt. purchasers and sometimes reject them. Co-op board review seems more limited in DC. My building only reviews the purchasers finances.

by Steve Strauss on Sep 20, 2013 2:23 pm • linkreport

People complain incessantly about high co-op fees, but what people quickly forget is that co-op sales prices are appropriately discounted to take those fees into account. Sure, there are 1 bedroom apartments here in Southwest with a $900/month monthly fee (includes taxes, utilities, and lots of nice common amenities), but the 800sqf. units sell for $220-$275K. Where else in DC can you get a nice apartment for that price? If the building was a condo with a lower, unbundled monthly fee, then the units would probably sell in the low $400K range. Plus, once you add up your utilities, taxes, insurance, etc, you find out that the co-op fee might not be that bad after all.

Another nice thing is that owner-occupied co-ops get a huge break on their property taxes. My share of the building's tax bill (included in my monthly fee) was $842. If this was a condo with a separate tax bill, I'd be paying $1800/year.

by Davidoff on Sep 20, 2013 2:52 pm • linkreport

I maintain that in a well-run building, co op or condo, there are enough reserves so that big repairs can be taken care of w/o a large one time assessment and/or big increase in HOA fee and/or w/o taking out a loan for the repair.

Maybe its takes a couple of decades as a collaborative building, co-op or condo, to get to that point of sufficient reserves.

I guess newer buildings, co-op or condo, have nothing in the reserves the first year?

In any case, the idea that potential neighbors could veto your purchase of a property for some subjective reason, as described by @Steve Strauss, is distasteful.

by Tina on Sep 20, 2013 3:59 pm • linkreport

Of the 600,000 people give or take in DC how many over the age of 15 know about the co-ops ?

by kk on Sep 21, 2013 1:48 am • linkreport

One of the oldest housing co-ops in this area is in Greenbelt. See http://www.ghi.coop.

by Greenbelt Gal on Sep 21, 2013 7:46 pm • linkreport

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by Bernice on Sep 23, 2013 1:34 pm • linkreport

@Tina: Yes, a well run building will have substantial reserves, but there are both unexpected costs -- e.g., a boiler goes out -- and unexpected opportunities that arise. My co-op was able to borrow and replace most units' windows, which paid back in lower energy bills; that wasn't something that could necessarily have been foretold. We haven't yet undertaken some other building-scale efficiency improvements, but at least we can. Condos generally don't have the wherewithal to do so, since that would incur special assessments.

by Payton on Sep 23, 2013 10:43 pm • linkreport

For those interested in learning more about Cooperative ownership, here is a thorough overview, published by the Edmund J. Flynn Company.

by Tom Welch on Sep 25, 2013 1:45 pm • linkreport

@Payton -you're wrong about that. My condo building has enough in reserves to replace the boiler, (that has been on its "last legs" for~10 years now) and the roof, (also on its "last legs" for a decade) in one year if needed. Its all about how the assn. is run.

It doesn't have anything to with the structure of the bldg re: condo vs co-op, its completely about stewardship.

You/others keep trying to make it out that co-ops are cozier communities than condo bldgs. BS. Its totally dependent on the people involved in the collaborative property ownership. One type is not superior to the other in general though one individual bldg, co-op or condo, may be superior to its counterpart based on criteria one is using to determine better-ness.

in any case, this article, iiuc, is about a special type of co-op structure (financial structure) that is designed purposefully to maintain affordable housing. A lot of co-ops aren't structured that way.

by Tina on Sep 25, 2013 2:11 pm • linkreport

I've been in a coop in DuPont for over 10 years, and overall it's been a great investment with financing available from several of the big banks. I also re-financed with no problem.

However, I've yet to find a lender willing to offer a home equity line of credit for coop owners, which is a big disadvantage. Anyone out there know of a bank that does?

by Kelly on Jan 14, 2014 5:12 pm • linkreport

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