Limited Equity Cooperatives

Limited Equity Cooperative Development Program

In 2003 the Boulder Housing Coalition started our Limited Equity Cooperative Development Program with the help of a Community Housing Development Organization (CHDO) grant of $5,000 form the city of Boulder. The program is designed to create a variety of limited equity cooperatives for people who live and work in Boulder. The goal of the program is to help low to moderate income Boulder residents collectively purchase properties and organized them into affordable cooperatives. The BHC started working together with the 5,000 member Boulder Co-op Market to educate, train and support community members who are interested in creating equity cooperatives. In 2003 the BHC organized public equity co-op housing trainings that took place at the Commons Community room in the Boulder Co-op Market.

In 2003 and 2004 we ran into a number of road blocks to limited equity cooperative development that prevented us from moving forward with this development model. In the trainings it became clear that in order to get low income community members interested in equity co-ops we needed to have the legal documents that are needed to form equity co-ops in Colorado already developed. Groups, families and people who are interested in these models need to be able to put there energy into community formation and not technical aspects.

The BHC is currently going for an additional $9,000 in CHDO grant monies. The grant if awarded will allow the Boulder Housing Coalition to hire a lawyer and a national consultant to create the legal documents and resale formulas necessary for limited equity co-op development in Colorado. The BHC will need time to work with the citizens of Boulder and John Pollak to change the co-op ordinance into a useful tool for co-op development. We will be pushing for changes that allow for easing of zoning restrictions on rental co-op groups. These rental groups once established will be able to move to an equity share model more easily.

Equity cooperatives are a form of community oriented housing in which resident’s own shares of the house they live in. In an equity co-op outgoing residents sell their share to new residents for a fair market price. In a limited equity cooperative share prices are determined by a formula that helps to keep shares permanently affordable. These cooperatives substantially reduce the income threshold that is required to gain equity.

Three Limited Equity Co-op Models

Limited equity co-ops are a creative way to capture existing housing and convert it to a form of permanently affordable homeownership/rental hybrid development. The Boulder Housing Coalition will use three main models for limited equity cooperative development.

The Slovo Model

In 1994, nine low to moderate income Boulder residents collectively purchased 744 Marine Street and organized the Slovo Cooperative. Residents pooled their money for a down payment and each resident received an equity share. The amount of the share was based on the percentage of the down payment paid by each resident. Over time some of the original residents left and new renters moved in to the house. So the Slovo model makes a distinction between, Initial Investors and Renters. Initial Investors received voting rights on key house financial decisions (i.e. when to sell or refinance) and renters did not. Initial Investors could sell their equity share for the fair market value determined by the amount they paid and the appreciated value of the house. Renters who lived in the house for one year could still earn equity. Their share value was determined by the percentage of the mortgage they helped to pay and the appreciated value of the house. Both Initial Investors and Renters can recoup their share when the house is sold or refinanced.

In 1999 the residents sold the house to another co-op organization and divided the equity amongst the Initial investors and Renters according to the formula. The Slovo co-op allowed a number of moderate-income individuals to earn equity who would not have been able to enter the housing market on their own. This model creates community, and does not require any public subsidy. In order to create more co-ops like Slovo the BHC will need to: help facilitate group formation, train group members (see below), help groups find financing and handle share transfers using an excepted formula. As compensation the BHC will receive a development fee of 1.5% of the value of each house purchased using this model.

Limited Equity Cooperatives Using The Down Payment Assistance Program

The transition from renting to ownership is very difficult for low and moderate Boulder residents. Clearly the most difficult obstacle is saving the money for the down payment. The 3% Solution, H2O, and First Home are excellent city programs designed to address that problem. In this model we would like to use those programs to create limited equity cooperatives. Here is how it could work using the First Home program. A group of single people or a combination of families and singles would form a cooperative. The group could rent a house together for a while. In that time the BHC would work with the group to establish their internal cooperative systems. Next the cooperative members would agree to collectively purchase a home and they would qualify individually for the First Home program. The cooperative could then pool the First Home dollar allocation and use it for the down payment. The group as a whole could not receive more than 30% of the value of the home that they selected. They could be use the $10,000 in rehabilitation assistance to establish a maintenance reserve. First Home program covenants would guarantee permanent affordability and require that share transfers be limited to a 3.5% return. Also new co-op members would have to income qualify. If the house was ever sold it would have to go to another moderate income buyer. Otherwise the house would function in the same manner as the Slovo co-op. In traditional family models one or two wage earners must pay all the upfront costs and monthly bills. In this model 4 or more wage earners can split the bills and lower income individuals can gain equity. The Boulder Housing Coalition has had initial discussions with Jeff Yegian and he has indicated that this model is worth pursuing.

Limited Equity Cooperatives With A CLT

In 1997 the city initiated Cooperative Housing Umbrella group study recommended that the BHC develop a Community Land Trust. A CLT is an important tool in the development of a variety of different types of cooperatives. We would like to use a CLT to separate the land from the improvements in a limited equity cooperative. This would allow the BHC to own the land and lease it back to a cooperative group that owned the improvements (i.e. the house itself). In this way the members of the co-op group could pool their money for a down payment and the BHC could seek public subsidy to purchase the land. Individual co-opers would own shares of the house and they could gain equity. The public subsidy needed to acquire a house in this manner would be lower then the amount needed to purchase an affordable rental cooperative like Masala. The land trust would secure permanent affordability.