Co-ops could help solve San Francisco’s affordable housing crisis

The City looks at this less expensive avenue to home ownership

Co-op housing, having fallen largely to the wayside for decades, is getting a second look in San Francisco as the stubbornly high cost of real estate has displaced working class families, entire communities of color and generations of locals.

More than 40% of people who work in The City can no longer live here, according to a recent report sponsored by a group of local economic justice advocacy groups. One estimate from real estate website Redfin puts the current median price of a single family home at $1.8 million, and, as of October, the median rent in The City for a one-bedroom apartment is $2,395 per month and $2,771 per month for a two-bedroom, based on data from rental company Apartment List.

Cooperative housing — which can offer a less expensive avenue to home ownership — has been a model used to help combat displacement and gentrification in other cities nationwide.

When residents buy a co-op unit, they purchase a share of the entire property equal to all other neighbors within the building. They develop ownership equity and manage the building together.

The model has been largely neglected here in recent years despite worsening inequality.

The City has not subsidized a co-op in nearly two decades. Sky-high construction costs, tightening parameters on federal funding for housing and stories of buildings falling into disrepair have made the co-op model a less desirable option compared to more traditional pathways to providing subsidized affordable housing.

“We have an opportunity to re-introduce radical ways of building back San Francisco by stabilizing residents who have been wrecked by the pandemic and racial and economic disparities,” said Supervisor Myrna Melgar, who called a hearing at the Board of Supervisors Land Use and Transportation Committee on Nov. 1 to better understand how The City can invest in cooperative housing complexes.

Which begs the question: What exactly are co-ops?

At the core, they’re buildings owned by residents. As with condos, tenants own their units, but what’s distinctive is residents own a share of the building itself, not just a private unit in it.

Some co-ops are market rate, meaning the units are priced based on the regular fluctuations of the local real estate economy.

Others are what’s called limited equity housing cooperatives. These are often subsidized by federal, state or local dollars to keep the buy-in price lower for low- and moderate-income earners. They put in a certain amount of money — similar to a down payment — and then pay mortgage payments on the co-op itself. There are limits on resale values and buyer income.

“As an ecosystem and as a way of thinking about housing, both (co-op models) are really important,” said Fernando Marti from Council of Community Housing, a local housing nonprofit.

But when it comes to San Francisco’s intransigent, affordable housing problem, it’s the limited equity co-ops that officials say could prove particularly useful because they keep prices low and reduce barriers to entry for low- and moderate-income earners.

Funding needed

San Francisco operates a number of other below market rate housing options, including rentals and paths to home ownership for people who might need extra support. These include first-time buyers, very low income earners or people who earn a moderate wage that’s still below the median household income in San Francisco. But the demand for such units far exceeds the supply, and most people must access them by lottery.

“We cannot rely solely on the traditional affordable housing market,” Melgar said.

There are only 10 limited equity co-op buildings citywide, representing a total of 1,566 units. And the last time The City threw its money behind such a complex was in 2009.

A 21-unit building at 53 Columbus Ave. at the intersection of Jackson Street was being rented to low-income tenants and slated for demolition when a coalition of residents and nonprofits stepped in with support from local officials to make it a co-op instead.

Residential tenants pooled a total $210,000 in equity to buy into the property alongside $300,000 from the Asian Law Caucus to occupy the ground floor commercial space. The remainder of the $7.6 million total project cost came via loans from numerous sources, including The City.

“The success of Columbus United speaks to how co-ops can be highly effective in creating affordable housing that’s highly sustainable,” said Saki Bailey, executive director of the San Francisco Community Land Trust, which owns the parcel of land on Columbus and leases it to the co-op.

Making that aspirations come true, though, will take some serious work.

Change the ‘bad rap’

Many in San Francisco know co-ops to be a “hot mess” of disorganized leadership, mismanaged financial resources, derelict living conditions and turf wars between residents, elected boards and contractors.

“Part of the challenge that we face in San Francisco is getting over the hurdle of the bad rap that co-ops have at the moment,” Bailey said, adding that these properties don’t have to be total dollar drains.

For example, within the first year Columbus United was converted into a limited equity co-op, all the building operation costs were covered by the owners.

This case isn’t just an anecdotal success story. There’s research to back it up.

“Lower equity co-ops’ permanent affordability, security of tenure and control over upkeep also buffer residents against rising and falling economic tides that could gentrify or undermine the physical conditions of neighborhoods,” according to a study from the Journal of Planning Literature.

Protect ‘inheritability’

Home ownership has long been billed as the American dream but many low-income residents, particularly people of color, have been excluded. The permanently affordable co-op model democratizes that opportunity, giving communities at risk of displacement the chance to build generational wealth and pass it on to their families.

That’s happening at 285 Turk St. in the Tenderloin.

Roughly 95% of the residents identify as people of color, but until this summer they’d been subject to speculative rent increases year-over-year that pushed many neighbors out.

The Community Land Trust purchased the 40-unit property in July with plans to convert the building into a lower equity housing cooperative in five years. Doing so will go a long way to protect the financial security of residents.

“I cannot afford to buy a property. It’s a point of stability,” said Mauro Tumbocon, a current resident of the building who plans to buy into the co-op. “We were able to save the Tenderloin from speculative ownership.”

Training helps

The beauty of the co-op model can also be the curse.

With everyone having an equal stake in the property, financial risk is more dispersed; but without a clear hierarchical structure, it’s not unusual for clashes to emerge.

Most co-ops opt to form an elected board to act as a proxy for decisions ranging from budgeting and third-party hires to landscaping and maintenance. Even so, many residents lack direct building management experience, which can lead to the kind of capital and operational dysfunction for which many permanently affordable co-ops have come to be known.

That’s where training comes in, experts say.

San Francisco has contracted with a national nonprofit to provide technical assistance as well as support in developing leadership tactics, community-building and board development to some existing co-ops. Supporters say this sort of investment should be expanded and led by people of color who reflect the neighborhood and have similar lived experience as many of the residents they seek to serve.

The City will start by devoting some portion of a $10 million fund included in the current mayoral budget to fund capacity-building programs.

New York City offers one example of how the process could work. Local government pays a nonprofit called Urban Homesteading Assistance Board to provide a slew of services to permanently affordable co-ops to create “strong boards and healthy buildings.” UHAB, which provides resources for residents and tenant boards on its website, recently launched a program dedicated to rehabilitating the 262 affordable co-ops citywide determined to be in severe distress.

“The city of New York puts an enormous amount of money into these projects,” said Andrew Reicher from UHAB.

Helping teach people the skills they need not just to run a building, but also to support and operate an organization, is vital to the future success of co-ops, Marti said. It won’t just serve residents better, it’s key to expanding the co-op concept and changing The City’s view of this type of housing from a risky proposition to a stable investment of resources and dollars.

“As with any bureaucracy, if the mayor steps in and says do it, it gets done,” he said. “But as long as The City is looking at this as a risky, side idea, it moves very slowly and becomes a big challenge to innovate.”

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