Social Housing Brings Stability and Self-Determination to Residents
The United States Supreme Court on August 26, 2021 struck down the year-long federal eviction moratorium, sparking fears of a wave of evictions of an estimated 5.8 million households that have fallen behind on rent during the pandemic. But facing eviction is not a new scenario for the lowest-income renters, nor is it unique to pandemic times. To take just one example: the tenants of five apartment buildings in the Corcoran neighborhood of Minneapolis fought unfair eviction notices for several years, taking their landlord to court with the help of a tenants’ rights organization called Inquilinxs Unidxs por Justicia (United Renters for Justice) (IX) after he refused to address serious problems like broken heat, water leaks, and pest infestations. In 2018, the tenants organized around the idea of buying the buildings where many of them had lived for decades, and thereby controlling their own destinies. In 2020, that idea became a reality with support from LISC, the Land Bank Twin Cities, and the City of Minneapolis.
Tenant ownership of rental homes is a form of what is known as “social housing.” The Community Service Society of New York defines social housing models as “those that strive to achieve permanent affordability, social equality, and democratic resident control.” These include models in which residents have full or part ownership of collective housing, such as cooperatives, as well as public or nonprofit-owned housing where residents have democratic control over property management, including community land trusts and mutual housing associations. As America’s housing affordability crisis continues to grow, social housing models are a critically important tool to keep homes affordable and promote social equality and resident control as part of an equitable housing recovery. Social housing can preserve affordable homes like the Corcoran buildings in perpetuity and address the root cause of displacement by removing homes from the speculative market.
Tenants take control in Washington, DC
In Washington, DC, the Tenant Opportunity to Purchase Act (TOPA) has created a successful way to protect permanent affordability for longtime residents in fast-gentrifying neighborhoods. The supply of rental homes affordable and available to extremely low-income renters in Washington DC falls short of demand by more than 23,000 units, so preserving affordable options is a high priority. Since 1982, LISC DC has helped more than 1,000 residents in 21 buildings organize and take advantage of TOPA to preserve their homes and remain in their communities.
Under TOPA, when a building owner puts the property up for sale, the tenants have the opportunity to match the price offered to a third-party buyer. When they do, the seller receives the same value and the tenants gain control of their building. Tenants can purchase the property themselves or for larger, more complex transactions, they can assign their rights to a partner, usually a nonprofit developer, to buy and renovate the building on their behalf. In either case, says LISC DC Executive Director Ramon Jacobson, “the tenants are in the driver’s seat.”
Tenants aren’t automatically equipped to purchase and manage a building. Moving from a model in which a landlord makes decisions with zero tenant input to owning and managing a building together requires technical assistance as well as support for tenant organizing and leadership development. In the early stage of preparing to make an offer on their building, tenants need assistance to understand the process: What are our legal rights? How do we form an association that can act on behalf of all of us to pursue the purchase? They also need assistance with the financial aspect of the transaction: What is the acquisition process and where will the funds come from? Do we need to do a renovation and how much will it cost?
This step is where community-based organizations, backed by CDFIs like LISC, step in. Experienced, deeply committed nonprofits help organize tenants, holding meetings in laundry rooms and entryways, and helping them with incorporating and knowing their rights. LISC DC works with tenant associations to initiate the purchase process with early stage capital and then financing to purchase their buildings. It also connects them with community-based partners, Jacobson says, who support tenants in their efforts and may act as their agents, purchasing and renovating the buildings for them. LISC provides upfront capacity building support for these partners so they can be present and prepared when purchase opportunities arise. LISC also acts as an early source of capital for earnest money deposits and pre-development needs, and provides acquisition financing for tenant associations or their agents.
Once they have purchased their homes, the most common form of ownership for DC tenants is the limited equity cooperative. In limited equity cooperatives, tenants own a share of a company that owns the building, which grants them exclusive rights to a unit and a say in building decision-making, including through selecting the co-op’s board members. If a resident wants to sell their share, resale restrictions limit the value they can sell for, which protects affordability for the next buyer. At the time of building conversion, limited equity housing co-ops in DC typically have a very low acquisition price per share, such as $500, “so existing residents can become shareholders in the cooperative for a nominal price,” Jacobson explains. New residents may pay slightly higher prices for their shares. Tenants pay a monthly carrying charge, much like paying rent, which is sized to keep the building affordable.
The buildings almost universally need some form of rehabilitation, according to Jacobson. “In this city and region, you have so many buildings that were built around World War II and their construction is just so outdated now, like original aluminum windows from 1950.” Co-op associations or their nonprofit agents must upgrade components and systems to make the buildings more weatherproof and efficient. “A big change might be to go from having an unreliable single meter system with screw in fuses to getting modern utilities with a circuit breaker panels,” Jacobson explained. One building he recently visited transitioned from using heating oil to a natural gas furnace for heat and hot water, “which was a huge jump forward in systems and technology.”
The tenants DC LISC works with are typically BIPOC residents in gentrifying neighborhoods. Many of them have lived in their buildings for decades and seen the neighborhood change around them as market-rate apartments and condos encroach. DC’s TOPA law gives people facing displacement a chance to maintain affordable homes and to preserve the social fabric of their community “It’s the idea of residents controlling their destiny,” says Jacobson. “I think that matters to folks. The benefit is that the residents themselves have proven capable of making good decisions, so it is self-sustaining over a long period of time.”
Read more about LISC DC’s support for tenant ownership here, here and here.
Exploring social housing in Minneapolis
The City of Minneapolis is currently working to advance a TOPA ordinance, but the idea of tenants purchasing the “Corcoran 5” buildings from their landlord was a fairly novel one. IU and the tenants came to agreement with Land Bank Twin Cities that the land bank would purchase the properties on behalf of the tenants. Tenants had already begun pooling their savings and raising additional funds for the purchase, but buying the buildings would require several million dollars, so they needed an acquisition partner with funding capacity.
LISC Twin Cities worked with the city and the land bank to create an acquisition funding source, the Small and Medium Multifamily Housing Fund (SMMHF). The City of Minneapolis contributed $6 million and LISC matched the city’s contribution with privately raised funds. This gave the land bank sufficient resources to acquire the properties. “There is a lot of interest in community ownership” in the Twin Cities, says LISC Twin Cities Program Officer Gretchen Nicholls, “but [tenants] just don’t have the financial bandwidth.” LISC Twin Cities is therefore building out an interim-owner acquisition strategy, wherein a qualified agent buys the property in the near term and tenants or community partners eventually take control and ownership from that entity. This allows the community to secure the property, and perhaps remove it from a neglectful owner, more quickly.
Interim ownership is not without challenges, Nicholls says. “Community partners view it as another middleman they have to pay for. They feel they should be able to crowdfund and raise their own money, but that takes too long.” Smaller nonprofits or loosely organized tenant associations are often not able to qualify for the necessary level of financing, and may lack the asset and property management capacity needed to operate the buildings. Interim ownership acquisition is a way of “not letting perfect be enemy of good,” according to Nicholls. “The main goal is that these projects succeed for the people and families that live there.”
In addition to supplying capital, LISC Twin Cities is working to support the development of an ecosystem of organizations with the skills and knowledge to facilitate new types of ownership models. In anticipation of the purchase of the Corcoran 5 buildings, LISC invested $250,000 million into a capacity-building program focused on community ownership. LISC worked with six community organizations over an eight-month period, providing grant support to build staff capacity and hosting discussions on asset management, property management, and the nuts and bolts of community ownership. In addition, the Coalition for Nonprofit Housing and Economic Development (CNHED) out of Washington DC and LISC Twin Cities were hired by the City of Minneapolis to gather national models and engage community stakeholders around Opportunity to Purchase policy options, and the City Council is currently working to enact a TOPA policy.
After years of legal wrangling, and setbacks, the Corcoran 5 tenants were finally able to breathe a sigh of relief as Land Bank Twin Cities completed the purchase of their homes in May 2020. After decades at the mercy of a landlord who let the properties fall into disrepair and attempted to evict them when they complained, residents now have a measure of control over their homes and their lives.
Much hard work remains ahead. The tenants and their partners now must identify a way to finance the transfer of ownership from the Land Bank to the tenants, working in partnership with the City of Lakes Community Land Trust to ensure long-term affordability and establish the limited-equity cooperative to take ownership and manage the property. The tenants and their partners now must raise the capital to rehabilitate the deteriorated buildings and organize their tenant-run co-op association to take ownership and manage the property. But the tenants of the Corcoran 5 remain hopeful. Their new name says it all: they are the Sky Without Limits Cooperative.
Read more about LISC Twin Cities’ support for the Corcoran tenants here, and more on how Inquilinxs Unidxs por Justicia members organized and won control of their buildings here and here.
Empowering rural manufactured homeowners
The mention of co-ops may conjure visions of urban apartment buildings, but social housing is just as important in rural contexts. Manufactured homes (also known as mobile homes) are a common housing option in rural areas. Residents typically own their dwellings, and although manufactured homeowners can own the land upon which the unit sits, many are located in parks where they rent the lots underneath. The fact that monthly lot rents arecontrolled by the park owner gives them tremendous power over residents, who are understandably anxious to stay in the homes they own. When a park owner decides to sell, the new owner may raise lot rents—an increasingly common occurrence as longtime “mom and pop” park owners sell to corporate owners or investors that see manufactured home parks as a lucrative business opportunity. Residents then face the expense and trouble of either moving a home that is not really all that mobile, or simply losing their homes.
ROC USA (short for “Resident Owned Communities”) helps residents of manufactured home communities collectively purchase their parks and co-manage them. ROC USA’s work to scale resident ownership of manufactured home communities includes a CDFI subsidiary that provides acquisition financing for residents of manufactured home communities, as well as a network of 12 technical assistance providers across the country that work at ground level to help organize residents, negotiate sales, and set up co-op associations for ownership. Rural LISC aids these efforts by providing lending capital to ROC USA, says Rural LISC Lending Director Michael Carroll. “We have a program where they originate the acquisition loan and then LISC buys up to 85% of it,” Carroll explains. LISC’s assistance helps ROC USA meet its liquidity and capital needs so it can support more acquisitions than it would on its own. Rural LISC has purchased six loans from ROC USA’s portfolio to date and plans to acquire more.
ROC USA helps residents form nonprofit co-op organizations to purchase the park together, with a low buy-in amount. Residents thereby own their homes and lease their lots from the co-op instead of a private park owner. This arrangement does not give residents a significant equity share of the land, but it does give them collective control over what happens to the land, how the property is managed, and how much their rents will be. ROC USA requires least half of units to be below 80% AMI, but in most projects, more than half of units meet that standard. The ROC USA co-ops typically hire third-party managers to do budgeting, collect rents, and hire maintenance staff. Built into each loan is a modest fee to support ROC USA’s ongoing technical assistance to the co-op associations on governance, property management, and other skills they need to be successful.
ROC USA has a strong loan portfolio and experiences very few losses. “Their ongoing support of the co-op associations has a lot to do with that,” Carroll says. “The whole idea is empowering residents to take control of their living environment.” In ROC USA’s rural co-op communities, empowerment is paying off for everyone.
Read more about ROC USA’s model and explore the communities.
Advice for practitioners
The experienced LISC staff interviewed for this resource have a few words of advice for other housing practitioners.
Build the ecosystem
Jacobson explains that there are three important components a local market must have to take advantage of the opportunities TOPA legislation can provide. First, “you have to have capable, community-based nonprofits that are committed to the residents and the neighborhood to serve as trusted advisors.” Second, “there are some legal steps and legal processes that need to be followed, so you need an attorney who is committed to doing the work,” he says. And finally, “there is always a gap between what things cost and what people can afford, so public dollars are critical, especially in high-cost cities.” Nicholls agrees: “These projects will not succeed if there is no continuum of supports for what’s needed along the path. We have to support the people who are stepping up to be part of this, because it’s a big lift.”
Seek solutions that allow for wealth creation
The majority of tenant co-ops LISC has helped have been limited equity co-ops. With a modest buy-in amount, this model makes it easy for residents to join, but does not provide an avenue for people to build financial equity, Jacobson explains. He is interested in exploring ideas for financial products “where the value of the share accrues, so that when tenants move out or pass on wealth to their family, they would have something more than the $500 share to pass on.” Carroll acknowledges that limited equity co-op models have both benefits and drawbacks in terms of wealth creation, particularly for BIPOC families, but he still sees a significant value in them as a housing solution. “It gets you in the house and stabilizes your living situation and expenses,” he says. “It’s better than doing nothing, but there are tradeoffs.” As Jacobson notes, the original residents of these co-ops are the ones who have done the work of creating the affordable housing, so they deserve to share in the benefits. “It’s a bit of shift and it’s not quite clear how you make that change to accrue equity and still preserve affordability, but that is something that’s important to look at,” he says.
Use a mix of models
America’s affordable housing gap is large and growing. There simply aren’t enough affordable, accessible homes for everyone who needs them. Nicholls notes that our affordable housing system over the past few decades has been heavily reliant on the Low Income Housing Tax Credit (LIHTC) and “what we know from our experience with LIHTC and different resources and tools is that it’s not enough. The gap between haves and have-nots keeps growing and more and more people are getting left out of the option of owning their homes.” LIHTC remains an important way to create affordable units, but we also need to pursue transformational strategies like community ownership to preserve homes and give people more stability and control. “We need to find new ways to create access to homeownership,” she says. She thinks an important aspect of social housing is its potential to decommodify housing by limiting its potential for speculation and creating ownership opportunities that people can access without having to compete against higher-income renters and investors. “We need to do all we can to be a part of that strategy,” says Nicholls.