1 Million Month Challenge: Affordable Together


Building on their recent efforts to provide more innovative and cost-effective affordable housing, Meyer Memorial Trust recently posed a bold, new challenge: Bring us your best ideas for guaranteeing 1 million months of affordable housing, using as little public subsidy as possible.

We felt uniquely positioned to respond to this request due to the experience and knowledge gained from our work completed under previous Meyer grants, and submitted a proposal titled Affordable Together: scaling a community-based approach to housing.

We just learned that our proposal was funded and we are excited to continue our partnership with Meyer. Over the course of the next year, the grant will allow us to research and develop a Community Land Trust - Limited Equity Cooperative hybrid ownership model, and identify creative methods for financing and scaling this long-term, community-based affordable housing option.

We've published a significant portion of our proposal below, so that you can learn more about what exactly we'll be up to!

Clarify where your approach to finance, design, and/or construction methods departs from more typical affordable housing development, and explain in what ways you anticipate a reduction in the need for public subsidy.

Lane County’s most recent affordable housing development included 35 one-bedroom units at a cost of $213,000/unit, and was financed almost entirely (85%) by Low-Income Housing Tax Credits. This sizeable use of public subsidies comes with only a 20-year affordability period.

SquareOne Villages (SOV) is uniquely positioned to provide a viable alternative for a more prudent use of public resources. Our village model departs from typical affordable housing development by 1) emphasizing a participatory planning & design process, 2) reducing the overall size of the building footprint, and 3) using a community land trust-limited equity cooperative (CLT-LEC) ownership structure to achieve permanent affordability. The benefits of each of these is described in detail below.

Strategy 1: Participatory Planning & Design Process

We believe that a first critical step in finding innovations in creating more affordable housing is to involve more players in the process. In 2016, with assistance from Meyer’s Cost Efficiencies grant, SOV took on the challenge of replicating an affordable tiny house village in a rural community with fewer resources. Rather than develop the project ourselves, we chose to partner with a coalition of local citizens in Cottage Grove, Oregon. Involving community members and future residents in the process creates a stronger sense of local ownership that has the ability to 1) respond to the needs and desires specific to the local community, 2) draw on a variety of support and resources that already exist within the community to reduce cost, and 3) build broad political support to minimize “not in my backyard” opposition.

Over the past two years, SOV has conducted more than a dozen presentations and workshops in other Oregon communities that have helped catalyze even more tiny house village campaigns. Two of the more promising examples are those currently being planned in Linn-Benton County by the Corvallis Sustainability Coalition and Albany’s Creating Housing Together. SOV assisted these citizen-driven initiatives in building strong support from their local municipalities and existing service providers by hosting collaborative workshops, and has since been approached by both organizations with interest in forming a formal partnership. This would add to SOVs existing partnerships with Cottage Groves’ Cottage Village Coalition and the Ashland Tiny House Group (ATHG); the latter of which opened the Parker House on Nov. 1, 2018, a transitional housing project for women operated by Rogue Retreat, and continues to utilize the SOV Toolbox and consultations.

With this proposal, we plan to further explore how SOV can develop efficient and mutually beneficial partnerships with other place-based organizations in order to scale our village model. SOV has served as both the developer and operator of our first three projects. This was a critical step to realizing an “outside-the-box” housing model, and has attracted broad public support and interest in our brand and model. Going forward, we intend to leverage this momentum to assist other organizations in developing and operating affordable tiny house villages. Our developing relationships in Corvallis, Albany, Ashland, Cottage Grove, and other communities offer a prime opportunity to do so.

Strategy 2: Quality, Compact Housing

SOV will continue to develop high-quality, durable, and compact dwelling units similar to those built at our Emerald Village project. Our physical model includes units of 400 square feet or less, each complete with a bathroom and kitchen, and supported by a common house that includes laundry, a community kitchen for group meals, and a flexible use space for gatherings and everyday use. By reducing the footprint of the individual homes while connecting them with a variety of shared resources, our model has significant economic, environmental and social benefits compared to traditional housing options. It reduces both material and energy usage over the life of the home and provides greater opportunity for engaging with neighbors.

Through our initial work, we now have construction documents for a variety of tiny house designs that have been permitted for construction in Oregon. The designers have given us permission to use and adapt these in future projects, which will reduce design time and cost. This stock of plans includes both stick-frame construction and a modular construction process using structural insulated panels (SIPs).

Our research under the Cost Efficiencies grant found the cost difference between these two construction methods to be nominal. Instead, labor supply is the primary factor in determining which construction method to deploy. If the goal is to involve more people in a collaborative build process, stick-frame is more appropriate. However, if a quicker build carried out by a contractor is desired, SIPs are more efficient. Each of our partner organizations will need to assess their local conditions and resources to determine which construction method to use.

In scaling our model, we propose to further investigate potential partnerships with prefabricated structure suppliers. This would add yet another option to our toolbox, and would be ideal for rural communities that have fewer local resources. Our research has shown minimal difference in cost-savings but great reductions in the development timeline, allowing more villages to be completed more quickly.

Strategy 3: Permanent Affordability through a Community Land Trust-Limited Equity Cooperative (CLT-LEC) Model

Most affordable housing development today consists of conventional rental properties without strong requirements for long-term affordability. Given inadequate levels of funding for the sources of public subsidy these developments depend on, alternatives must be identified to respond to the growing need for affordable housing. A critical part of our proposal is an ownership and management arrangement that blends elements of two shared equity housing models—Community Land Trusts (CLTs) and Limited Equity Cooperatives (LECs)—in complementary ways.

LECs

With our Emerald Village project, the resident community was incorporated as a housing cooperative. This allowed SOV to retain the core values of our “village” concept while adapting the housing model to existing legal and real estate standards in Oregon. By piloting our first co-op, we have already invested an extensive amount of time into developing budgets and legal documents that can be reused and modified for future co-ops.

Limited equity housing co-operatives (LECs) have a proven track record for providing low-risk housing that is affordable to low- and moderate-income households. In the mid-20th century, several hundred thousand co-op units were developed, a significant majority of which were unsubsidized with federal or state mortgage insurance or financing. LECs realize affordability through shared resources, self-management, and operating at-cost (because there is no third-party profit). Each household purchases a share in the cooperative, granting them a right to a dwelling unit and a vote in the co-op’s governance, and pays a monthly carrying charge to cover maintenance costs, reserve funds, and debt service (if applicable). Affordability is also preserved by the terms of the share, which generally limits its appreciation in value with a simple formula (i.e. limited equity).

The National Cooperative Law Center cites studies that show co-ops have proven to lower monthly housing costs by more than 20% compared to physically similar affordable rental housing managed by the same management companies. They also offer lower risk to lenders due to significantly lower default rates compared to rental properties owned by both for-profits and nonprofits (source).

CLTs

Community Land Trusts (CLTs) guarantee that housing developed will be retained at affordable rates for people with low incomes in perpetuity, whereas new affordable housing developments produced with low-income housing tax credits generally only guarantee affordability for 20 years or less. Furthermore, a study conducted by the Lincoln Institute of Land Policies found that homes owned as part of a CLT have also proven ten times less likely to default compared to in the conventional market (source).

A critical component of this proposal is that the land for the LECs described above be held in trust, either by SOV or another entity. What we are proposing differs from a traditional CLT in two key ways. First, CLTs typically have an extensive membership whereas SOV is a board-only organization. This simpler organizational structure, combined with amendments to our bylaws regulating the stewardship and sale of land, achieves the same guarantees of perpetual affordability while retaining greater versatility. Second, CLTs typically develop low-density, single-family housing. Our model focuses on compact, efficient dwellings at a higher density. Furthermore, combining a CLT with an LEC provides a number of advantages, highlighted in the next section.

CLT-LEC Hybrid

This model addresses some of the shortcomings and challenges of traditional CLTs and LECs by combining elements of each in complementary ways to ensure long-term viability. Together they offer a promising model for operating within existing real estate law to promote more accessible and sustainable housing options.

In conventional CLT models, individual households must qualify for bank loans to acquire housing. This poses barriers for lower-income households and those with poor credit histories. In our model, residents do not need to qualify for a mortgage individually. Instead, residents are members of a cooperative corporation, and any loans remaining from construction would be assigned to the co-op (rather than individual households).

A partnership with a CLT addresses other challenges faced by conventional LECs: they can be difficult to sustain in the long term due to their reliance on member engagement in consensus-based decision making and the knowledge, skills, and planning necessary for successful property management; deferred maintenance issues can arise due to co-op members’ desire to keep monthly carrying charges as low as possible; and in “hot” housing markets, co-op members may be enticed to convert to a market-rate co-op and cash out shares at whatever price the market will bear. A partnership with a CLT can help address some of these challenges. Because the CLT retains control of the underlying land, it can guarantee affordability through a ground lease with the LEC, and provide ongoing oversight, training, and support.

Emerald Village offers one of many possible forms a CLT-LEC hybrid may take. In this example, residents form a co-op and enter into a ground lease agreement with SOV, which owns the village’s physical assets and retains title to the underlying land with the intent of retaining it as affordable housing in perpetuity. The ground lease outlines the organizational and property management obligations of the co-op and SOV’s rights concerning the operation of the co-op and requires the co-op to maintain monthly carrying charges at an affordable rate. This partnership helps ensure the longer-term viability of the co-op. SOV is able to serve in an advisory role, providing support in the form of technical assistance, training, and leadership development. And due to its sustained involvement in the project, SOV can serve as a “mission steward” for the co-op during periods of leadership change and member turnover.

This stewardship role also provides an opportunity for addressing another challenge: financing for new developments. Through the ground lease, part of the LEC’s carrying charges will be collected by SOV and used to seed future developments, either as equity capital or as a revolving loan fund to assist co-op residents in their share purchase.

Describe how you see a path unfolding that could actually achieve one million months, specifically in terms of financing, siting, construction/production (if applicable), and any other critical path issues such as land use/zoning, policy changes, etc.

To achieve one million months of affordability, we are proposing to create quality-built, affordable units that will last for more than 60 years with CLTs that guarantee affordable rates to people with low-incomes (60% AMI or under) in perpetuity, and form 47 cooperatives (with an average of 30 units per co-op) with carrying charges that cover all operating costs and create a source of funding for seeding future co-ops.

In developing three different tiny house villages, SOV has established a brand identity and a housing model that resonates with the general public, and provides a solid foundation for taking on this challenge. Previous grants from Meyer have allowed us to spend considerable time developing a Toolbox and workshop series for educating the public on our housing model, and assisting other groups in starting their own village initiatives.

In order to take the next step in scaling our village model to reach one million months of affordability, we are proposing to draft and publish a Village Framework Plan during the grant period in 2019. This document will provide a high-level planning tool that will outline and inform:

  • the benefits of the CLT-LEC ownership structure

  • key considerations in feasibility and determining a physical design program and construction method

  • a transition to a more scalable and sustainable financing model over the next ten years

  • opportunities for partnering with SOV

Once complete, this resource will be published in our Toolbox and distributed through our growing network of supporters. The Village Framework Plan will have multiple intended outcomes, phased over time.

First, it will provide SOV with a tool for initiating efficient and mutually beneficial partnerships with other organizations in order to catalyze more village initiatives. Since we published our Toolbox, SOV has been contacted by local groups throughout Oregon interested in developing similar villages in their own community. Our proposal assumes that SOV would not develop and operate all of the proposed co-ops; rather, by developing a clear business model, other citizen coalitions, housing providers, community land trusts, municipalities, and faith-based communities in Oregon would adopt this model as well. SOV would have varying levels of engagement with these other initiatives based on need.

Second, the Village Framework Plan would serve as a tool for attracting social investors as an initial step to begin scaling our model. Under this grant we are proposing to partner with NEDCO in order to further develop this concept. In initial conversations with NEDCO we have discussed the idea of creating an equity fund for providing start-up capital for future co-ops developed by SOV and partner organizations. Following the example of similar funds created to provide loans to mobile home parks and other low-income housing, this would pool resources from social investors, co-op member share payments, and ground lease fees into a financing vehicle that would grow over time as more co-ops are developed. Access to start-up capital would also provide an incentive to partnering with SOV.

Third, it will provide SOV with a tool to take to public policy makers in order to advocate for and guide new public funding sources that support our model. The vast majority of affordable housing projects are dependent on public funding for 80-90% of their funding. Because our model is much more cost efficient, we can achieve a much lower ratio of public dollars spent per household and a higher percentage of non-public funding per unit. So far, our developments have been funded entirely by private donations and foundation grants. Our research into existing state and federal funding programs has found them to be workable, but not without compromise to our process and overall cost-effectiveness. In order to effectively scale more affordable and sustainable housing options over time, we intend to also use the Framework we develop as an advocacy tool for new, more flexible public funding programs.

In the short-term, the recent passage of Measure 102 provides one promising new mechanism for doing just that, by allowing municipalities to use bond revenue to fund the development of affordable housing by non-governmental agencies. This provides one plausible path for scaling our village model, where our partner organizations in other cities could advocate for similar bond measures to fund a tiny house village in their respective municipality. Bernalillo County, New Mexico (a current SOV consulting client) provides precedent for this, where a $2 million bond measure to build a tiny house village passed with overwhelming support in 2016.

In the long term, once multiple co-ops are in operation, SOV and our partner organizations would advocate for public funding programs specific to co-operative housing, similar to those that worked in the past. In the 1960s-70s, for example, an estimated 60,000 co-op units were created with financing from HUD programs, provided in the form of technical assistance and very low interest loans (National Association of Housing Cooperatives). While similar public financing programs in other states have been used for shared equity developments more recently, this has been sporadic. But because they do not require the kinds of deep and ongoing subsidies typical of existing affordable housing programs, we think a persuasive case can be made for more public investment along these lines.

Please elaborate on the description of known challenges and obstacles you provided earlier (in the Initial Application stage), and your strategy for solving those issues.

The major obstacle to developing affordable CLT-LEC housing is finding construction financing that will result in housing that can operate at-cost at carrying charges that are affordable. To develop Emerald Village, SOV engaged in a multi-year capital campaign, raising funds from hundreds of grantors and donors to cover construction costs, along with considerable in-kind donations of materials and services. While this resulted in housing for which no debt payments need to be included in monthly carrying charges, doing so required a significant amount of organizational time and resources on top of actual development. We are facing a similar challenge with Cottage Village, where we are competing with a dozen other capital campaigns in the small town of Cottage Grove, Oregon.

Alternative sources of financing also pose challenges. Public funding levels for new affordable housing construction remain inadequate, and as Meyer’s 2015 cost efficiencies work group reported, the complexity of existing public programs and the requirements they impose add unnecessary costs to new development. In addition, attracting private capital for affordable housing given existing market conditions is difficult, particularly for cooperative housing aimed at operating at-cost.

A related challenge is the fact that the shared equity ownership model we are proposing is a significant departure from the status quo, and is unfamiliar to many potential funders and sources of development capital. Yet while not as common as single-family homeownership or conventional rental housing, cooperatives have a proven track record of success in delivering affordable housing over the long term, particularly when coupled with mechanisms that ensure permanent affordability, such as equity appreciation formulas or partnership with a land steward.

Strategy:

We recognize that finding a viable financing strategy is critical to the success of this proposal. But we are confident that this model of shared equity housing can be scaled with a mix of donor and investment capital in a way that retains affordability.

Our plan to overcome this obstacle will involve:

  1. Obtaining technical assistance from entities that can assist in developing creative methods to finance our proposed housing model. These include social investment funds and other lenders that are interested in shared equity housing or who have experience working with co-operatives.

  2. Partnering with the Neighborhood Economic Development Corporation (NEDCO), a local community development financial institution (CDFI), to find ways CDFIs can assist in the development process. These may include creating a financing vehicle that can attract social investors and reduce the cost of borrowing for new developments.

  3. Obtaining financing information and advice from organizations who have successfully developed shared equity housing like the Lopez Community Land Trust in Washington, which has obtained construction and permanent financing for similar developments by working closely with local lenders.

  4. Advocating for investment in this form of housing by educating lenders about the benefits of cooperative housing. While not the norm in multifamily housing, research has shown that cooperatives offer a wide range of benefits to stakeholders in the development process. Compared to similar multifamily rental housing, co-ops have lower ongoing property management costs (Parliament et al. 1998), and have historically been a lower risk investment to both lenders and the government (Calhoun and Walker 1994).

The findings from this work will be included in our Village Framework Plan and published as part of our Toolbox.

Does your approach rely on a form of housing that is a significant departure from housing accepted on the private market in terms of living space, privacy, quality of materials, amenities, etc? If so, please clarify how you address any potential concerns over whether this form of housing is acceptable and adequate, from the point-of-view of potential residents.

Does your approach rely on a form of housing that is a significant departure from housing accepted on the private market in terms of living space, privacy, quality of materials, amenities, etc? If so, please clarify how you address any potential concerns over whether this form of housing is acceptable and adequate, from the point-of-view of potential residents.

Our participatory development process has allowed us to take in a lot of feedback on what people are looking for in their housing, both from prospective residents and the surrounding community. Most often people’s responses have less to do with the physical nature of the housing and more to do with a sense of belonging and community. When they do speak of the physical, it is often a means to this end of creating a sense of community. For example, a lot of people are attracted to our model because it provides autonomy over a modest personal space while being connected to a network of common spaces and buildings. This is something not offered by the two predominant housing options—the single-family house and the apartment building—which both tend to encourage social isolation.

And so while our tiny house villages are a departure from what is currently available on the private market, there is broad public interest in making this housing option more readily available. This was demonstrated by the State’s recent adoption of a tiny house building code under the new REACH code.

While we are confident that tiny houses are of growing interest, regardless of income, we have taken steps to further analyze how to improve this housing option. Our Emerald Village development includes 22 unique tiny houses designs by different designers and architects, and we have begun conducting post occupancy evaluation with the initial residents in order to inform future design decisions. Feedback so far has been positive, and we are tracking specific things to improve future developments.

Describe how your approach benefits/promotes diversity, equity and inclusion.

Our primary approach to promoting diversity, equity and inclusion has been to engage prospective residents and the surrounding community in the housing development process. Thus, SOV not only builds affordable housing, we build equity through diverse community collaborations.

SOV’s approach emphasizes a collaboration among stakeholders; a community-driven initiative between those who are housed and those who are unhoused or underserved/under-resourced. The SOV village model involves a multitude of partnerships including service providers, churches, professionals, volunteer organizations, city and county officials, civic leaders, prospective residents, and other concerned citizens.

Through this type of broad collaboration, the local community comes together around a common cause. Issues are brought forth, and collaborative thought and effort are brought to bear on solutions. Positive perceptions of the project are increased, and support from existing and potential opinion leaders, donors, and volunteers is built and strengthened. Community participation can also improve overall attitudes toward people who are homeless or have very low incomes, as well as inspiring community good will toward the organization of any future projects.

Our collaborative process also assists us in affirmative marketing and outreach. SOV has an advisory board of individuals who bring a range and diversity of professional experience and community involvement to our work, allowing us to better reach low-income community members of color, people with disabilities, or who have other barriers to securing housing. We encourage other organizations that we work with to do the same.

What is new and different in what you propose? In what ways is your approach different from well-understood and established models for providing affordable housing? If it is an iteration or further improvement upon an established approach (or one becoming more common) be clear on how what you plan to do is different and better.

This proposal differs from SOV’s previous Cost Efficiency grants in that we are shifting the focus from developing an individual tiny house village to creating a thriving network of villages using a CLT-LEC ownership structure with a sustainable development financing model that can be easily replicated by interested groups around the country.

A “tiny house village” has become an increasingly familiar concept in housing conversations over the past few years. The recent adoption of a tiny house building code in the new Oregon REACH Code signifies a major milestone in that progression by providing a legal pathway for building tiny houses, which are now defined as 400 square feet or less. Emerald Village provided an innovative demonstration project on which to support arguments for this new building codel. As a result building small will be easier and more efficient for future projects.

Now that “tiny house” is within the lexicon of every Oregon building official, it is time to build upon this momentum. In thinking about how to scale this newly accepted housing option, it is imperative to avoid the risk of losing other innovative components of the village model beyond the physical form.

SOV is not just proposing clusters of tiny houses. We’re proposing a development process and form of shared equity housing that is different from the current norm, but that also has a solid track record and history of successes with an added benefit of land stewardship that ensures permanent affordability and ongoing support. Champlain Housing Trust in Vermont and Lopez Housing Trust in Washington provide strong existing precedent for the benefits of this type of shared equity housing from which Oregon can learn. To our knowledge, Emerald Village is the first project in the state to implement this ownership structure.

The proposed Village Framework Plan will weave together these two innovative concepts of tiny house villages and shared equity ownership, providing a vision and pathway for taking this housing model to the next level without compromising core values that contribute to its overall success and sustainability.

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