Cooperatives are an unfamiliar housing type in Oregon, and an untapped resource for a long-term solution to our escalating housing affordability crisis.
Oregon Housing & Community Services is divided into two divisions: rental housing and homeownership. Unfortunately, cooperatively-owned housing does not fit well within the parameters of either program.
While cooperatively-owned housing is considered a form of homeownership since the residents own a membership share in the co-op, it is financed and operated similar to rental housing. The cooperative corporation owns the housing and carries a single mortgage, and the members pay a monthly carrying charge (rent) to the co-op to cover all operating costs and debt service on the housing.
However, because it is not technically a tenant-landlord relationship under Oregon law, co-ops are excluded from incentives that rental housing receive, like property tax exemptions and Oregon Affordable Housing Tax Credits, even though it may be serving households at the same income level and could directly lower the monthly housing payments of co-op members.
Housing co-ops also don’t fit well within existing homeownership programs, like LIFT Homeownership and the Homeownership Assistance Program (HOAP), or the Homeownership Limited Tax Exemption (HOLTE), which assume traditional, fee simple single-family homeownership.
In cooperatively-owned housing, individuals do not own their dwelling. They own a membership share in a co-op, and the co-op owns the dwellings. In a limited-equity co-op, the maximum appreciation of the share value is restricted (i.e. 3% simple interest). The intent is to balance two interests: allowing for modest equity while also ensuring the housing remains accessible to future households.
There is another option for administering our public housing programs and incentives.
Whenever practical, public funding and incentives for housing should be tenure neutral, meaning similar resources should be offered to all housing developments regardless of ownership type. These programs and policies can still achieve the same goals by simply regulating 1) the income limit of the households served, and 2) the duration the housing is required to remain affordable. This approach has been taken in Sweden, where a quarter of the housing stock is cooperatively-owned.
In the US, the vast majority of housing resources to support low-income households are restricted to rental programs that serve households under 60% area median income. And homeownership programs typically serve households between 60-80% area median income. But when financed with similar subsidies as rental housing, cooperatively-owned housing can also serve households under 60% area median income. And when built on land owned by a community land trust, the affordability of the housing can be ensured in perpetuity, permanently preserving the use of one-time subsidies.
So if a housing development is restricted to households earning 60% area median income or under, and there are mechanisms for ensuring long-term affordability, such as a community land trust or affordable housing covenant, why should it matter if it is rental, shared-equity ownership, or traditional homeownership?
The Oregon state legislature has made commendable progress on making resources available for manufactured dwelling park cooperatives, but the legislative changes were specific to manufactured housing. The program has demonstrated the benefits of the co-op model, and similar benefits should be extended to co-ops with other housing types.
SquareOne Villages is currently developing a 70-unit limited-equity cooperative in Eugene, Peace Village Co-op. It will be the largest housing co-op in Oregon and, to our knowledge, the most accessible pathway to homeownership. We have faced several disincentives for choosing this ownership structure, but believe it offers a compelling model for a long-term solution to our affordable housing crisis, providing residents with control and stability in their housing.
Below are several possible legislative actions that could incentivize the creation of more limited-equity housing co-ops in Oregon.
Legislative Concepts for Expanding Cooperative Housing in Oregon
1) Property Tax Exemption
Background: Oregon offers various property tax exemptions for income-restricted housing, which must be adopted by the local municipality.
Problem: Limited-equity co-ops do not technically qualify for any of the property tax exemptions currently available, even though they are serving low-income households and there are mechanisms for restricting the value of the housing.
Solution A: The Low-Income Rental Housing Property Tax Exemption (ORS 307.515) requires housing to be “offered for rent.” In a co-op, residents pay a monthly carrying charge. LIRHPTE can be amended to include limited-equity cooperatives. This would be the easiest solution for Peace Village Co-op since LIRHPTE is already adopted in Eugene.
Solution B: The Nonprofit Corporation Low-Income Housing Property Tax Exemption (ORS 307.540) requires the housing to be owned by a nonprofit. Expand the definition of Manufactured Dwelling Park Nonprofit Cooperatives (ORS 62.800) so that limited-equity housing cooperatives can also benefit from nonprofit status.
Solution C: Create a new property tax exemption specific to limited-equity housing co-ops. This was proposed in Washington under HB 1350 in the 2022 session.
2) Oregon Affordable Housing Tax Credits (OAHTC)
Background: OAHTCs allow lenders to reduce their interest rates by 4%. In order to qualify under ORS 317.097(5)(b), the housing must 1) be restricted to households earning under 80% area income and 2) the full amount of savings from the reduced interest rate must be passed on to the tenants in the form of reduced housing payments.
Problem: It’s currently unclear whether legislative action is necessary, or if housing co-ops are unable to access this resource simply because they are an unfamiliar concept. Housing co-ops can meet the criteria above. The only nuance is that the resident-members are not technically “tenants” under Oregon Law.
Solution: Allow Peace Village Co-op to access OAHTCs on its permanent bank loan, which would reduce monthly housing costs for residents of Peace Village Co-op by around $65 per month.
3) Homeownership Assistance Program (HOAP)
Background: Eligible nonprofit organizations can receive funding to offer down payment assistance to help low-income households access homeownership.
Problem: In order to be an eligible organization you have to be a certified housing counseling agency that administers a standardized, single-family homeownership education program.
Solution A: Amend the HOAP to allow organizations that assist and educate low-income households on accessing cooperatively-owned housing to be exempt from this requirement, and allow down payment assistance to be utilized towards the share purchase.
Solution B: Utilize general funds to seed a revolving loan fund specifically designed to assist low-income households in paying the initial share purchase for becoming a member of the co-op. SquareOne Villages would be interested in piloting this concept, following the example of Lopez Community Land Trust in Washington.
4) First Right of Refusal to Tenants of Multi-family Rental Housing
Background: Owners of manufactured dwelling parks must give park residents first right of refusal to purchase their park as a cooperative.
Problem: Similar to residents of a manufactured dwelling park, rental housing tenants lack stability and in today’s hot housing market, tenants are at risk of having their long-time home sold out from underneath them.
Solution: Require owners of multi-family rental housing to offer right of first refusal to tenants who form a limited-equity cooperative. This concept was introduced under Oregon HB 3263 in the 2021 session. If combined with the recommendations above, along with a tax incentive for property owners, tenants would be in a much better position to collectively purchase their housing.
5) Tenure Neutrality
Background: The vast majority of public resources and incentives to assist low-income households are specific to rental housing.
Problem: Limited-equity co-ops are typically excluded from rental programs, and also don’t fit well within homeownership programs, which typically assume fee simple single-family housing.
Solution: Whenever feasible, new public funding and incentives for housing should be tenure neutral, meaning similar resources should be offered to all housing developments regardless of ownership type. These programs and policies can still achieve the same goals by simply regulating 1) the income limit of the households served, and 2) the duration the housing is required to remain affordable to that income level.
The Oregon Cooperative Housing Network
The Oregon Cooperative Housing Network was formed to promote the concept of cooperative housing as a desirable and beneficial form of homeownership and to protect the common interest of housing co-ops in Oregon through education, research, lobbying, and the exchange of information. We have found that there is growing interest in cooperative housing throughout the state as a long-term solution to our affordable housing crisis, however there are several barriers to developing cooperatively-owned housing in Oregon. The legislative concepts presented above would create more hospitable conditions for incentivizing developers to respond to the demand, and we plan to pursue these in the 2023 legislative session.
Written by Andrew Heben
Project Director, SquareOne Villages