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NONPROFIT HOUSING PROJECTS IN THE UNITED STATES (Based on report prepared by the Bureau of Labor Statistics Bulletin No. 896,
The cooperative housing groups in the United States have been established to take advantage of the economic and social benefits from group action. Their goal is to reduce costs for their members by producing or purchasing housing accommodations and by maintaining the projects. Cooperative housing has a further objective as a demonstration that men working together can build about them a better place to live.
The savings from cooperative action arise from (1) the nonprofit nature of cooperative or mutual enterprise, (2) the elimination of unnecessary expenses or waste, (3) good planning, and (4) in some cases by increasing the owner's opportunity to furnish a part of the labor or materials required for his dwelling. In the permanent operation and maintenance of some or all of the properties, housing cooperatives reduce costs by lower vacancy turn-over and by less property deterioration than under the usual tenancy.
Prior to World War II, most of the cooperative housing in the United States was limited to apartment houses which had been built or purchased by cooperative associations. There were also some cooperative developments which provided single-family dwellings. It was not until after World War II, with the extreme housing shortage, that a new wave of housing cooperatives developed. Encouraged by the advantages resulting from cooperative effort, many veteran and labor groups built housing ranging from a few units to entire projects including stores and churches. Some purchased units from the Government and cooperatively own and manage the projects; still others are in the planning stages or are no longer active.
This report discusses the experience of selected housing cooperative projects which are indicative of the experiences of other housing cooperative groups. Two of the projects considered are examples of all-the-way cooperative housing, the cooperative being responsible for all the steps through completion of the dwellings and retaining permanent title to the property. One of the projects illustrates those cooperative groups which do not participate in the preconstruction or construction stages but take over a finished project. There are also three projects in which self-help is the significant feature under which the members do à considerable part of the construction labor themselves and receive title to their properties on completion of the project or of payment.
The remaining projects illustrate several other types of cooperative action-the development of a new community complete with streets and public utilities; varying degrees of participation by labor organizations; a building guild experiment to provide annual wages to building-trade workers as well as houses for the members; and certain rather uncommon financing methods.
SPONSORSHIP OF PROJECTS
The initiative for starting a housing cooperative may come from various quarters. The projects discussed in this report were carried on under various types of sponsorship. Three were sponsored by one or more labor organizations. In one of the projects the sponsor was a clothing-trade union and in two a textile union. Sponsors of other projects included a university employees' association, a city housing commission, a religious service organization, a private citizen, a United States Senator, and a foundation. The other projects discussed in the report were without outside sponsorship.
MEMBERSHIP CONSIDERATIONS Membership rights
Generally, membership in a cooperative is open to all those who are interested in securing housing on a cooperative basis. A few groups have admitted only members of the sponsoring association. Only after the project is completed and the dwelling units are occupied is membership restricted to the member owners. This action is taken because nonresidents are not interested in becoming members of an association which does not provide them with benefits and the residents themselves would probably not want to have nonresident participation in running their affairs.
In associations adhering strictly to the cooperative principle, the member does not secure title to an individual dwelling but receives stock in the association or a certificate of indebtedness. A withdrawing member turns his stock back to the association either at par or in an amount arrived at by appraisal which takes into consideration depreciation and current market conditions. The most use of the lease-stock arrangement has been made in proiects of the apartment house or multifamily type because of the difficulty of giving title to a single apartment or dwelling unit. The experience of the Amalgamated group covering over 20 years is indicative of the success of the lease-stock arrangement. The lease arrangement is also a feature of the mutual plans at Dayton, Ohio, and South Bend, Ind.
The majority of the projects have an agreement between the housing association and the member whereby there is a limitation on the member's right to dispose of the dwelling occupied by him. In most instances a member desiring to withdraw and dispose of his holdings is required to give the association an opportunity to redeem his equity. If it fails to do so within a specified time, he is at liberty to transfer it to a purchaser acceptable to the association.
In some cases the redemption provision was a dead letter because the association had no funds with which to redeem the member's equity. In others the association had given the member title to his dwelling and could not enforce the withdrawal provisions. For example, in the St. Paul project giving of title led to some houses being sold three or four times, each time at a higher figure. The cooperative spirit in which the homes were undertaken disappeared. At Front Royal, Va., almost before the houses were completed, one dwelling had been sold by a member at a $2,000 profit. Among the described associations in which individual title rests with the member, Crestwood, Wis., appears to be most successful in retaining its original group intact. Several houses had been sold but none at disproportionate prices. Members' financial interest
There is considerable variation in the down payment required in cooperative projects. In the Amalgamated buildings, where the development cost averaged about $1,500 per_room, a member was required to pay $500 a room. The down payment in the East River Cooperative Apartments is about $500 or 20 percent. In most of the projects discussed in this report, each member is required to have an initial equity amounting to about 10 percent.
To provide a reserve against disasters, some of the cooperative groups have an arrangement under which the individual members pay off their indebtedness at a faster rate than the association itself, thus building up reserves which can be drawn when needed. Various forms of insurance have also been used to protect the participating families and incidentally the whole project.
Funds for the financing of cooperative housing are secured from members' down payments, the sale of stock and debentures, and the contracting of mortgage loans from insurance companies, banks, and other financial institutions. Some of the cooperatives were financed from union funds while others received aid from the Federal, State, and local governments.
Several of the projects discussed in this report illustrate financial participation by public authorities. In 1934 a FPWA loan was made to one of the projects. Another example of Government participation is the mutual home-ownership projects. All the steps of land acquisition, community lay-out, and construction were first carried out by the Federal Government as war housing, using funds provided by congressional appropriations. The cooperatives entered the picture only at the end of World War IÌ when the Government began to dispose of war housing. No subsidy was involved as “economic” rents were paid by the residents during Federal operation and the property was purchased by the cooperatives at sums fixed by appraisers as representing its current value.
City assistance in various forms is involved in one of the projects constructed under the New York State Redevelopment Companies Act. The act offers organizations which meet its requirements of rentals not to exceed specified amounts and limited return on investment the advantages of land prices reduced through condemnation and the exemption of all improvements from taxes for a period of 25 years.
Other examples of Government financing include a project which received loans from a State agency which used Federal relief funds and another project financed by city and county participation.
COOPERATIVE ACCOMPLISHMENTS Among the accomplishments of cooperative action in the projects here described were the following, each of which resulted in substantial savings for the membership:
1. Land acquisition, provision of public utilities, and complete community planning.
2. Integrated architectural and contractual services.
5. House construction on contract or by exchange of labor. This saving cannot be evaluated but it is known to be great.
6. Permanent operation and maintenance of some or all of the property.
7. Tax savings, made possible by group operation under urban redevelopment acts or under limited-dividend statutes, resulting in a saving of $30,000 per year in one project.
8. Interest savings by group negotiation, resulting in savings of $97,865 in one case, $900 per year in another, and over $2,700 per year in a third.
DIFFICULTIES FACED BY HOUSING COOPERATIVES
Undoubtedly one of the major needs of the cooperatives and one that most of them feel is that of competence in the technical matters of law (incorporating the association, searching titles, drawing up and closing land-purchase and buildingconstruction contracts, etc.), selection of qualified architects and contractors as well as accounting and possibly engineering services. Such specialized knowledge should be available to housing cooperatives throughout the country.
Cooperatives also depend too often upon the continued solvency of all their members to meet fixed costs. Some of the housing cooperatives are so constituted that if a few members are unable to meet the fixed charges, the entire project may become insolvent.
Another weakness is that housing cooperatives are usually initiated during a period of great housing shortage and high costs. As a result, there are continuously high operating charges and inflated debt structures. If the wage and price level again declines as in the 1930's, the cooperatives may have difficulties holding their membership.
There is also the problem of satisfactory financing. There has been local opposition to cooperatives and fears by mortgage companies that cooperatives are poor risk factors. If the cooperatives have proven themselves as in the case of Amalgamated, the mortgage companies have been interested in financing them.
ALL-THE-WAY COOPERATIVE HOUSING
Amalgamated housing projects, New York City
Probably the best example of cooperative housing in the United States is the Amalgamated Clothing Workers' projects in New York City. The cooperative housing idea was first considered at the 1924 convention of the union, but no definite action was taken until April of 1925. Prior to the convention, a group in the union organized the ACW Corp. to provide themselves with cooperative housing. This organization was taken over by the Amalgamated Clothing Workers which then acted as the agent for construction. Seven building projects were undertaken: Three by the Amalgamated Housing Corp., two by the AH Consumers Society, Inc., one by Amalgamated Dwellings, Inc., and one by East River Cooperative Apartments. There was a total of 1,720 apartments with 6,648 rooms.
Union funds were not used to finance the construction of the projects. At the beginning, the union acted as sponsor and guarantor and several organizations composed of union members or affiliated with the union advanced temporary loans to enable the project to get under way.
Financing.–Both the Amalgamated Housing Corp. and Amalgamated Dwellings, Inc., are limited-dividend companies organized under New York State Housing Act. A. H. Consumers Society, Inc., is organized under the regular corporation law. The buildings constructed by the first two organizations enjoy a 20-year exemption (on buildings, not land). In return, their rental is limited to $11 per room in the Bronx and $12.50 in Manhattan. Under the original limited dividend act, the granting of tax exemption was mandatory if the project was approved by the New York State Board of Housing. Subsequently, the law was
amended making city approval optional. Since some of the benefits were therefore nullified in that rentals were limited without assuring tax exemption, the building erected in 1941 and 1946 were undertaken by the A. H. Čonsumers Society which is not under the housing law.
The first six buildings constructed by Amalgamated cost nearly $1,970,000, of which $315,000 was for land and $1,654,359 for construction. A 20-year 5-percent first mortgage of $1,200,000 was obtained from the Metropolitan Life Insurance Co. The remainder came from payments by the tenant members, at the rate of $500 per room, and from the sale of 6-percent preferred stock to tenants, the union, and other friendly organizations. In addition to the tax exemption (saving nearly $30,000 a year, or $2.11 per room per month), other savings were made such as by the purchase of comparatively low-cost land and by the one-half-of-1percent reduction in interest on the Metropolitan mortgage and from the waiver of the usual recording fees, revenue stamps, etc., by the authorities and the insurance company.
In 1929, building 7 in the Bronx Amalgamated group was completed at a construction cost of $1,003,021. This was followed by the construction of building 9 in 1931-32. This building was considerably smaller than its predecessors and contained only 115 apartments. The total cost was about $570,000, of which $380,000 was obtained on a 5-percent first mortgage from the Metropolitan Life Insurance Co. and the remainder from the members.
The success of the Bronx projects prompted Aaron Rabinowitz, then a member of the New York State Board of Housing, and Herbert H. Lehman, then lieutenant governor (later governor) of New York, to undertake the financial responsibility for the downtown Amalgamated venture. During the construction period they advanced about $800,000. The actual work, however, was carried out by the same group that built the Bronx buildings. The downtown building cost for construction was $1,064,713. The expenditure for land, however, was considerably higher proportionately, bringing the total cost of the project to nearly $1,520,000. It was financed by a mortgage loan of $960,000 from the Bowery Savings Bank, $60,100 from the sale of debenture bonds, and the rest from members' down payments.
Cost and conditions of membership.-In the admission of housing-association members, the members of labor organizations are given preference, but during the nearly 20-year period of operation many persons have changed their occupation, and a good many nonunionists are now living in the development. In general, preference is given to wage earners, members of labor unions, salaried people, and those who can be classified as belonging to the moderate-income group. The needle trades, with the Amalgamated Workers' members comprising the largest single group, account for about 50 percent of the residents of the Bronx apartments and about 25 percent in the downtown building.
In the Bronx buildings, the member applicant for an apartment was required to raise at least 50 percent of the investment; the rest could be met by contracting a loan. In order to enable the applicant to pay this loan over a long period, loans were made available by the Amalgamated Bank in cooperation with the Jewish Daily Forward.
In the case of the Amalgamated Dwellings, Inc., Messrs. Lehman and Rabinowitz pledged $350,000 (this was in addition to the funds supplied by them during the construction period) and authorized the bank to extend loans up to 70 percent of the required equity investment of the applicant.
The average rental in the buildings of the Amalgamated Housing Corp. project (Bronx) is below $11 per room per month; in that of the Amalgamated Dwellings (Manhattan) it is $12.22; and in the buildings of A. H. Consumers Society erected in 1941 (Bronx) it is $13. In the latter association's 1946–47 Bronx building the monthly charge is $16, this higher figure being necessitated by the high cost of construction and the fact that no tax relief is granted.
In the Amalgamated, the redemption problem has been handled very successfully thus far, notwithstanding that the first buildings were built in a period of high prices and were subjected almost immediately to an unprecedented period of depression. Reserves for redemption of shares have been built up through the voluntary contributions by the residents, over a number of years, of half of their patronage refunds from A. H. Consumers Society and the housing corporation. In the spring of 1946 these reserves totaled some $250,000 in the Bronx and $65,000 in the downtown project. East River Cooperative Apartments, New York City
At the time of this report only one cooperative project had been undertaken under the provisions of urban redevelopment law. It is the East River Cooperative Apartments, the most recent Amalgamated project. When this plan was at first conceived, four local savings banks agreed to undertake the financing, the construction, and completion of the project. It was understood that the cooperative organization would raise 20 percent of the cost by the sale of stock or debenture bonds to applicants for housing. The banks were to accept a purchasemoney mortgae to the extent of the other 80 percent. This loan was to run for 25 years at 4 percent, with about 2-percent amortization. The local savings banks were later replaced by the Mutual Life Insurance Co. which was willing to accept 342 percent in interest, and the plan was modified to the extent that the responsibility for the construction and completion of the project was shifted to the cooperative organization. The insurance company limited itself to a loan not to exceed $5,600,000, or 80 percent of a total cost of $7,000,000.
Under the urban redevelopment law, the city agrees to accept the present assessed value (i. e., the unimproved value) of the property as the tax base.
The value of the improvements—buildings, and improvements to land-is exempted from taxes for a period of 25 years, after which the association will pay taxes on the full assessed value. The return on investment is limited to 6 percent of the total actual cost.
The individual prospective cooperator is required to subscribe to $500 of stock or deb
ures for each room for which he applies. Cooperators will pay toward maintenance a charge (rental) not to exceed $15 per room; no rent refunds or rebates are to be declared by the cooperative organization during the first 5 years. All savings are to be applied to reducing the mortgage indebtedness. The $15 per room will go to pay interest on the mortgage, depreciation, maintenance, taxes, etc. The "level payment” plan of amortization of mortgage under which the total monthly payments remain constant (but with an increasing amount of this going on principal as interest payments decrease), is to be used to decrease the mortgage liability. Our Cooperative House, New York City
This project arose from the desire of Consumers' Cooperative Services, an organization operating a chain of cafeterias in New York City, to further the expansion of the cooperative movement. Unclaimed patronage refunds (minus taxes) on nonmember business were put into a reserve for such expansion. By 1929, after 9 years' operation, the reserve had grown to over $136,000. Canvass of the membership indicated housing as a preferred field for action. A piece of land in the Chelsea district of downtown Manhattan was bought and a subsidiary, Rochdale Housing Corp., was formed to undertake the construction of an apartment house.
Financing and fate of project. —Construction was completed and the apartments were ready for occupancy by October 1930. The total cost was $652,700, of which $190,000 went for land, $395,890 for construction, and $66,810 for fees and financing cost. The money was raised by a first-mortgage loan of $300,000 from the Bowery Savings Bank, a second mortgage of $130,000 ($99,152 subscribed by members and $30,848 by CCS), a third mortgage of $119,600 raised by the tenants, a fourth mortgage of $37,700 held by CCS, and a loan of $65,400 to run until such time as all the apartments were taken by member owners.
An association, Our Cooperative House, was formed by the residents and took over the management of the place on a 50-year lease from Rochdale Housing Corp.
However, the depression began to make itself felt with greater and greater severity. Unemployment caused a continuous turn-over in the cooperative's membership with the result that notwithstanding a rent reduction in 1933 and again in 1937, the association could hardly keep the building filled, much less attract owner members. In spite of these difficulties, the association was run economically and had been able to operate within its income until 1935 when it sustained a loss for the first time. A slight recovery for several years thereafter was followed by operating losses year after year beginning with 1940. In 1940 a revision of the mortgage stricture was made.
The heavy mortgage structure and the additional problems entailed by the war, in the form of increased operating costs and frozen rent levels, made necessary another financial reorganization in 1944-45, when the organization was faced with the impossible prospect of having to redeem nearly half of the secondmortgage bonds which were to fall due on September 30, 1945. As of January 1, 1946, our Cooperative House went out of existence, and this cooperative experiment came to an end.
Opinions vary as to the causes of failure. All agree that the primary reason was the dislocation caused by the depression and the consequent unwillingness of prospective members to undertake financial obligations of such magnitude.