28 May 2015
This article will explore the particular relevance of the Blueprint for a Co-operative Decade for housing co-operatives. The elements and origins of the Blueprint will be well known to readers. To recap for ease of reference for the present article, the intention of the Blueprint, as adopted by the Alliance General Assembly, is to mark the beginning of a worldwide campaign to “take the co-operative way of doing business to a new level”. In summary the five elements of the Blueprint are as follows.
1. Participation – the elevation of participation within membership and governance to a new level
2. Sustainability – the fostering of greater economic, social and environmental sustainability within the co-op business model
3. Identity – building the co-operative message and securing the co-operative identity as defined by the core values and principles of co-operation
4. Legal frameworks – ensuring supportive legal frameworks for co-operative growth
5. Capital – securing the reliable capital co-operatives need to establish themselves and to grow and flourish while guaranteeing member control.
Clearly, the Blueprint has resonance for all forms of co-operatives. What particular relevance do they have for co-operative housing? Let us look at each element in turn.
By way of setting the context for this element, it is important to understand the particular nature of member patronage in a housing co-op. Unlike other forms of consumer co-operative (of which housing co-operatives are a particular form), housing co-op members patronize their co-ops on a continuing, daily basis – in fact they spend the majority of their lives in the co-op because that is where they make their homes. The only co-operatives members who come close to this level of patronage are those that belong to worker co‑operatives.
The opportunities for member engagement in the democratic and community life of the co-op are therefore much more readily available. As are opportunities for enhancing the members’ understanding of co-operative principles and values and to provide resources that will enable members to take part in co-operative governance bodies. In many cases, facilities are available to bring the membership together to participate collectively in person.
The challenge for housing co-ops as we look towards 2020 is to take advantage of these opportunities as fully as possible without over-taxing the members’ time and attention – easily done when the members live in such close proximity. Creativity rather than conscription is the order of the day. If the members see positive value in engaging within the life of the co-operative they will seek out opportunities to do that.
But where there is a lack of transparency and accountability, weak governance and cronyism and the uneven application of rules and bylaws, or any of these, the membership will withdraw. And, it must be understood, these shortcomings are highly visible in a co-operative where your fellow members are your neighbours. But where there is strength in these aspects of co-operative life, there is an opportunity like no other in the co-operative world to have customers of the co-op’s services see themselves also as the mutual and collectively beneficial providers of those services on a co-operative basis.
Housing co-ops must address two challenges of economic sustainability: capital economic sustainability and operating economic sustainability. The two are closely linked.
We use the word capital here to refer not to financial capital (we will come to this below) but to the fixed assets – the housing stock – that are the foundation of a housing co-op’s business model. The stock is a durable, though not inexhaustible asset and its sustainability requires long-term asset planning for its preservation and renewal.
To achieve this purpose, a sustainable economic plan is required. Income generation through housing revenues must be sufficient not merely to cover current operations but also to provide adequate resources to permit continuous reinvestment in the housing stock, whether through reserve accumulation or the servicing of capital debt. Hence the causal link between operating and capital economic sustainability.
The Blueprint document speaks eloquently of the necessity for co-ops to place human need at their centre, and of the importance of outcomes for a range of stakeholders and of acting in the interests of the members. Housing co-ops must be sure to take the long view of these purposes. It is possible for housing co-ops to fall into the trap of economic short-termism, just as it is for investor-owned enterprises. The danger is that by focusing only on the short-term financial benefit of current members and stakeholders, the interests of future members and the long-term sustainability of the housing stock will be compromised. Housing co-ops must always take the long view in financial planning and revenue generation.
If social capital is a cornerstone of social sustainability, housing co-operatives are uniquely positioned to develop it. As with all forms of co-operative, social cohesion builds where there is an adequately robust democratic and member engagement process in place. But housing co-ops have the great advantage of also being communities of place. Members are able take advantage of their physical proximity to develop social networks within which shared values and social co-operation are fostered. In doing so, housing co-ops contribute to the stock of social capital locally, and in the aggregate, regionally and nationally.
Housing co-ops are also in the business of providing community social benefit through the relief of housing poverty. In many countries, in the developed and developing world, housing co-ops contribute to the meeting of social policy goals through the provision of affordable, adequate, safe shelter to those in housing need. Moreover, they do so not as clients of the state but as autonomous enterprises that may form partnerships with governments and not be subordinate to them.
As owners of significant real property, housing co-operatives can either make a leading contribution to the building of environmental sustainability or allow a great opportunity to pass by. Fortunately the record shows the former is the case: that in intent at least, housing co-ops want to contribute to a healthy environment.
As housing businesses, co-ops have great potential to achieve that objective. Through energy-saving retrofits (for which there are a range of support programs available), the use of sustainable forestry products and other building materials, and the implementation of household recycling systems, all housing co-ops can make a significant contribution to the reduction or even elimination of their community carbon footprint. Larger co-ops may well be able to do more, through the supply to members of preferred green products, the seeking of certification standards such as LEED for an entire development, and the delivery of power to the members from renewable energy sources.
Housing co-ops that are committed to the values and principles of the movement already have an incentive to protect their environment that other multiple residential housing businesses do not: through their commitment to community. It is important that the international movement continues to highlight this principle as it applies to housing co-operatives and their particular potential to lead by example in environmental sustainability.
Housing co-ops are no different from any other “true” co-operatives (as contrasted with corporations that organize as co-operatives purely as a matter of convenience rather than purpose) when it comes to their co-operative identity. They are participatory democracies. They are enterprises owned and directed by their members and their elected leadership. They are people-focused, organized for the benefit of the many, rather than the interests of the few. And they collectively subscribe to the values and principles that are universal to the movement.
At least this applies in theory. In reality, while the leadership of a co-op may have a strong awareness and commitment to the co-operative difference, a great many users of the co-ops service may not. For example, the member of a retail co-op, or of a credit union, may have little or no understanding of the value proposition that underlies the co-op to which they belong. The same can be true of those joining a housing co-op. Their primary motivation may well be to find decent shelter they can afford, which is completely understandable where housing need is paramount. Fortunately housing co-ops are well placed to transform a housing customer into a member of a co-operative.
The advantage again is the physical nature of a housing project. It is relatively easy to draw members together in voluntary events that explain the co-op advantage and the vision and values of the movement that together forge the co-op identity. Members so oriented are much more likely to engage in the co-op’s participatory democracy and to take their place among the leadership over time.
Housing co-ops have a second advantage in proclaiming their identity. They are physically present in their neighbourhoods, often very noticeably so. They have opportunities to identify themselves as co-operatives, both visibly and in their engagement in and contribution to the broader community as good corporate citizens.
The potential for the sustainability and growth of any formally constituted co‑operative is dependent on enabling legal and regulatory frameworks, the political will to support them and the equitable application of the rule of law. Housing co-ops are no different, as uneven experiences over recent decades have shown.
Housing co-ops need enabling legislation for their establishment and corporate good-standing, for adequate governance structures, and for the establishment of the rights and responsibilities of members. In addition, as residential property developers and owners, matters of land use rights and title, access to favourable municipal zoning and services, and residential by-laws all require the underpinning of consistent by-laws and planning codes. Where access to government assistance is required to ensure measures of affordability a level playing field is needed that allows co‑operatives equal access to funding programs.
Recent history has shown that countries and jurisdictions within them cannot always be relied upon to ensure consistency in these matters. In some cases, new ruling administrations have been seen to reverse course on the law and public policy as it relates to co‑operatives, making it difficult for housing co-operatives to continue as co-operative associations and impossible to secure new co-op housing development.
As the Blueprint notes, “Co-operative capital generally comes from either members by way of share capital, or retained earnings…retained earnings take time to build up, and are not available at start-up.” Share capital is inadequate to the capitalization needs of the modern co-operative and the threat to co‑operative autonomy and member control in seeking third-party sources of capital is well documented.
Housing co-operatives have a distinct advantage in this environment. Because, in seeking sources of investing, they are in the process of becoming or already are owners of real-estate assets, they can make use of a tool common to homeownership everywhere – mortgage financing and refinancing. In this way, subject only to the covenants of a mortgage agreement, housing co-ops are able to access considerable pools of capital without risking member control. This does not diminish the importance of member share capital where that has been central to the co-operative housing form (this is not the case universally) or the creation of reserves from retained earnings). Mortgage financing can offer the scope of financing needed for real-estate investing where other means prove insufficient.
Depending on the scale of the co-operative housing movement in a given jurisdiction (or the community housing sector generally), more ambitious debt financing may be available through the issuing of bonds in capital markets. Such bonds may be guaranteed by governments with housing policy objectives in mind; or they can be rated by bond rating agencies and made available to investors. The bond rating will indicate the level of repayment risk for the investor and therefore the return the issuer must offer to place the debt.
At the other end of the scale, housing co-op growth in developing countries may depend largely on micro-financing made available through co-operative lenders, which can also leverage government capital. In East Africa for example, co-op members can use micro financing to build their homes one room at a time, repaying an initial loan before borrowing again to add additional rooms and facilities. This has proven a remarkably effective tool in the struggle to eliminate chronic housing insufficiency.
It can be seen that in viewing the Blueprint for a Co-operative Decade through a co-operative housing lens, there are aspects that apply as equally as they do to any form of co-operative, without need for sector-specific interpretation. At the same time, in realiding the vision of the Co‑operative Decade, the housing sector faces its own particular challenges but can also benefit from its particular advantages, as will be the case for all of the Alliance’s business sectors.