Forterra is using our real estate expertise to put co-op ownership in community hands.
The population of Puget Sound is expected to grow an average of 55,000 people a year, reaching almost six million by 2050. The influx of newcomers has created a housing shortage and higher rents—displacing longtime residents and recent immigrants—and a severing of historic, cultural, and family ties that make Washington a place of stable, caring communities and cultural diversity.
What is cooperative housing?
Cooperatives exist all around the world—as credit unions, stores, child care, housing, farms, and work places. Cooperative home ownership, co-op housing for short, is a tool that can help lower costs of home ownership and center ownership around resident’s needs.
Typically there are three types of real estate ownership:
- Fee ownership: owning the home and land on it, like a single-family home.
- Condominium ownership: owning the interior of the home and sharing the ownership of the land and common areas.
- Co-op ownership: Owning a share of a stock in a corporation that owns the home and land and receiving a lease to a unit.
How do co-ops work?
Unlike condo residents who own their unit, co-op residents purchase stock in a corporation that owns the building and land and receive a lease to their unit. The nonprofit corporation is owned entirely by residents, not by any outside investors.
Residents in co-ops work together. When making decisions, each unit gets one vote. Here lies the appeal of co-ops: control over costs and the opportunity to integrate the values of a community into the identity and operation of the building.
Co-ops offer a less expensive alternative to condominiums
Co-ops lower housing costs in three main ways: tax savings, smaller closing costs, lower down payment, and lower monthly fees.
Co-ops reap tax savings
Taxes are assessed on the entire building rather than on each individual unit, leading to a lower tax bill (occupants contribute according to the number of shares they own). Because unit sales are considered stock sales, the property is not reassessed, which keeps taxes low. This benefit increases with successive generations of owners.
Co-ops have few to no closing costs
Because purchasing a co-op home is not a real estate transaction, but the purchase of a stock sale.
Co-ops can have lower down payment costs
The cooperative “blanket loan” carries more of the debt, which means there is a lower cost to the individual shareholders in the co-op.
Co-ops have lower monthly fees
Co-op owners make monthly payments toward the building loan, called a blanket mortgage. The payment is shared among all the co-op homeowners. Property taxes and homeowner’s insurance are combined with expenses such as water, garbage, and sewer and pooled for the entire building. Because co-ops are not beholden to investors and are self-managed, they operate at cost. Moreover, paying for these expenses as a building is more economical.
Fostering stable communities
Residents are part of a cooperatively-owned corporation – and a community fed by the shared responsibility of managing and maintaining the building and living in close proximity.
Co-op owners can swap units, perhaps trading up with the birth of a child or downsizing at retirement, making it often unnecessary to leave the co-op community. Shares are inheritable and so units are easily passed down to the next generation. And of course, there is social stability and economic security in ownership, all the more important in the face of gentrification.
Co-ops draft their own by-laws which establish the culture and practices of the building, such as occupancy requirements, the right to rent out a unit, the cost of shares, and more. The elected members of the co-op board interview prospective buyers to ensure a good fit and the ability to pay.
The future in co-operative housing and Forterra
Forterra will use co-ops for some of our housing developments.
The typical loans for co-op development through HUD offer low rates but typically have a lengthy underwriting process. Commercial developers cannot afford to wait, but we can. Using the Strong Community Fund, a social impact fund managed by Forterra, Forterra can buy and hold land—as we did with Wadajir and Hilltop—a practice called land banking.
As a land trust, Forterra has always been in the real estate business. We believe that everyone, regardless of income, needs a decent place to live. And we know that concentrating growth in cities protects wild and rural lands and reduces the carbon emissions associated with long commutes and larger homes. We conserve land and support communities. Co-operative housing is a powerful tool for both.