[bouldercouncilhotline] Hotline: RE: Draft co-op ordinance suggestions

[cmosupport at bouldercolorado.gov]

Sender: Carr, Thomas

Zane,

Thanks so much for your thoughtful analysis of the proposed ordinance.   You have many good and useful ideas.  I am sure that the council will give careful consideration to your work.   I look forward to working productively with you and all of the various stakeholders in our community on this important issue.

Thanks again.

Tom

From: Zane Selvans [mailto:zane.selvans at gmail.com]
Sent: Monday, March 28, 2016 5:00 AM
To: Council <Council at bouldercolorado.gov>
Subject: Draft co-op ordinance suggestions


Dear Boulder City Council,


The Boulder Community Housing Association (BoCHA), has been working for more than two years to craft policies enabling a variety of housing cooperatives while effectively addressing neighborhood concerns. We do not believe the recently published draft cooperative housing ordinance will accomplish either of these goals. The proposed ordinance would likely make rental cooperatives (including permanently affordable, non-profit owned co-ops) impractical, while the provisions for equity cooperatives seem as though they could either invite abuse by unscrupulous property owners, or make the purchase of a property for use as a true equity cooperative too risky for most potential buyers to consider.  Below we highlight several issues with the proposed ordinance and offer some suggestions for how to address them.


Outline:

·         Definitions: We propose the following refined definitions:

o    Private equity housing cooperative means a housing cooperative in which a majority of the adult residents own an interest in the property, a majority of the individuals who own an interest in the property are also residents of the property, and the owner-residents hold a controlling ownership interest in the property. A 501(c)3 non-profit with a housing focused mission may own a minority interest in the property.

o    Group equity housing cooperative means a housing cooperative in which a majority ownership interest is held by either a 501(c)3 non-profit organization with an affordable housing focused mission, or a public housing authority.

o    Rental housing cooperative means any housing cooperative which does not satisfy the requirements for either a private or group equity housing cooperative.

·         Rent Caps: We prefer to limit the impact of co-ops on prevailing rents by giving the co-op permit or license to the cooperative, rather than the property owner. Failing that, indexing acceptable co-op rents to average prevailing rents, rather than what is affordable to a median income household seems more appropriate. Indexing to median income affordability is too restrictive, and will preclude many if not all rental co-ops.

·         Non-profit Co-op Ownership: We suggest changes that would enable non-profit ownership of permanently affordable housing cooperatives, which we believe the draft ordinance would preclude.

·         Equity Cooperative License Renewal: We suggest that private & group equity cooperatives must be perpetual, or buying & renovating the properties will present too much risk to potential co-op members.

·         Non-profit Oversight of Rental Co-ops: For rental co-ops (not owned by a non-profit) we recommend the co-op enter into a management agreement with a qualified non-profit organization.

·         Neighborhood Impacts: We suggest less permissive occupancy and vehicle limits, in order to more effectively address common neighborhood concerns.

·         Penalties & Inspections: We suggest less onerous civil & criminal penalties, and inspections no different from rental license inspections.


We feel the draft definition of a “Cooperative” could be improved, to clarify that it is specific to housing cooperatives, and to be slightly more specific about household governance and expense sharing:


Housing cooperative means a group of people operating as a single housekeeping unit, that shares an entire dwelling, pools resources for a majority of the household’s expenses, and governs itself democratically, with each adult member of the household having equal say over household decisions.


Rent Caps for Rental Cooperatives:

One key purpose of the ordinance is to provide a legal path for the creation of affordable rental co-ops. The proposed ordinance would grant a rental co-op license to the owner of a property to be occupied by the co-op. It would also impose a rent cap equal to what is considered affordable for a family making 100% of the Area Median Income (AMI) in Boulder County, according to Colorado Housing and Finance Authority (CHFA) guidelines. Currently this would mean that a four bedroom home could be rented as a co-op for a maximum of $2885/month. The CHFA guidelines do not include rents for homes with more than four bedrooms, but homes with more than four bedrooms are most suitable for cooperatives, and they usually rent for more than $2885. This is another way of saying that Boulder households earning 100% of AMI are currently unable to affordably rent the larger homes that would be appropriate for cooperatives. If this cap were imposed, rental co-ops would not have meaningful access to the rental market.

If Council wishes to consider imposing a cap on rents in order to ensure that co-ops do not exert upward pressure on housing costs for families, we feel a more appropriate value would be related to prevailing rents for homes of comparable size, quality, and location. For instance, limiting a co-op’s rent to no more than the median rent for similar properties would still give co-ops access to roughly half of the rental market, but would keep them from shifting the overall distribution of rents upward.


An Alternative Rent Control Mechanism:

Our preferred means of ensuring that rental cooperatives do not exert undue price pressure on the overall housing market is to give pricing power to the cooperative household (which benefits from low prices), rather than the property owner (who benefits from high prices), by granting a cooperative rental license to a group of prospective co-op residents who have established a corporation in good standing with the state of Colorado. The license would still be granted for use in a particular property, but if the rent were to increase unacceptably, the cooperative group could re-locate, and apply for another license at a different location.  The limited number of rental co-op licenses, and the limited number of households interested in this type of living would ensure a market with many sellers (landlords) and few buyers (co-op groups), which gives preferential pricing power to the buyers (see: oligopsony<https://en.wikipedia.org/wiki/Oligopsony>). Rents would be set by mutual agreement of the rental co-op and the property owner, and might be marginally higher than prevailing rents for comparable properties to account for increased wear and tear on the property resulting from higher occupancy, but would not affect the overall housing market.


Non-profit Oversight of Rental Cooperatives:

In the case where a rental cooperative occupies a property which is not owned by a 501(c)3 non-profit with an affordable housing mission, we recommend that the rental co-op enter into a management and oversight agreement with such an organization, giving them the power to cure code violations and terminate resident leases if violated. The management agreement could include requirements as to the content of the master leasing agreement between the co-op and the property owner, as well as the co-op’s by-laws, governing household practices and procedures, demonstrating that they are a valid co-op.


Non-profit Ownership of Rental Cooperatives:

The draft ordinance does not differentiate between co-ops renting from profit-motivated, potentially absentee landlords (often known as leasing cooperatives), and co-ops renting from non-profit organizations that are dedicated to providing affordable housing, and which are governed by co-op members. The latter situation is referred to as a group equity cooperative, and it is a common model used by cooperative housing systems nationwide (see the North American Students of Cooperation<https://www.nasco.coop/>). We feel that these two cases are qualitatively very different, and require different types of regulation, which we discuss below.


Private Equity Housing Cooperative Definition:

Private equity housing cooperatives are the type of cooperatives BRC 9-6-3(b) was intended to enable, in which several individuals own shares of a house which they occupy. In the proposed ordinance language Private equity cooperatives are defined as, “a cooperative operating on a property owned jointly by the residents of the cooperative.” We feel this definition is too broad, because it does not specify what proportion of the property’s ownership interest must be held by co-op residents.  For instance, might it be possible for an unscrupulous landlord to create an LLC to hold the property and retain 99% ownership of that LLC, giving only 1% ownership to the “co-op” residents? If so, the property owner could then put as many people as they want in the building, subject only to the IPMC occupancy limits.  We suggest the following definition:


Private equity housing cooperative means a housing cooperative in which a majority of the adult residents own an interest in the property, a majority of the individuals who own an interest in the property are also residents of the property, and the owner-residents hold a controlling ownership interest in the property. A 501(c)3 non-profit with a housing focused mission may own a minority interest in the property.


This definition would ensure that:

·         most residents are owners, with a long term interest in being good neighbors,

·         most owners are residents, as opposed to absentee investors, and

·         that the residents of the property can exercise control over it if need be.


We believe that this definition will both close the potential loophole noted above, and allow greater flexibility for private equity housing cooperatives. For instance, a prospective equity co-op member could live in the community for a year as a renter before deciding to purchase a share of the cooperative. Allowing partial non-profit ownership can facilitate the gradual conversion of a private equity housing cooperative into a permanently affordable group equity housing cooperative (discussed below).


Limited Equity Housing Cooperative Definition:

The draft ordinance defines a limited equity cooperative as “a cooperative operating on a property owned in part by its occupants. A not-for-profit corporation may also own an interest in the property.” This definition is at odds with the generally accepted meaning of the term (see the National Association of Housing Cooperatives<http://coophousing.org/resources/owning-a-cooperative/buying-into-a-housing-cooperative/#paragraph7>).

Limited equity cooperatives are defined by restrictions on the proceeds that can be realized when a member sells their shares. These are usually imposed because the co-op benefits from favorable financing terms, affordable housing grants, real estate tax abatement, or other policy mechanisms that make the housing more affordable to both initial and future residents. In some cooperatives these limitations are voluntarily imposed by members. This affordability mechanism is is similar to the way that the resale formulas defined by community land trusts (CLTs) limit the appreciation of properties located on CLT land, or the way that the city of Boulder imposes limits on the appreciation of permanently affordable homes purchased under its “Homeworks” program.

We do not believe that limited equity housing cooperatives need to be defined in the ordinance. Instead, they can exist as a special case of the private equity housing cooperative, in which limits on share appreciation have been accepted by co-op members.


Group Equity Housing Cooperatives:

Group equity housing cooperatives are not defined in the draft ordinance, but we believe they are important to distinguish from rental cooperatives in which the property owner may have no interest in the cooperative nature of the household.  We propose the following definition:


Group equity housing cooperative means a housing cooperative in which a majority ownership interest is held by either a 501(c)3 non-profit organization with an affordable housing focused mission, or a public housing authority.


A public housing authority is included in the definition in case they need to act as an owner of last resort after a group equity non-profit is dissolved, or in case the property is owned by a partnership between a non-profit and a housing authority.

            Group equity cooperatives are important to distinguish from rental cooperatives because while individual co-op residents do not accrue equity in the property, they play a role in governing the organization that owns the property. Additionally, the owner has a long term interest in providing affordable housing and maintaining the cooperative nature of the household, rather than being a profit-maximizing market actor. Enabling this type of permanently affordable shared housing is directly supportive of the city’s affordable housing goals.


Rental Housing Cooperative Definition:

Given the above definitions of private equity and group equity housing cooperatives, we propose a new definition for rental cooperatives:


Rental housing cooperative means any housing cooperative which does not satisfy the requirements for either a private or group equity housing cooperative.


This definition would encompass a co-op occupying a property owned by one or two of the residents, as well as a co-op occupied by an absentee landlord.


Housing Cooperative License Renewal Requirements:

We agree that the proposed quadrennial housing cooperative license renewal is appropriate for rental cooperatives (as defined above).

We feel the license renewal requirement is unworkable for private equity cooperatives in which members have invested significant time and capital, and taken on substantial debt in order to purchase the property. Given these commitments, potential equity cooperative members need to know that their permit will remain valid for as long as they comply with the agreements set forth in the initial application.

            Similarly, a non-profit organization (like the Boulder Housing Coalition) that is trying to provide affordable housing in the form of a group equity cooperative needs to know that its investment in the property is secure. Most sources of affordable housing funding require a long term commitment to affordability. In the case of funding from the City of Boulder’s Division of Housing, permanent affordability is required, and enforced by deed restrictions and covenants that run with the property in perpetuity. Periodically subjecting a group equity cooperative to the possibility of losing its license to operate the property as a housing cooperative would preclude this type of housing from receiving affordable housing funds, and make it very unlikely that any non-profit owned housing cooperatives would be formed.


Neighborhood Concerns: Occupancy Limits, Parking & Traffic:

We are worried that the number of residents and vehicles allowed at each housing cooperative under the draft ordinance will not effectively address neighborhood concerns about quality of life impacts. The only occupancy limits imposed by the draft ordinance are the health and safety limits listed in the International Property Maintenance Code (IPMC). No existing co-op in Boulder that we are aware of comes anywhere close to that level of occupancy, but we suspect that the number of hypothetically possible occupants under the IPMC may be unacceptably high for many neighborhoods.

Instead, we initially proposed a flat minimum of 150 sf habitable area per co-op resident. During the January 26th study session, Council member Appelbaum suggested a fixed minimum area for common space, plus a flat minimum square footage requirement per resident. Requiring 200 sf of common space, plus 140 sf/person would allow for all the existing cooperative households we are aware of to continue operating.  It would also provide a well defined occupancy limit for each co-op that can be easily calculated based on county records showing the habitable area of each property.

Similarly, limiting the number of vehicles by allowing cooperatives to have no more than 3 on-street vehicles may do little to calm neighborhood parking concerns. Instead we have proposed a more restrictive total cap of 4 vehicles, on or off street, per cooperative. We believe this type of regulation is more enforceable, and would also help minimize any additional traffic impacts resulting from the cooperative.


Penalties & Inspections:

The proposed ordinance contains onerous fines, even criminal penalties and additional administrative burdens, including an additional housing inspection on top of what is required to obtain a rental license, are likely to dissuade property owners from renting to cooperatives, limiting the pool of properties available to rental cooperatives. Punishments for violations including up to 90 days in jail and fines of up to $2,000 appear excessive. We propose that the fines and criminal penalties be reduced and that potential rental cooperative properties simply be required to have a current valid rental license.


Neighborhood Compatibility:

            The requirement that cooperatives “maintain compatibility with the neighborhood” described in draft ordinance section 10-11-12 seems overly vague, and unnecessary, given the requirement that the cooperative comply with existing noise, trash, and weed removal ordinances, in addition to implementing a parking management plan.


Thank you for taking the time to read this far. We hope that by addressing these issues together, we can arrive at an ordinance that will enable a range of cooperative housing options while effectively addressing neighborhood concerns, and the potential impacts of cooperative housing on the broader housing market in Boulder.


--
Zane A. Selvans
Amateur Earthling, PhD
+1.303.815.6866 (mobile)
@ZaneSelvans<https://twitter.com/ZaneSelvans> (twitter)
PGP: 55E0815F<http://pgp.mit.edu/pks/lookup?op=get&search=0x9CD7EA1355E0815F>

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