The Limited Equity Co-op: Promoting Housing Affordability in Boston

Over a hundred people attended People Before Highways on May 22nd at Roxbury Community College, a reunion of activists who stopped multiple highways from destroying Roxbury, Boston’s South End, Jamaica Plain and Cambridge, and publication celebration of Dr. Karilyn Crockett’s book chronicling this remarkable story of community power.  Crockett, who works in Boston’s Small Business Development Office, brought together an intersection of Boston residents from Mayor Marty Walsh and former City Councilor Tito Jackson, to emcee Rep. Byron Rushing and former Rep. Mel King.

Chuck Turner, Fred Salvucci, Charlotte Kahn and David Lee read from their interviews and discussed the history, as well as concerns today in Boston neighborhoods, especially Roxbury, about gentrification and displacement resulting from development that doesn’t prioritize the needs of Boston residents.

HOUSING AFFORDABILITY + STABILITY IN BOSTON

Studio G Architects, with a focus on building sustainable communities, has partnered with Rees Larkin Development on proposals to the City of Boston DND for development of Parcels 2 + 4 in the Marcella Highland neighborhood. Our fresh, innovative, green, and community-oriented design achieves E+ (energy positive) and goes beyond the RFP requirements by implementing Passive House standards.

In addition to achieving a high level of sustainability and design quality, the proposed income-mix for the development extends affordability well beyond the guidelines set forth in the RFP – responding to the neighborhood and City’s deeper affordability goals to ensure that existing Roxbury residents can purchase homes.

On Parcel 2, with 14 3BR rowhouses, 1 is at Roxbury Median Income, 5 at Boston Median Income, and 3 at Metro Area Median Income.

Table_Affordability_Pack2-01

Table 1: Parcel 2 Deep Affordability Mix

On Parcel 4, with 23, 2-bedroom Flats, 3 units at the Roxbury Median Income, 7 units at the Boston Median Income, and 5 are at the Metro Area Median Income.

Table_Affordability_Pack4-01

Table 2: Parcel 4 Deep Affordability Mix

The proposed limited-equity cooperative structure, which the DND strongly encouraged in the RFP, will allow the development to:

  • PROVIDE a PATH TO HOMEOWNERSHIP for Boston residents paying market rate rents who could not purchase a market rate condo AND
  • PROVIDE that OPPORTUNITY to lower-income families.

The deeper income targeting offered by our proposal, with homes targeted to families at 60% and 30% of AMI, would not be possible in a structure that involved the sale of individual, or single-family, homes in fee-simple interest.

EXPLAINING THE LIMITED-EQUITY CO-OP

Randy Foote, a Master of Science candidate at the UMass Boston School of Urban Planning and Community Development, a resident of a cooperative in Highland Park, and a proponent for this approach published a paper in 2017 titled Cooperative Housing as a Policy Tool. In his paper, Randy dives into the nuances of the cooperative structure, its history, and how it can benefit future development for the City of Boston.

Let’s quickly answer a few questions concerning this financial approach that can provide affordability, stability, and equity to Boston’s residents.

  1. What is a LEC? A Limited Equity Co-op is a shared ownership of housing by its residents who own share(s) of stock in the corporation made up of its residents. http://www.cambridgema.gov/CDD/housing/forhomebuyers/coops
  2. Is the equity earned by residents limited? Yes, by its very name, the LEC structure limits the amount of equity that the homeowners can earn. The equity limitation benefits future residents by maintaining the affordability of the co-op. However, a properly-structured and properly-run co-op, such as the co-op proposed by Rees-Larkin, allows for some equity to build up for homeowners.

Here’s an article that tells the story of LEC’s put into practice providing the resident, municipality, and developer perspective.

https://shelterforce.org/2017/04/25/will-limited-equity-co-ops-make-comeback/

  1. Does the purchase of a LEC unit require a down payment? NO DOWNPAYMENT is required to purchase a unit in the co-op, making it a preferable option to market rate rental where there is absolutely no equity build-up.
  2. What is the relationship between the Developer and the Co-op? Initially the funding requires that the developer have an ownership stake in the development. Once the units are occupied, a Board of Members will be elected to run the co-op as a Limited Liability Corporation (LLC) in conjunction with the developer.
  3. Who owns the building(s) when the mortgage is paid off? After the mortgage is paid off, the developer does NOT own the property; rather the Co-op would own the property free and clear. This situation is analogous to an individual single-family homeowner who pays off her mortgage and finally owns her home.

So, equity growth is limited; however, co-op members get in for no money down and affordability is maintained into the future. This a huge advantage for many people — even those with higher incomes.  And for those with low or even moderate incomes, it’s a greater advantage and may be the only way for them to achieve homeownership.

By applying the Limited Equity Co-op structure, our Marcella-Highland proposal with Rees-Larkin Development prioritizes the needs of its residents AND addresses the housing affordability and stability goals of the City of Boston.

 

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