Cohousing-L Mailing List: Re: Limited Equity Condos (WAS Re: No Parking)

[Raines Cohen (rc3-coho-L]

Eileen wrote:
> Can you elaborate on the below market valuation of your units? How was the
> project funded, if people only paid 50% of market?

in reference to Raines writing:
>> Here at Berkeley Cohousing, there's just one space per unit, outdoors,
>> nonassigned. Valuation hasn't been an issue because our prices are
>> voluntarily capped to preserve affordability, making current prices about
>> 50% below market.

Hi, Eileen, glad to fill in the details. I was just thinking of your
lovely community the day before yesterday as I was placing a dot on Paso
Robles on a California relief map in the home of a new cohousing
neighborhood organizer, showing where all the built communities are
located.

We paid market price for the land with existing houses on it in 1994 and
market price for construction 1994-1997. However, since that time the
market has (roughly) doubled. And, thanks to an agreement with the city,
the price of our homes has not.

The City of Berkeley (CA) has strict rent control and condo conversion
regulation, intended to maintain affordable housing (I'll stay out of the
debate as to whether it is effective, and whether state legislative
overrides have gutted the key protective effects, and whether owners of
rental properties should bear the burden for providing affordable
housing).

Because some of our units were existing rental properties, we would have
had to pay significant condo conversion fees, basically replacing the
rental stock we were "taking off the market", equivalent to decades' worth
of rent or buying new units. The price differential would have made the
units we were creating unaffordable to some members of the group, who had
incomes low enough to qualify for some of the city's housing programs and
protections.

So, assisted by The Cohousing Company (now McCamant & Durrett Architects,
coincidentally with offices a couple blocks from here), we drafted and got
passed a city ordinance providing a waiver of conversion fees for
owner-occupied residential communities that met certain thresholds: vacant
for a number of years, within a certain range of number of units, etc.
There was one other potential cohousing site that would have met the
conditions, but it didn't go forward as a project. The ordinance would
have to be amended for any other Berkeley property to qualify; as written,
terms include "vacant since 1992" and other criteria that would be
impossible to meet today.

There are two key clauses that create and maintain the affordability:

1. For 30 years from each resale, the city reviews the income of buyers
(just at the time of purchase) to make sure it is less than 120% of area
median income (or 150% if the buyer can demonstrate that the income of
enough other owners was below 120%).

2. The unit sale price is capped via a formula and the sale price approved
by the city. It basically can go up at the same rate as area median income
(typically a few percent a year), and any capital improvements we
individually or collectively make appreciate at the same rate. There's
some allowances for sale costs, and a backup formula in case incomes go
down for an extended period.

With each resale, the city's housing department gets 30 days to approve
the price and the buyer's income... if it does not respond, the sale price
and buyer is considered approved, but so far the city has kept on top of
the process, by reviewing buyers' tax returns and mortgage applications
and by filing documents on each title with terms that get replicated on
the new title, so the resale can't close escrow without the city reviewing
and filing new documents that maintain the affordability.

There is a perverse incentive embedded in the document's structure: in
order to get "conforming" standard open-market loans with the best rates,
the restrictions are written so that if a bank forecloses, it can sell at
market rate. So, if we really wanted to get top dollar out of a unit, we
could let a bank foreclose on it... and they would pay the gain in excess
of the mortgage payoff to the former owner.

So, this is "self-funded" affordability: we sacrificed potential gain in
order to get the ability to live here and to afford to do so. It does mean
that we no longer have the easy out of selling our homes and buying
elsewhere in the area -- unless we have boosts in income, outside income,
or significant savings. It means that we don't need a waiting list...
sellers can choose who to sell to (within the guidelines), and when a rare
resale comes up, no negotiation is necessary. The regional umbrella group,
East Bay Cohousing, has functioned as a "farm team"; 5 of the last 6
resales (including ours) have been to people actively creating new
communities in that group.

Our model is not that dissimilar to what land trusts like the Northern
California Land Trust (http://www.nclt.org/ ) do, except we don't have a
separate legal entity taking and reviewing applications and holding title,
and we haven't legally severed the land from the houses on top of it.

Raines Cohen, Cohousing Coach
Planning for Sustainable Communities
at Berkeley (CA) Cohousing
Where we asked ourselves at yesterday's HOA meeting: What types of
communications work well with different communication methods? What
challenges can they bring up? And what do we do to light up our lives in
the dark days around the Winter Solstice?

Facilitator, East Bay Cohousing
http://www.ebcoho.org/
Inviting folks in the area to a house concert at Doyle Street Cohousing in
Emeryville this Saturday

Regional Organizer, Northern California Cohousing
http://www.norcalcoho.org/
Excited by the emergence of several new communities (affordable and
market-rate) in the North Bay
(and surprised that my spellchecker considers "Nothern" to be a word!)