NZ’s housing crisis could be alleviated by the formation of housing co-operatives which have proven successful overseas but are strangely absent here in New Zealand, writes Cooperative Business NZ CEO Craig Presland.
Our government will later this week deliver its second fiscal budget since the labour-led coalition came into power in Sept 2017, this has already been promoted as the “Wellbeing Budget” as our government steps up its social investment programme. Housing, and more specifically improving housing affordability and availability for those most in need, must be high on the agenda with over 100,000 people reported to being homeless, when including those in temporary accommodation, across NZ at present.
It is now highly unlikely that the government’s pre-election commitment to build 100,000 affordable homes for first home buyers over 10 years will be met. In January this year, our PM announced that it was dropping short-term targets while the policy would be “recalibrated” after it became clear that not even the first-year target of 1,000 new homes would be achieved. In Auckland, homes currently under construction are not meeting half of annual demand while the current total shortfall in homes is now estimated at over 50,000. Longer term, the Auckland Council’s Unitary Plan assumes that Auckland will need another 420,000 homes by 2045 – that is 14,000 per annum.
If Auckland, along with other NZ cities, truly aspire to become a world class in terms of liveability while helping to fulfil NZ’s economic potential and at the same time ensure our social wellbeing, then we could well learn from the Swiss and embrace a co-operative solution to our housing crisis.
We need a game-changer and co-operative housing provides a viable solution.
NZ is one of the most co-operative economies of the world, with our co-ops, mutuals and societies generating around 16% of GDP, serving more than 1.5 million Kiwis as members and employing over 50,000 people. The co-op sector locally has scale and diversity, including members which operate within the building and construction, banking and insurance industries. Unfortunately for NZ we have very few housing co-operatives currently operating, this in stark contrast to elsewhere in the world where they have experienced spectacular growth since the end of World War 2 in helping to meet housing demand, of which The United Nations currently estimates to be one billion new homes by 2025, costing USD650 billion each year to construct. In Australia over 200 exist at present.
What is happening in Switzerland?
Take Zurich for example, ranked the world’s second most liveable city in the 2017 Mercer index, where nearly a quarter of all new housing units (stand-alone houses, apartments, units, townhouses etc) have been built by co-ops since 2000. The two main Swiss co-operative housing federations have, for decades, maintained a revolving loan fund to finance new construction, repairs and land acquisition which has fuelled Switzerland’s co-op housing boom.
In 2008, as the world plunged into a global financial crisis and the private mortgage market and real estate projects worldwide ground to a halt, housing co-operatives built 1,000 units in Zurich, Switzerland’s largest city. The co-op business model is all about sustainability and endures during both good times and bad. In Geneva, a non-profit housing developer has recently raised USD 3 million from co-op residents. Organizers say that’s an investment that will produce 600 new affordable units in one of the world’s most expensive cities.
What needs to change?
For housing co-ops to become well established in NZ we need to think about the provision of permanent and affordable homes for those most in need rather than various parties making large financial gains. At present, our entire home construction and residential property market, along with those of most other countries in the western world, is geared towards gaining the highest price.
This results in new and existing homes being unaffordable for many:
- Banks receive more interest on the loan if the home has a higher value.
- The real estate agency is paid based on the price of the house: the higher the value, the more the commission payable.
- Building costs, in terms of materials and labour, have risen significantly over the past decade at least with materials suppliers and builders now getting more.
- Councils gain increased fees which are levied on the value (cost) of the homes being built.
- Advertising and promotional costs to market homes effectively via print and digital media, on-line marketing, signage etc, have increased considerably.
- The NZ government also ‘clips the ticket’ via GST on all of the above, barring interest on loans, extending costs further.
A housing co-operative, based on strong Rochdale co-operative principles, and centred on endurance along with sustainable and affordable living, would be able to lower costs significantly.
The Seven Rochdale Principles:
Voluntary and open membership
Democratic member control
Member economic participation
Autonomy and independence
Continuing cooperative education
Cooperation among cooperatives
Concern for community
How does the co-op housing model essentially work?
The housing co-op is usually the property developer / builder that constructs the homes (houses, apartments, units, townhouses etc), while the land is usually leased from central or local government, otherwise community groups such as churches. The prime emphasis is to provide permanent and affordable housing rather than making large financial gains. The owners (occupiers) of the homes become the members of the co-op. With ownership of the land separate from ownership of the buildings, co-op members would own shares in the co-operative which would either provide them with a right to a share of equity in the home, otherwise a right to occupy with no equity (see 2 options below). By removing the cost of the land from the equation the value of the homes obviously reduces significantly making them more affordable. Such land would most likely remain community–owned or state-owned.
Given the key objective of providing permanent and affordable housing for those most in need, when an owner goes to sell the home, the ground lease in place restricts the owner from selling on the open market. Instead, the owner must sell to another low-to-moderate income household at a price pre-determined by a re-sale formula contained in the lease. This would help ensure such housing remained available to those with the greatest need, a long-term solution that must be good for NZ.
With this approach, owners have no incentive to view their house as a financial investment to turn a profit, but instead as a place to live. Like traditional private homes, owners can still finance the purchase with a mortgage and can improve the home as they see fit. They would also sit on the Co-op Housing Board to help make decisions about how the Housing Co-op is run.
A key component is obviously the provision of land. Co-ops overseas have had land provided by central and local governments by way of long-term leases at favourable terms and conditions e.g. 70 to 80 percent of the market rate. This includes large land regeneration projects whereby a minimum portion of a land development block (say 20%) would be designated for housing low socio-economic families. Alternatively, and even better for the homeowner paying the rent, land may be donated and here in NZ we have churches and local iwi interested in such philanthropy.
Either way, the property developer which constructs the homes would become the co-op. They, along with representatives from the homeowners, would form a Housing Co-op Board which would set and monitor the rules around tenancy, shared areas, sale and purchase of shares (socio-economic criteria to be met, types of homeowners etc). Construction costs would be reduced significantly through the provision of common areas such as kitchens and dining areas, lounges, storage, playgrounds etc. Standard architectural designs would also lower costs as would construction utilizing economies of scale e.g. lowering the cost of building materials through buying larger volumes. Here are two viable options:
Housing co-operatives – Option 1: Rent to Own
Co-op owners (members) would pay rent over a long term which would provide them with a share of equity in the home. In terms of initial funding, they could borrow from the co-operative at favourable rates.
Repayments could be something like 5% of the value of the building over a 20-year period, or 4% over 25 years, plus interest which would be set at rates that are below the market. This is a key fundamental of the co-op business model and precisely how the co-operative movement first started in Rochdale (northern England) way back in 1844.
This type of co-op housing model is most common in the United States, the largest, Champlain Housing Trust in Burlington, Vermont, is home to over 1,000 families and holds USD 300 million in assets.
Housing co-operatives – Option 2: Rent to Occupy
Unlike option 1, co-op members would not own their own home, nor a share of it. Instead, they would own shares in the co-op which entitles them to occupancy of their unit for as long as they own the shares which may also be passed on to future generations within a family. Typically, such co-ops own multi-family buildings with individual flats and shared common spaces.
Acquiring a loan for a co-op share could be more challenging than getting a traditional mortgage however. This sometimes reduces the cost of co-op housing to below market rate. Zurich’s housing co-ops, for example, set their prices at an average 70 to 80 percent of the market rate. Switzerland and Uruguay are the world leaders with this type of housing co-operative.
Under both options, the democratic governance structure fosters collective decision-making about issues such as maintenance, home improvements, tenancy rules, common facilities and financial matters.
Which is best for NZ?
This gets back to what we would like to achieve and the answer is the provision of permanent and affordable homes for those most in need. Co-op housing is not about having property developers or real estate agents making big returns, both from the initial sale as well as those made subsequently, instead it is about getting roofs over heads for those in lower socio-economic circumstances.
My preference for NZ, given our significant shortfall in homes, the inability of our homeless to pay even modest rents as well as raise home loans, and our rising level of homelessness is option 2, rent to occupy with no equity ownership.
What needs to happen?
To drive this initiative successfully will require NZ government, local authority and local community support along with that from NZ’s co-operatives including those operating within the building and construction, building materials supplies, banks and insurance industries. In addition, we require property developers with the vision, courage and capability to set up such housing co-operatives.
Cooperative Business NZ can also assist in establishing these co-op start-ups as well driving collaboration with fellow co-op members and liaison with NZ government agencies such as Housing NZ and the newly formed Housing and Urban Development Authority.
CEO, Cooperative Business NZ
27th May 2019.