Auckland’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.
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.
If Auckland truly aspires to become the world’s most liveable city and realise NZ’s economic potential, then it could well learn from the Swiss and embrace a co-operative solution to the housing crisis.
A recent article in the NZ Herald reports that only 7,200 new residences were built in Auckland last year, barely half the number needed and only slightly up on the last two years. Yet Auckland needs about double that each year while the current shortfall is estimated at 40,000. Longer term the Auckland Council’s 2015 Unitary Plan assumes that Auckland will need another 420,000 homes by 2045, that is 14,000 per annum. While we have a shortage of homes in other parts of NZ, the situation in Auckland is by far the worst and this has a significant impact socially and economically.
We need a game-changer.
NZ is one of the most co-operative economies of the world, with our co-ops, mutuals and societies generating around one-fifth of GDP, serving more than 1.4 million kiwis and employing over 50,000. The kiwi co-operative sector has scale and diversity, including members which operate within the building and construction, insurance, legal and finance sectors.
Unfortunately for NZ, we have virtually no co-operatives currently operating within the housing sector. This is in stark contrast to elsewhere in the world where housing co-ops are experiencing significant growth to meet the demand that the United Nations estimates to be one billion new homes by 2025, costing USD650 billion each year to construct.
The two main Swiss co-operative housing federations have for decades maintained a revolving loan fund to finance new construction, repairs and land acquisition. This concept has fueled Switzerland’s housing co-op boom. Since the early 2000’s, nearly a quarter of all new housing units in Zurich have been built by co-operatives. 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 Switzerland’s largest city. The co-op business model is all about sustainability and endures during 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. Could this co-operative housing model, which has been applied in a country comparable to NZ, work well here in Auckland?
For NZ’s sake we need to apply this successful business model to address the area of greatest social need, and especially here in Auckland. By pooling community resources – funding, labour and land – we would be able to establish member-owned housing co-ops resulting in many more homes being built.
The entire housing and real estate system in NZ, and most likely in most other countries in the western world, is geared towards gaining the highest price which 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.
- Local Councils are gaining increased fees which are levied on the value (cost) of the homes being built.
- Advertising and promotional costs to market homes effectively via the print media, digital media, on-line marketing, signage etc have increased considerably over the past decade at least.
- The NZ government is able to clip the ticket via GST on all of the above barring interest on loans, extending costs further.
A housing co-operative, based on strong co-operative principles, would be able to lower costs. Communities in need would be able to pool resources (funds, labour and available land to build new homes on). With our current shortfall in Auckland of 40,000 homes, along with National’s plans to build 34,200 new homes in Auckland over the next 10 years (Labour say they would build 50,000), we simply do not have the skilled labour to build these within the specified time frames. Why not train those in need (including the homeless) with sufficient skills to help build their own homes, on land owned by a co-operative, and with a loan at reduced interest rates provided by a co-operative bank or lender?
We have the opportunity in NZ for a good number of our co-operatives, mutuals and societies, which are involved in the building and construction sector either directly or indirectly, to help contribute towards sustainable and affordable housing here in Auckland. So how could this work in NZ?
Housing co-operatives – Option 1:
Establish housing co-operatives that are democratically run organizations, not-for-profit, formed to own and manage housing. The co-op would own the land with the purpose of maintaining permanently affordable housing on the site. Such co-ops would be structured so that ownership of the land is separate from ownership of the buildings, namely the houses sitting on the land. That way individual owners may buy homes but they would only lease the land. Such land may be community–owned, otherwise state-owned.
Co-op owners (members) would be required to borrow from the co-operative. 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, 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.
Taking the price of land out of the equation obviously significantly reduces the cost. Moreover, when an owner goes to sell the house, 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 resale 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 only 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 could also sit on the co-op board to help make decisions about how the co-op is run. This type of co-op housing model is most common in the United States. The largest, the 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:
As above, establish housing co-operatives that are democratically run organizations, not-for-profit, formed to own and manage housing. Unlike option 1 however, co-op members would not own their own home (house, apartment, unit, townhouse etc). Rather, they would own shares in the co-op, which entitles them to their unit for as long as they own the shares. Typically, such co-ops own multi-family buildings with individual flats and shared common spaces. Co-op members could sell their shares on the open market, but acquiring a loan for a co-op share could be more challenging that getting a traditional mortgage which sometimes depresses the cost of co-ops 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. The democratic governance structure fosters collective decision-making about issues such as maintenance, rules and financial matters. Switzerland and Uruguay are the world leaders with this type of housing co-operative.
Co-operatives, while being commercially-driven, also have a strong sense of social responsibility and like to give back to local communities along the way. I can think of no greater need in Auckland right now, as well as several other cities in NZ either now or in the near future, than helping those without homes for their families. Housing co-operatives can help build a better NZ under a more sustainable business model.
To drive this initiative successfully will require NZ government, local council and local community support along with that from NZ’s co-operatives, mutuals and societies including those operating within the building and construction industry, building materials suppliers, banks, insurers, legal and financial advisors. In addition we require a group of individuals with the vision, courage and capability to set up such a co-operative (s). Cooperative Business NZ is here to help.
I now issue that challenge.
Cooperative Business NZ