Kohn: The future is cooperative

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If governments are serious about affordability, it’s time to get back to co-op housing

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Margaret Kohn

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University of Toronto

The housing affordability crisis seems impossible to solve. Policies intended to help those excluded from the market often serve to fan the flames and drive up costs.

An example is tax-free down payment plans, like the one in the 2022 federal budgetwhich can drive up prices by allowing more buyers to compete for available units.

To make housing truly affordable, governments need to take a different approach. The budget takes a small step in the right direction by allocating $500 million in direct funding and $1 billion in loans to create more non-profit housing co-ops.

Non-profit housing co-ops are mixed-income, multi-unit housing projects that are jointly managed by residents. In the early years, start-up funding came from unions and churches. But from the 1970s, the federal government provided financial support in the form of government-backed mortgages and subsidies for low-income tenants.

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Members of the cooperative are entitled either to market units – they pay full rent, but the price is lower than what is charged by private landlords since no profit is extracted – or to subsidized units, which which means that they contribute a percentage of their income, which is supplemented by a government grant.

Once the mortgage on the building has been paid off, the fees charged to the residents of the cooperative are low since they only cover maintenance costs. Housing remains affordable in perpetuity and the cost of the government subsidy decreases over time.

Co-op housing is only part of a larger co-operative movement that emerged in the mid-19th century as a way to address new inequalities caused by urbanization and industrialization.

In a period when homelessness and housing costs have reached crisis levelsit’s time to look to the past to see what solutions have worked.

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In the 1970s, Canada invested heavily in co-op housingand some provinces have also implemented their own programs. Today, 125,000 people live in non-profit housing co-ops across Ontario.

Housing co-ops have been a key part of the redevelopment of the St. Lawrence neighborhood in downtown Toronto, which is now considered one of the fastest growing neighborhoods in the city. Seventy percent of the first two phases were developed by non-profit housing organizations, and co-ops continue to anchor affordability in the downtown core.

The relatively small size of the Canadian co-operative sector may lead some to conclude that this is a good idea, but not a realistic strategy to tackle a huge problem. Others might say it’s unfair that some people benefit from lower costs while others continue to be burdened with rent.

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The experience of European countries, however, shows that this approach can be extended to provide a comprehensive and equitable solution to housing affordability.

In Austria, 20% of all housing and 40% of collective housing are non-profit. In Vienna, 60% of residents live in housing owned by the municipal government or in state-subsidized non-profit cooperatives. One bedroom co-op apartment rents around $400 in the city.

There is political support across the ideological spectrum in Austria, ensuring that the supply of high quality co-operative housing follows demand.

Given that co-operative housing in Canada has been successful, what explains its marginal role in contemporary housing policy?

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This is partly due to the economic crisis that hit Canada in the 1980s. Global inflation, industrialization and skyrocketing interest rates led to a public debt crisis, and federal funding for housing programs has dried up.

When the crisis subsided, the market fundamentalism of Ronald Reagan and Margaret Thatcher — conservative politicians who advocated low taxes, deregulation and privatization — has made it difficult for some to view government as a solution rather than a problem.

Co-ops, however, are profitable because they almost never default on their mortgages, which is why the federal government hopes to raise $500 million to build 6,000 units, an investment of $83,000 per unit. However, a closer look at the budget reveals that only $191 million is committed over the next five years, all reallocated from other programs.

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The supply of new housing in Toronto increased at a faster rate than population growth. This tells us that increasing supply alone is not the solution. We also can’t blame foreign investors, who make up just 2.2% of buyers in Ontario’s hot real estate market.

Real speculators are regular owners who go into debt, knowing that principal residence capital gains are exempt from tax. Housing activists also point out new luxury condos do not increase supply of affordable units.

In theory, building higher priced units should lower prices by decreasing competition for cheaper units. In practice, it didn’t work that way. It is a good idea to increase the supply of housing by facilitating the redevelop underdeveloped propertiesbut it should be part of an affordability strategy that puts co-ops first.

The goal of housing for all cannot be achieved by the market alone. Co-op housing offers a viable solution that could significantly alleviate the housing affordability crisis.

The conversation

Margaret Kohn is a professor of political science at University of Toronto.

This article is republished from The conversation under Creative Commons license.

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