Preserving Affordability for Future Generations: the NASCO model

1. Preserving Affordability forFuture Generations: the NASCO model Steve Dubb, The Democracy Collaborative, University of Maryland, College Park NASCO Institute November 9, 2008

2. Origins of the NASCO Model • Began as a “self-help” response by students in the Great Depression • Equity was not an issue -- in fact, most properties were leased from private landlords or the university. However, those co-ops that survived eventually purchased property. Leasing co-ops largely disappeared over time. • Affordable rent for college students was a key issue. Students were willing to contribute labor and have cramped quarters to cut costs. This became institutionalized in many co-ops as the “work shift” system. • Co-ops were political from the beginning. For instance, co-ops housed people of color in the 1930s when the overwhelming majority of dormitories & fraternities/sororities did not. • Relied on local sponsors to be able to acquire property or get long-term favorable leases: YMCA director Harry Kingman (Berkeley), Prof. A. K. Stevens (Ann Arbor), Prof. Joseph Fulk (Gainesville).

3. The NASCO-style co-op solutionthe “Group Equity” model Key Features • Although it is a co-op, co-op members pay monthly rent, just as if they lived in a private apartment. • Cost of “member shares” equals “one month’s rent” in most cases -- i.e., member shares function as a security deposit (Members often also pay an membership fee of $50-$100 to fund NASCO and local co-op education). • Like a “normal housing co-op,” members elect the Board of Directors to run the affairs of the co-op. • Unlike a “normal housing co-op,” member shares do not accumulate any equity. Instead, the value of the member share on exit is no different upon leaving than upon joining. As a result, all equity goes to ensure affordable housing for future generations of co-op members. • Unlike a “normal housing co-op,” members are typically expected to contribute X number of hours of labor a week (typically 4-5 hours) to ensure the good functioning of the co-op. This helps increase affordability significantly. • Again, very much unlike a “normal housing co-op,” in many, but not all, cases, members share a large amount of common space, including often a common kitchen where members labor in order to provide common meals.

4. Why develop a “Group Equity” model? • The model developed entirely by accident, not design. • Key factor behind its development was its reliance on existing models of group college housing: i.e., dormitories, fraternities/sororities. • Co-ops, in other words, even though they thought of themselves as the “anti-Greeks” and “anti-dorms,” nonetheless followed many dorm or Greek norms. Dorms were owned by universities; Greeks were owned by alumni. It’s not so surprising that student co-ops ended up being owned by odd-looking, member-run nonprofits. • For the students themselves, the control aspect of ownership was far more important than equity (and often still is). • The transitory nature of student life also influenced development. Providing for individual equity gain didn’t seem to be of much concern when the average tenure of residence was about 2 years. • Also, in the Great Depression, the housing market was not much better than in 2008 …

5. But can NASCO-style co-ops really reduce student loan burdens? • Black Elk, University of Michigan Co-op room & board: $4,144 a year Competing rate for dorm room & board: $8,190 a year Difference: $4,046 a year • Robson Hall, University of California-Los Angeles Co-op room & board: $4,601 a year Competing rate for dorm room $ board: $11,212 a year Difference: $6,611 a year Effective value of work shift hours (5 hours a week): $39/hour Source: US News & World Report, September 6, 2007

6. Surprising success of the “student co-op model” in the “real world” • Background: Student co-op model grew in two spurts (1930s, 1960s-70s), but growth had stalled by the late 1970s for many reasons: dried up federal funding, identification of co-ops with the counter-culture (and hence unpopularity among campus administrators), reduced student interest in working to reduce housing costs, etc. NASCO’s response in the late 1980s was to create a national co-op development program, today’s NDS or NASCO Development Services. • With some exceptions, NDS has failed to trigger a lot of new development of student co-ops. However, it has had a lot of success in developing “student co-op-style co-ops” (also known as: “group equity co-ops”) in the non-student world. • Examples: Detroit, MI; St. Louis, MO; Memphis, TN; Rochester, NY; Buffalo, NY; Chicago, IL; Berkeley, CA; Portland, OR; Somerville, MA, Kalamazoo, MI; and a host of others …

7. Reasons for the NASCO model’s spread off campus • Debt: Post-college-age young adults frequently have major student loan debt and are in no position to directly own a home. • Experience: Most organizing groups for “NASCO-style” co-ops in the “real world” involve at least one alum from an existing student co-op. • Social capital: Post-college age young adults have more skills and ability to do the volunteer leg work necessary to get a new co-op up and running than students. • Sociability: For recently graduated students, the appeal of the “group living” aspects of the “NASCO-style” co-op is considerable. Indeed, many luxury condo developers have placed (or pre-crisis were placing) considerable attention on creating common space. Common space is inherent to the NASCO model, without the luxury price. • Affordability: Labor contribution does reduce costs some. Over time, locking in ownership reduces costs even more.

8. Challenges with the model • Often not seen as legitimate affordable housing: Students in particular are often seen as “voluntarily poor.” But even outside of the student ambit, it is very rare for NASCO-style co-ops to receive any government funding. • Lack of individual equity component: “Building wealth” is a common mantra in the foundation world and, typically, this means building “individual equity” — not building community ownership. (After 2008, we’ll see if this changes…). Not providing for individual equity gain, even though, by definition, this increases future affordability, is seen by many as “weird.” • Better Suited to Individuals than Families: Some families do live in NASCO-style co-ops, but generally the “sociability” aspects of NASCO-style co-ops that are seen as appealing by many singles are less appealing to families. (However, apartment “group equity” co-ops in the NASCO family do exist). • Lack of traction in university administration world: The NASCO model, which could help colleges increase affordability, is barely known by campus administrators, who wouldn’t trust students to know how to run them anyway. • Cultural/marketing: The NASCO model, even off campus, is still stuck in a kind of “student ghetto.” The communities (e.g., communities of color, low-income communities) that would most benefit economically from the model scarcely know it exists.

9. Potential of the model • Reducing student loan debt: Students who spend four years in established co-ops save $15-25,000 compared to those who live in dorms and apartments. Members of new co-ops save much less because the mortgage is newer. Still, the public policy argument for support of student housing co-op development is huge, if only someone with political pull can be persuaded to make it. • Community Building: Nearly a third of the population of the United States lives in rental housing -- they don’t get equity either. But NASCO-style co-op living has some benefits in terms of skill development that non-co-op living lacks: you get to elect (and perhaps serve on) a board of directors, learn about building maintenance, financial planning, and other skills. • Linking with “self help” traditions in immigrant communities: Cooperatives are popular throughout the world, including Latin America and Asia (witness the success of Bangladesh’s Grameen lending model). The NASCO model, if adjusted appropriately, could serve an important role in many immigrant communities where “self help” makes cultural “common sense.” • Allow groups to hold onto equity in a foreclosure-dominated world: Some have recommended that families who cannot afford their mortgages be made tenants of bank-owned properties. The NASCO model could be adjusted to develop a nonprofit custodian with member participation that could take title from the banks and help preserve low-income communities.

10. For more information: please contact: Steve Dubb The Democracy Collaborative University of Maryland, College Park sgdubb@yahoo.com www.community-wealth.org