Homeownership is Dead! Long Live the Permanent Real Estate Cooperative!

August 19, 2016

NOTE: Images in this archived article have been removed.

Imagine that a group of people works hard to fill their neighborhood with urban farms, bike lanes, parks, murals, community services, and education programs. Next, imagine that those same people are forced to move away. Ouch, that bites.

Image RemovedSadly, this is real: Improving the livability of a previously disinvested neighborhood creates opportunities for speculators, landlords, and developers to increase rents and drive up the cost of property, often causing displacement of the very people who made the neighborhood livable to begin with.

It’s paralyzing to realize that the positive changes we make in our communities can do more harm than good. We eventually arrive at the most difficult-to-answer question: What will stop the pattern of displacement of low- to moderate-income communities and communities of color?

I believe that only one solution will make a true and long-term difference, and you rarely hear anyone utter it, because it so radically challenges everything we’ve been told to do as responsible adults pursuing the “American Dream.” So brace yourself…

We have to stop profiting from property. We have to treat homes as homes, not as investment vehicles that we hope to later sell to the highest bidders. If the privilege of property ownership determines who builds wealth, then the wealthy will build wealth more quickly than everyone else, white people will build wealth much faster than black people, and we’ll continually deepen inequality and racism in this country.

This reality has settled in to the point where I’m ready to declare: I can never, with a clear conscience, buy a house and feel entitled to the capital gains generated by the housing market. I wouldn’t feel proud if my method of building wealth is to participate in the pricing out of lower income families. But I do not want to remain a renter and be victimized by the same dynamic. So, now what?

Now I believe that the most important thing the Sustainable Economies Law Center (SELC) – and everyone else, for that matter – can work on is creating and spreading a different model of property ownership.

This is where the Permanent Real Estate Cooperative (PREC) comes in. “Permanent Real Estate Cooperative” is the name SELC has given to a model we have been working on for land and housing acquisition, management, and ownership. The PREC model employs similar tools to those used by limited equity housing cooperatives (LEHCs) and community land trusts (CLTs): Residents buy homes and feel much like homeowners, but the equity that they can build in a property is limited to what they put in (purchase price and improvements) plus a strictly limited rate of return, usually tied to inflation rates or a consumer price index. Capping the resale value and putting land into community control helps ensure that it won’t be sold back into the speculative marketplace.

Image RemovedIn addition, the PREC model brings multiple innovations:

1) It’s for everyone: Unlike most affordable housing developments and 501(c)(3) community land trusts (CLTs), which are often limited (by tax exemption or their funding sources) to providing housing to low-income households, the PREC is a cooperative corporation spreading the notion that everyone – high-income and low-income – should stop profiting from property and live in limited equity housing.

2) It’s self-help: PRECs are platforms for mutual aid and self-help, not charitable assistance. Charities can create a disempowering divide between the helpers and the helped. The cooperative structure transforms the relationship to create groups of people working together to provide for their own long-term housing needs. That can make it motivating and empowering, and it sets the stage for communities to engage in mutual support in many forms beyond housing.

3) It’s self-organizing and scalable: Our vision is to design the governance of PRECs to enable bottom-up organizing by hundreds or thousands of members, rather than top-down management by a board and staff. A household or group of people can self-organize, find financing, and identify a property to shepherd into the cooperative. The cooperative will serve as a container to hold title to land and enforce limited equity. The cooperative Board and staff support members in this process, but generally do not drive decisions about what properties to buy and who will live in them. Because all members will be responsible for organizing to acquire properties, we believe that a PREC can grow quickly to involve many people and homes.

There is much more to say about the PREC model, how properties are financed, how governance works, how to ensure permanence of affordability, how we can grow a movement of PRECs, how PREC members build economic security outside of the conventional housing market, and so on. SELC has put a lot of thought and research into it, and we feel satisfied that this is a viable and powerful path forward.

So, while a blog post cannot do it justice, a SELC project to pilot PRECs in the Bay Area will hopefully illuminate a way out of the gentrification and displacement trap. Stay tuned as we develop this model, and let us know if you recommend any resources or potential support for our work. Note: We have not received funding to do this particular work, and we are just beginning the process of fundraising while we use unrestricted funds to lay the groundwork. Stay tuned, and let us know if you have suggestions.

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Janelle Orsi

Janelle Orsi is the Executive Director of the Sustainable Economies Law Center (SELC), which facilitates the growth of more sustainable and localized economies through education, research, and advocacy to support practices such as barter, sharing, cooperatives, urban agriculture, shared housing, local currencies, community-supported enterprises, and local investing. Janelle is also a "sharing economy lawyer" in private practice, specializing in helping communities share housing and cars, form cooperatives, launch urban farming initiatives, and form social enterprises.  Janelle earned her J.D. from the UC Berkeley School of Law.

Janelle is the author of Practicing Law in the Sharing Economy: Helping People Build Cooperatives, Social Enterprise, and Local Sustainable Economies (ABA Books 2012), and co-author of The Sharing Solution: How to Save Money, Simplify Your Life & Build Community (Nolo Press 2009), a practical and legal guide to cooperating and sharing resources of all kinds.
In 2010, Janelle was profiled by the American Bar Association as a Legal Rebel, an attorney who is “remaking the legal profession through the power of innovation.” In 2012, Janelle was one of 100 people listed on The (En)Rich List, which names individuals "whose contributions enrich paths to sustainable futures." In 2014 Janelle was elected as an Ashoka Fellow.

Tags: building resilient communities, new economy