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A History of Housing Cooperatives

The Great Depression

The 1929 Stock Market crash almost brought the cooperative movement to a standstill. The luxury cooperatives were hit especially hard. During the Great Depression of the 1930s, most of the high-income housing cooperatives failed. This was partly due to excessive mortgaging and promoter profits, as well as high vacancy rates in these expensive apartments.

By 1934, over 75 percent of cooperatives in New York and Chicago had gone bankrupt. It appeared that only two of New York’s higher-income co-ops survived the Depression. Generally, the more affordable lower income cooperatives survived the Depression, including all thirteen of the cooperatives created under the previously discussed 1927 New York State Act. The failures during this financial recession pointed out a significant weakness in the cooperative ownership model. When members are unable or unwilling to make their monthly payments, the cooperative is unable to meet its financial obligations. Conversely, during the Depression, college students also started housing cooperatives to live in while going to school. These were large houses of 20 or so rooms, and stood in stark contrast to the high-end luxury apartments.

Post-World War II

World War II changed the United States with its high demand for war materials and jobs, and the economy was booming. One major change that took place after the war was the enactment of “Section 216 of the IRS code” in 1942. This act allowed income tax deductions for mortgage interest and property taxes for cooperative members. This enactment of Section 216 put cooperative home ownership on a par with other forms of home ownership by providing equal treatment under the IRS Code.

The Lanham Act of 1949 gave priority for disposition of publicly held housing for conversion to affordable housing. These cooperatives were sponsored by the tenants. Many new cooperatives were formed such as Greenbelt Homes (1,500 units in Greenbelt, Maryland); Armistead Gardens (1,600 public housing units in Baltimore, Maryland); Pennypack Woods (1,000 in Philadelphia, Pennsylvania); and Success Village (924 public housing units in Bridgeport, Connecticut).

Rent controls combined with tax law changes, which allowed for the deduction of both co-op mortgage interest and property tax payments by individual co-op members, induced a resurgence of upper/middle-income co-ops in New York City during World War II. The first major inducement for the development of new co-ops for moderate and low income families in New York came with the leadership of the union movement after the war. The years between 1945 and 1950 saw another increase in cooperative development, although investors were reluctant to commit capital. This reluctance was not resolved until mortgage insurance was enacted, resulting in an influx of private capital to cooperatives.

The National Housing Act of 1950 authorized the Federal Housing Administration (FHA) to insure blanket mortgages held on cooperatives and rental communities. This in turn helped attract more private capital for housing. Section 213 was added to the 1950 Act to include middle-income cooperatives. The Act provides 40-year FHA government insurance on cooperative blanket mortgages. This legislation ultimately stimulated the creation of about 45,000 cooperative units known as “213 Cooperatives”. This act was highly successful, as the cooperatives formed and financed under the 213 program have one of the lowest rates of default of any HUD (FHA) mortgage insurance programs.

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