Housing

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Irish Vernacular

Irish Vernacular

Dominic Stevens, an Irish architect, built a house for just €25,000.  He’s a proponent of what he calls the Irish Vernacular, a DIY, back-to-the-basics take on architecture in which decent housing is recovered as a product that resourceful individuals can create through self help and cooperation. Stevens’ is a small house, but it looks like a good deal for the price. (Although, I think I’d go for a more traditional visual effect.) The cost doesn’t include the land, but the footprint is modest. From his web page:

The model that we have become used [to] now places the house as a way of driving the economy – we build houses as a method of making money not in order to house people well. The vernacular tradition produces houses in another fashion, here people build their own house, not with help from the bank, rather with the help of their neighbours. The by-product of house production is an interdependent community, instead of lifelong debt to the bank.

The web page also includes instructions about how to build such a house. My favorite:

instruction

It’s interesting how much this concept overlaps with those that drove both the limited-equity (LE) co-op model from New York City in the mid-20th century, and also the prototypical Garden City model that (as noted before) the NYC LE framework so closely resembled. The difference here is that the cooperation proposed here is more organic, and personal, and therefore lacks the formalizing legal framework of the more ambitious co-ops of the past. But that doesn’t mean that it couldn’t be made to work between less-intimate acquaintances with the introduction of certain contractual and property-rights assurances. The BBC also interviewed Stevens as part of a video report on alternative housing frameworks throughout Europe, including land-free boat housing that people have set up in the waterways around Amsterdam, and co-housing-type arrangements in both the youth punk scene and among upper-middle-class professionals in Berlin.

It’s also interesting how much this concept overlaps with the traditional American housing patterns of the 19th century. One thing I’ve learned from watching the Civil War lectures lately is just how much the Free Soil-Free Labor ethos in the Northern states was driven by the idea that — in the absence of slavery and its devaluing effect on labor — the vast expanse of the American continent provided an almost endless set of opportunities for anyone who was willing to work. In that concept, one can see the roots of various interpretations of the American Dream. But to appreciate the original democracy of its promise, in a time long before the New Deal or Levittown, one must also acknowledge that this dream would not be financed by banks or limited by zoning boards or designed by architects and planners with elite credentials. Instead, the small towns and urban neighborhoods along the westward-moving frontier grew because they offered a chance to combine free (or very cheap) building land with abundant, life-sustaining resources (farmland, timber, stone, etc.) and sweat equity — and enough individuals had the building skills to make it work.

A certain amount of this is not so long gone. My mother once told me that when she was growing up in upstate New York, in the 1950s, the men who lived on her block — all World War II veterans — worked together on building projects, taking turns to finish attics into livable spaces, and paving all of the driveways on the block. By the time I was growing up, the only house-skill that most boys seemed expected to learn was lawn mowing. Still, you figure things out. There’s a pretty interesting book called Common Places: Readings in American Vernacular Architecture that covers some of these concepts through a diverse collection of writings on folk architecture. I looked at it in the Rutgers bookstore last year, and I’ve been meaning to read it more thoroughly because it seemed to shed some light on the context that allowed for the variety and individuality of structures that characterized American building patterns pretty much down to the Great Depression. When one considers how banks and lawyers have managed to turn simple housing into both a major expense, and a key component of an increasingly calcified economic landscape, one can’t help but recognize the inherent power that exists in frameworks that would allow individuals to recover their housing options on more autonomous terms. And imagine the benefit to the economy as a whole if all of the rent-dollars and interest-dollars were redirected to more productive ends. There are a lot of interesting ideas beginning to bubble up. Stevens definitely has one of them.

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New Jersey Land Use Update

Scales and Lamp USSCThere was one published decision on land use in the New Jersey appellate courts this week. Motley v. Borough of Seaside Park Z.B.A. addressed the question of destruction, as used in N.J.S.A. 40:55D-68, and upon which the continued toleration of a nonconforming use turns. In this case, the plaintiff-respondent submitted a plan to the Seaside Park Z.B.A. for certain renovations to his property, which contained two residential structures — a nonconforming use in what has been a single-family zone since the 1970s. The Board approved his plan, but upon getting to work the plaintiff’s contractor apparently discovered significant structural issues that required taking the structure down to its foundation and footings. After a building inspector observed the extent of the demolition, a code-enforcement officer issued a stop-work order. Plaintiff lost an appeal to the Z.B.A. to lift the order. The lawsuit followed.

At issue was whether the plaintiff’s extensive dismantling and re-mantling had merely constituted a partial destruction of the non-conforming use, which would have required that use to continue to be tolerated under the borough’s zoning ordinance; or whether his actions had constituted a total destruction, after which any new construction on the parcel would have to conform to the present specifications of the ordinance. The trial court found, among other things, that the plaintiff’s actions had only constituted a partial destruction, and that policy reasons (viz., the importance of encouraging the proper maintenance of non-conforming structures) also supported allowing the plaintiff to rebuild. Accordingly, the Law Division vacated the stop-work order. But in an opinion published this week, an Appellate Division panel reached different conclusions and reversed the trial court’s order. The A.D. noted that New Jersey case law is generally opposed to extending the lives of non-conforming uses. Comparing the facts with those of the Lacey case, and others, the court concluded that a total destruction had taken place. Thus, a variance would have to be obtained in order to build something on the parcel that contravened the land use ordinance. In addition, the court found that the plaintiff had flouted the limits that the Board had initially set on his actions. Finally, the panel was unpersuaded by the policy reasons given by the trial court. Accordingly, it reversed the lower court’s decision vacating the stop-work order.

There was one unreported land use decision in the A.D. last week. I missed it at the time, because I was tied up with an event at one of the research centers, so here’s the belated squib: In Sharbell Building Company LLC v. Planning Board of the Twp. of Robbinsville, a three-judge panel affirmed a final judgment of the Law Division that had reversed the Board’s denial of an application to convert an approved, age-restricted housing complex into a development for residents of all ages. The court held that state legislation facilitating the approval of such conversions (in response to the changing housing marketplace) superseded the township’s zoning ordinance; and that prior to rejecting the proposal, the Board had focused on the wrong issues when it considered the impact of possible additional children on the local tax base, rather than considering the land use implications of the proposal. (You’ve gotta love it.) As always, the temporary New Jersey Courts link is alive for now, but the original opinion will be archived at the Rutgers Law Library next week.

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NYT Endorses Mt. Laurel, Christie Vetoes Land Bank Bill

The Times editorial page expressed its support for a strong Mount Laurel doctrine, as Governor Christie continued seeking to dismantle New Jersey’s Council on Affordable Housing (COAH). Christie also vetoed the latest incarnation of the foreclosure land-bank for affordable housing, but he seems open to a possible reworking of its objectives through new legislation.

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Where Are the Housing Bubbles Now?

In Canada and Hong Kong, apparently. It’s interesting. I’m kind of suspicious of these straightforward economic analyses of housing, though. They never seem to account for the artificial shortages that are created by calcified land use regulations in otherwise thriving regions. All of the supposed bubbles are in densely-populated, highly-regulated regions. I’m not an economist, but it seems to me that the combination of growing demand and constrained supplies will distort the prices of individual units upward; and that when one’s social and professional ties are concentrated in a particular region, then housing there is not a very elastic commodity. That is to say, cheaper housing that lies beyond the socializing/commuting frontier is just not a plausible alternative. Also, while creating a ratio between rents and purchasing costs might make for a useful rubric, the apparent disparities between the two may simply represent discrete snapshots in time, along a continuum of alternation between the two eternal models of housing occupancy. Right? Thoughts from readers more quantitatively-inclined than I am — and that would be most — would be appreciated.

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Israel: Affordable Housing Still Not Getting Built

It looks like Israel may be in for its own version of the Mount Laurel experience. A year and a half ago, the government there ostensibly addressed the public’s demands for more affordable housing by adopting some reforms that included incentives for the construction of new rental apartments. Recently, after the fires had died down, Ha’aretz reported that the government began claiming (in response to a lawsuit) that its plan, as written, is ineffective; that it has no power to really accomplish much of anything.

I feel like I’ve read this story before. In New Jersey, it took a decade of toil in the courts and political branches to get from acknowledging the need for affordable housing (Mount Laurel I, 1975) to the development of a framework that could even plausibly begin to address the shortage (Fair Housing Act of 1985). And New Jersey is still one of the hardest places in America in which to find decent, affordable housing. The Mount Laurel cases represent an important legal principle, but it’s one that was drawn from the New Jersey Constitution, and whose footing in other common law jurisdictions remains unclear. These things are maddeningly slow.

My faith in the legal and political systems’ ability to solve the crisis of metropolitan housing affordability is not strong. First, the incentives aren’t there: Property owners, who benefit from high land values, tend to stay and vote and contribute to local politicians; people who can’t afford housing tend to move away. Second, the land market itself is too much of a moving target to lend itself to legislative interventions that will yield predictable results. We’ve seen evidence of this in all of the well-intentioned planning debacles of the 20th century. Given these problems, it’s hard to imagine all of those Israeli kids, who were out in the streets in 2011, now waiting for this to work its way through their country’s version of the system.

If I were there, I would support the litigation and press for policies that would yield more housing — obviously. But I would also re-read Herzl. A limited-equity (LE) model was central to his vision for the country, and it has also worked (at times) to create affordable housing in America. The most promising aspect of the LE model is that, when it works, it truly frees its participants from depending on the sluggish and often capricious actions of the state, and allows like-minded individuals to autonomously pursue their interests outside of the system. Some have even sold their own demand to initial investors, paying out modest distributions to capital investors in exchange for their relatively low risk profiles.

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Subprimes into Land Banks: A State Bill

An interesting proposal, close to home: S-1566 was proposed in the New Jersey Senate by Democrats Barbara Buono and Raymond Lesniak. The bill is similar to a proposal in Truthout that LT linked to last month: It would authorize the state to acquire foreclosed properties, in order to assemble an affordable-housing land bank. Properties in the program would be conveyed to qualifying buyers with 30-year deed restrictions on future sale and rental prices; allowable prices would be pegged to an affordable ratio of the region’s median income.

I think this proposal is a good step. It would be hard to overemphasize the importance of the role that a durable stock of affordable housing could play in improving the economic health and social equity of New Jersey’s communities– or the price that the state has already paid in these areas for the absence of such housing. Since the 1970s, this state has followed the most affirmative approach to inclusionary housing in the nation. Yet, all of the statutory attempts to comply with the Mount Laurel doctrine have been inadequate to solve the state’s housing crisis. S-1566 strikes me as a modest but practical new way to approach the challenge of creating durable, affordable housing in competitive metropolitan land markets. Incidentally, the NSPs championed by HUD (under both Bush and Obama) have followed a similar approach, with deed restrictions and median-income ratios.

I would love to see an amendment to this bill that actively encouraged the formation of limited-equity co-ops, in order to develop high-density, privately-owned communities on some of the acquired lands. Obviously, this would work better in some places than in others. It worked well in New York City during the mid-20th century, and it could work well again in metropolitan New Jersey today. Another notable absence from the language of S-1566 is any reference to eminent domain powers. Presumably, the lenders wouldn’t bargain too hard for a lot of these properties, in the first place. However, the New Jersey Constitution of 1947 explicitly authorizes the use of eminent domain to acquire blighted parcels (N.J. Const. art. VII, § 3, ¶ 1), and I’d imagine that abandoned foreclosed properties would meet even the strict Gallenthin criteria for defining such conditions, if such an approach became necessary.

Update, 02/16: S-1566 passed unanimously in the N.J. Senate Economic Growth Committee on Thursday. It will now go before the full Senate, and its counterpart, A-2168, will be introduced in the General Assembly. Clearly there is a broad base of support for this measure in Trenton. In terms of finding bipartisan backing for a good idea, this is great news.

The main question I have now is about how the spending criteria will be developed. The Senate bill doesn’t spell out a set of conditions that must be met prior to property purchases. It may be that these matters are customarily developed on the ground, and not at the legislative level; I don’t know. But whether this issue should be explicitly worked out in the legislation, or somewhere else, I’d like to think a basic principle would be acknowledged with some specificity in the bill: Namely, that the amount paid to an institutional lender for any property acquired under this program must be limited to a price that ensures that the lender will be paid no more than a certain ratio of what the Corporation intends to ask for the eventual sale price of that property, pursuant to the affordability formula. Furthermore, reasonable projected costs for any necessary pre-occupancy repairs, upgrades, and legal work should also be subtracted from the maximum allowable purchase price under this program.

In most cases, I’d think that the right maximum ratio would be 1:1, minus costs, but there may be occasional situations where it’s worth taking a loss to acquire a particular property for a specific purpose. The point is that the state has leverage here: These are unsold, abandoned properties. Enacting language that exercises that leverage for the benefit of New Jersey taxpayers could greatly mitigate the potential for program losses, and quell public suspicions that a government program might overpay lenders to acquire low-value properties. In exchange for greater solvency and legitimacy, such language would likely result in at least two trade-offs: First, it would likely reduce the total number of properties in the program portfolio. Second, it would sharply reduce the number of program properties in expensive neighborhoods. But I think these outcomes would merely emphasize the limitations of this solution. At best, this program could be one more piece of a larger housing puzzle.

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Co-ops or Corporations?

An old post card depicts a California orange grove at harvest time.

The legal rights of business associations have been in the news a lot lately, from the 2010 Citizens United decision to the Occupy movement‘s criticism of corporate personhood.  Corporations have been center stage in the coverage, and less ink has been spilled over their low-key cousins, cooperatives. But the distinction between the two forms is interesting, partly because their uses don’t always follow expectations.

For example, Sunkist, the brand of American oranges, is not a corporation, but one of the world’s most successful cooperatives.  According to its web site, the co-op was formed in 1893 as the Southern California Fruit Exchange, and in 1954 it adopted its long-time trademark as its official name.  In addition to oranges, ‘Sunkist’ is branded on crates of members’ limes, lemons, tangerines, and grapefruits, and is also licensed to the makers of Sunkist orange soda, orange-flavored vitamin C, and other common products.  Last year, the co-op, whose land-use footprint remains concentrated in groves around Los Angeles, took in more than a billion dollars in gross revenue.

Sunkist is hardly alone: Land O’Lakes, of US butter fame, is another large co-op that dominates its market sector, and among Northeast grocery chains, the ubiquitous Shop Rite is a trade name of Wakefern Foods, a co-op since its founding in 1946 by eight independent grocers from Newark.  There are other examples, of course, but the point is that the co-op business model, pioneered in the 19th century by the Rochdale weavers, and followed by Howard, Herzl, and Kazan, is in no way incompatible with commercial viability.  In fact, it is one of the most well-established methods by which small-scale and moderate-scale stakeholders can pool their resources to obtain the benefits of large-scale economies, while simultaneously retaining significant measures of individual autonomy.

An OWS protester in Zuccotti Park

In contrast to co-ops that reap large profits is a new community-owned store in the town of Saranac Lake, New York.  The store is actually organized as a traditional stock corporation– with investor shares that are voted on a pro rata basis– in spite of its grassroots-oriented purpose.  The company had its start when the town’s only chain store (an Ames) closed, leaving residents with a 50-mile trip to the closest shopping center.  (Picture that, in the Adirondack Mountains, in January, and you’ll appreciate the gravity of the town’s situation.)  Wal-Mart came along, but local activists chased it off.  Instead, the Community Store was established, and after several years of raising capital and working through logistics, it is now open.  Saranac Lake offers an interesting inversion of the Sunkist model: Rather than a well-known brand being organized as a co-op, the Saranac Lake example represents community activists who have organized for a common benefit, as a corporation.  It goes to show the flexibility that is inherent in choosing business associations for particular goals, but it’s also interesting that, in this case, the co-op model was passed over.

So, if the issue isn’t simply one of profits versus a common good, or earnings versus savings, then on what issue should the corporation/co-op decision turn?  I suspect the Saranac Lake case is illustrative, in so far as it was driven by the need to raise capital.  It is much easier to raise funds for a project– even a high-minded project whose organizing goals go beyond profit-making– when you offer potential investors pro rata returns on their stakes, and equivalent shares of power over the entity’s governance.  Any other model is a non-starter, unless you’re approaching charities or government for funding.  So, if organizers do not have enough cash on hand to begin, and debt is off the table, then a traditional stock corporation is the way to go.*

Ultimately, the need to raise capital is determinative.  Most co-ops, if you think about it, are buyers’ and sellers’ consortia.  This is as true of Sunkist and Shop Rite as it was of the Rochdale Weavers or is of a food co-op that sells bulk carob chips and Dr. Bronner’s soap.  These tend to have low capital needs at start-up, since they basically function to concentrate supply or demand.  Their members are existing merchants or dedicated activists who have resources to cover initial expenses.  Such entities distribute their benefits to all members on a pro rata basis, so the characteristics of members’ equity are less important.  That is to say, benefits accrue to all, as needed, in the form of the discounted prices that buyers’ co-ops offer their members through collective purchasing power.  Similarly, all the sellers who belong to a growers’ co-op will benefit from a contract to supply a major supermarket chain, or an an ad campaign that increases the market demand for their produce, in the form of more sales or higher prices.  The farmer who sells one truckload gets his fair share of the benefit, as does the farmer who sells ten.  Dues can be scaled to volume.  Since buyers’ and sellers’ co-ops rarely need much start-up capital, and are comprised of entities that can supply those initial needs, there is no need to create an entity that entices outside investors through the promise of its own profits.

A secondary consideration is that co-ops present the membership conundrum: If you don’t require membership of those who would obtain the benefits of a co-op, then there is no incentive for individuals to be active in the entity’s organization, let alone to provide start-up capital, or to pay the annual dues that would support operations in slow times.  It’s the classic free-rider problem.  But, if you do require membership, then you limit your customer base to those who are willing to fill out paperwork, pay dues, attend meetings, and so forth.  Among merchants, and dedicated activists, the added burdens of co-ops are not a significant problem.  Regular buyers, or true believers, will become members, do their respective parts, and enjoy the benefits.  But in retail, the membership conundrum is a lose-lose situation.  Retail stores rely heavily on casual customers, impulse buyers, etc.  These are precisely the ones who would be free-riders of an open co-op, and non-members of a closed one.

Assessing the distinctions between corporations and co-ops can provide some insight about why one form might be chosen over another in a particular situation.  The co-op model is frequently overlooked as an alternative business approach.  But, in the absence of the need for start-up capital or a broad casual customer base, it can actually be a very effective way to organize an entity.

*  Note: The limited-equity housing co-ops of New York City dodged the capital/equity issue by raising money from the dues paid to the Amalgamated Clothing Workers and other local labor unions.  That is, their initial class of investors (the unions) were actually middlemen between those whose money was being invested (the workers) and the capital assets (the buildings).  This allowed the unions to take a more egalitarian view toward investment decisions than individual investors might be inclined to do.  Meanwhile, the secondary class of investors (the co-op residents) actually did obtain pro rata shares of their limited equity: That is to say, their monetary investments were scaled to the sizes of their apartments.

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Limited Equity: An Idea That Still Matters

Amalgamated Co-op, Bronx, NY.

If the single-family house has become a dog of an investment, what should communities do?  I’d say this trend makes the case for developing a new generation of limited-equity (LE) neighborhoods, where the commitment benefits of ownership are separated from the mad lottery of house prices.  Neighborhoods need stakeholders, not just tenants.  (Hold your fire: I still rent.)  Healthy communities require a critical mass of residents who have made temporal, legal, and financial commitments to remain.  They require the political landscape that comes with the presence of enough people for whom it would be more trouble to move than it would be to notice and address local problems.

LE offers this: Cooperators buy shares in a stock company, and the company holds title to the real estate.  Typically, starting prices for units are scaled to the pro rata costs of sinking the initial investment: basically, land and construction loans.  When a cooperator moves out, he sells his unit to a new cooperator for roughly the same amount that he initially paid.  And so, you have a cycle where cooperators who move out will recover their limited equity, and new residents will purchase housing at an affordable price.  At the same time, ongoing maintenance costs are used to cover, well, maintenance costs.  And taxes.  Construction on cheap farmland or (clean) former industrial sites can significantly reduce property costs, making an LE venture an affordable possibility for cooperators with modest incomes.  And so, you have a community of stakeholders that overlaps with a community of affordable housing.

The essence of the LE model can be traced back to the Principles of the Rochdale Weavers.  In 1898, Ebenezer Howard proposed an LE model for his Garden Cities as a viable solution to the crowding and poverty that characterized the East End industrial slums of Victorian London.  In 1902, Theodor Herzl advocated a similar financial model to pay for the founding of Israel.  In the United States, labor-sponsored co-ops in New York City became the most ambitious examples of the limited-equity arrangement.  But over the last generation, LE has faded out.  In the only American locality where the ownership structure had ever gained a foothold, the build-out of affordable land in New York City, combined with the infamous dysfunction of Co-op City, effectively killed the prospect of further LE developments by the mid-1970s.  (The 1971 death of Abraham Kazan simultaneously cost the concept its greatest advocate.)  Presumably, most of the rest of the US was either too conservative, or too affordable during the post-war period, for such an idea to catch fire without a good sales pitch.

But limited equity housing remains a decent and practical idea, and the present flight of capital from urban land could open a new window for its economic viability.  Politically, although LE is unquestionably a creature of the labor-left, it inherently dovetails with a number of fundamental conservative priorities, making it potentially palatable in non-left political landscapes.  For example:

1. LE facilitates a broader base of private property ownership.

2. LE does not require any direct involvement by the State.

3. The LE entity is typically entirely local; by-laws can reflect local customs.

This is because LE was envisioned to work within the conservative, common-law legal system of the British Empire in the latter half of the 19th century.  Rather than being a plank of a political program, it was and is a simple legal strategy.  And because of its origin as a private law device, the LE model remains perfectly compatible with even the most conservative visions of the role of the State, as  relates to property and economics.  At the same time, the LE model can effectively advance the interests of those who require a degree of shelter from the vagaries of capital, by allowing individuals to enjoy a stable ownership stake in their homes and neighborhoods while maintaining a perpetual stock of affordable units in a fixed location.  That is to say, in addition to its direct benefits as a business model, LE offers an approach that can avoid some of the triggers of political hostility while delivering a reliably equitable, even progressive social result.  This quality would make LE a promising strategy for these uncertain political and economic times.

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Limited Equity: Why It Matters

Penn South, NYC.

The Times has a two-page piece on the financial challenges facing Penn South, the last of the big limited-equity (LE) co-ops remaining in Manhattan.  The LE developments– championed by local labor unions and left-wing organizers– filled a crucial gap in the New York City land economy, providing decent housing at a price-point between the public housing projects for the poor and the market-rate units whose price tags predictably soared with every boom-time economy.  The LE co-ops sold their units to middle-income buyers at reliably low prices, with two major caveats: (1) Buyers were required to meet the co-op’s household income guidelines (which tended toward union wages), and (2) co-operators who moved out were only permitted to sell their stake back to the co-op board for a comparable price to what they had paid; there were no opportunities for boom-time windfalls.

In the mid-20th century, the LE co-op model was big in NYC.  Men like Abraham Kazan, Sidney Hillman, and Herman Jessor championed the cause and built prolifically throughout the city.  In Manhattan, the LE model included Penn South, in Hell’s Kitchen, with nearly 3,000 units; a couple of large developments known together as Co-op Village, on Grand Street; and the smaller, adjacent Amalgamated Co-op.   In the boroughs, even larger LE co-ops would come to dominate the skylines of far-flung neighborhoods like Coney Island, Jamaica, and Baychester by the early 1970s.  The LE’s created large, stable, affordable communities of middle-income stakeholders in a city whose vacillating real estate landscape was anything but friendly toward middle-income workers.  In context, the LE co-ops were the vanguard of the NYC labor movement that took off in the heady years after the Triangle Shirtwaist fire, and lasted until the NYC financial crisis and the US-left meltdown of the 1970s.

Twin Pines, symbol of co-operative principles, can be found at many NYC LE complexes.

Today, with Manhattan housing having become a costlier proposition than ever, an experiment like Penn South seems almost preposterous.  And yet, it has survived for more than 40 years, representing a viable private-sector alternative to the disastrous public housing projects of the same period.  Its units– when they become available– remain priced at the unbelievable value of just $12k per room.  Much credit is due the Penn South co-operators, who (mostly in their 70s, according to the NYT article) are still refusing to convert their priceless Chelsea complex into a market-rate windfall.

Penn South and the other remaining LE co-ops of Greater New York are the legal remnants of a fading past, when middle-income Americans were able to leverage their collective clout into a meaningful economic stake.  They stand as massive, brick-and-mortar testaments to what once was possible, even in the mad real estate marketplace of 20th century New York; and to the occasionally realized ideal of the inclusive American city.  Their dwindling numbers stand as a counterpoint; a sad illustration of the economic trajectory of the US middle classes over the last two generations.