Challenges

There are several considerations in the development of a LEHC that can better prepare communities utilizing this strategy to enjoy success in dealing with gentrification.

Ensuring Community Benefit. The very act of improving existing housing or building new housing can create gentrification pressures by increasing the neighborhood's desirability to outsiders. A single development approach will likely prove inadequate. Negative side effects can be mitigated through a coordinated approach to the neighborhood-wide issue of gentrification. Coordinated neighborhood planning can create a LEHC that makes membership available to current renters in the neighborhood while developing new construction of affordable rental housing.

Building Understanding of the Cooperative Process. To be successful, a co-op needs dedicated people willing to put a great deal of time into the development and operation of a co-op. Insufficient participation can undermine a co-op.

Purchase Strategies. A key to developing a strong LEHC is a sound purchase. In gentrifying neighborhoods, markets move quickly. Buyers, usually with higher incomes than the people presently living there, often have the capacity to move quickly. It's important to work with the best nonprofit housing developers to begin the financing and development process so that no opportunity is lost.

Development Considerations. The minimum size is generally thought to be 12 to 15 units; many organizations prefer a minimum size of 50 units, because this is the threshold at which Fannie Mae will purchase share loans. Size decisions should be made in cooperation with the development team.

Fulfilling Financial and Subsidy Needs. The blanket mortgage has some similarities to a regular first mortgage for a rental property. As with any low-income housing development, the developer must first determine the feasibility of carrying the first mortgage. Appraising a co-op in an area where appraisers are unfamiliar with co-ops can present problems. Moreover, cooperatives can generate lower appraised values than a condominium. If the co-op needs a relatively high-appraised value in order to obtain a higher loan amount (due to lack of available subsidy, for example), the cooperative form of ownership may result in an inadequate value needed to sustain the desired loan amount. Obtaining subsidy also represents significant hurdles. Just as with any low-income housing development, LEHCs require subsidy. Many of the same sources are available to co-ops. Many of the local, state and federal programs that provide subsidy and security enhancement for other types of low-income housing developments are also available for cooperatives. Tax increment financing is available for those states with this financing approach. A local or state government could also use general revenues for this purpose. Foundations and religious institutions are other possible sources.

Neighborhood Support. Creating a limited equity cooperative is both a technical and political process. It requires the cooperation and assistance of many different people. If the neighbors do not want to see low-income housing built or developed in the neighborhood, especially new residents or business people who want to see the area change, developing the co-op will certainly be more difficult. It will also make the relations with neighbors more difficult after it is built and make other efforts to ease the problems of gentrification more problematic. However, LEHCs are often considered more appropriate than rental apartments and are sometimes more acceptable to opponents as a form of homeownership.

Intangibles. More than anything, cooperatives are comprised of people. As such, care must be taken to establish an atmosphere that promotes cooperation, mutual support, and commitment to the collective. Individuals that counter this approach hamper the effectiveness of the LEHC strategy. Experts on LEHC development say the type of challenges in this regard to beware of parallel those to be faced in many community institutions - abuse of power, money, racism, sexist attitudes. Cooperative participants need to feel enough support so that they are confident that the venture can succeed, but not so much that they rely on others to accomplish their goals. Organization, training, and a community building approach to realize this balance are pivotal.