Developing a Cooperative Housing Project

The Project Site

The main objective of a housing cooperative is to provide housing to its members at the lowest possible price. While the cooperative will look for ways to keep the costs of the housing project at a minimum so the members will get the most house for their money, land is the one component of the project that should not be selected simply on the basis of cost. On the contrary, in many instances, land that costs less to purchase per square meter costs more to develop - to prepare the plots; install water lines, sewers, and electricity; and build roads and footpaths.

The selection of the land or the project site is very important. It affects the cost of the project as well as its success as a cooperative community satisfying the needs of its members. When the cooperative is considering different properties as a possible project site, it should take the following into consideration:

Site location

The site should be convenient to public roads, public transportation, schools, markets, and health care facilities. The site should be zoned by the local authorities for residential construction and not for agricultural, commercial, or industrial use. The site should not be located adjacent to industries that pollute the environment.

Legal title

The site should be without any legal claims against it. It should be possible for the cooperative to acquire a lease to the land for a minimum of 50 years.

Site conditions

The site should be well drained, have acceptable soil conditions and, if possible, be gently rolling. Soil tests should be conducted to determine the soil conditions.

Existing infrastructure

The site should be located adjacent to existing water, sewer, and electrical systems.

Project Design

A project design brief is prepared by the technical people of the housing cooperative. It is a description of the project and includes the following:

a description of the land that the cooperative is buying or owns;
a description of the available off-site infrastructure, such as waterlines, sewer lines, electrical lines, and roadways;
a description of the community facilities in the area, such as schools and hospitals;
a preliminary site and house plan and an estimated project cost based on the members’ needs and their financial capacity; and
a preliminary project development schedule.

Once the project design brief is approved by the cooperative, the document is used to secure a commitment from local authorities, finance institutions, regional planners, and other officials. The project design brief is also shared with the architect, engineers, or developers/contractors who will use it to guide them in their work.

The project design, the layout of the site, and the design of the houses should take into consideration the climatic conditions in the area, the traditional type of house, the use of space inside the house and on the plot, the typical family size, and other factors. Based on these considerations, a site and a house are designed meeting requirements of the local authorities and the finance institutions and, to the extent possible, the needs of the cooperative members.

Cooperative members may be surprised to learn that their aspirations for a house are not realistic because of their income. What is important is that they acquire a house they can afford. The house can be expanded as their economic situation permits and will almost certainly increase in value over time. Members who own even a basic starter house are better off than those who pay rent to a landlord.

Affordability Factors

The ability to own a house is traditionally determined by such factors as current income, the amount of the downpayment of the downpayment, and the terms of the long-term mortgage financing. It is recommended that a member spend no more than 33% of their monthly salary for payments for their house, excluding utilities, taxes, and so on.

The cooperative housing project will be designed by the architects and engineers to meet the affordability criteria of the cooperative members in accordance with the project design brief.

The total project cost usually includes the following:

costs for land acquisition;
infrastructure costs, including roads, footpaths, surface water drainage, sewer system, water supply, electrical system, street lighting, site preparation, and landscaping;
housing costs, including materials and labor;
development costs, including site investigation, surveys, architect/engineers, supervision, and short-term construction financing;
developer costs, including administration and profit; and
fees for project management.

The cost per unit takes into consideration the size of the individual plot and house.

The amount of the loan is the cost per plot/house, less any expenses the cooperative has paid for in cash (such as land acquisition and architects) and less the member’s downpayment.

Financing

The financing for a cooperative housing project comes from various sources. The members, in addition to acquiring at least one share [in the case of UPEHCO at least five shares] in the cooperative, save for the downpayment, closing costs, stamp duties, and legal fees for the house they will receive. The downpayment and closing costs must be fully saved before the member can obtain the house and will range from 20% to 25% of the total cost of the house, depending on the financing arrangements.

In the case of UPEHCO, if the net loan for lot/house is inadequate to cover the total costs, the member is required to raise additional equity aside from that required by the financing institution. Said additional equity is payable to the cooperative which undertakes the development of the project. The equity forms part of the cooperative’s share in the payment of all development costs which the loan cannot cover.

The cooperative may secure short-term construction financing to construct the cooperative project. This financing is loaned to the cooperative for the time required to build the project, usually less than two years. The finance institution usually lends up to 75% of the construction cost of the project and the cooperative must provide the other 25%.

Long-term mortgage financing is also provided by a finance institution. In the case of a blanket mortgage housing cooperative, the loan is made to the cooperative. In the event of a multiple mortgage housing cooperative, loans are made to each member. The finance institution usually loans up to 90% of the project cost and the cooperative or member provides the other 10%.

Starter House

A starter house might consist of one or two rooms with electricity, water, and sanitation facilities. Although it might not provide all the space that a member needs immediately, it will provide them with a place to live and the ability to expand as their family’s economic situation permits.

Starter units will be built so that they are easy to expand by adding additional rooms as members acquire more economic resources. It is the responsibility of the cooperative to ensure that the houses are designed in such a way that they can be easily expanded.

The housing cooperative, with the assistance of a project manager, will provide members with various options for expanding their starter units, as well asupdated estimates of construction materials and labor costs. It will be the responsibility of each member, however, to get the necessary approval from the local authorities and the cooperative for any modification to their house. Each member will also be responsible for providing financing for their expansion and carrying out the work, either by contract, aided self-help, or a combination of those methods.

[ Coop Housing Primer]