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.