Part 2: Housing co-operatives

Afesis-corplan has been working with the East London Housing Management Co-operative (ELHMC) to develop the Amalinda co-operative settlement project – one of the first housing co-operative projects in South Africa. Ronald Eglin looks at some of the lessons that are emerging from this experience

A CO-OPERATIVE is a jointly owned and democratically controlled organisation that addresses the common needs of its members.

There are broadly two types of housing co-operatives:

Housing (Development) Co-operatives – H(D)Cs – where a group of homeless people come together to arrange for the development of housing for themselves; and
Housing (Property-Owning) Co-operatives – H(PO)Cs – where neighbours join to own property together and to manage what happens on this property.

It is also possible to combine these two kinds of co-operatives into a housing (development and property-owning) co-operative. In such a case, the members first work towards developing houses for themselves, and once the houses are built, they then own the houses collectively.

In the Amalinda project in East London, both forms of housing co-operatives have been used in the 216 units. The ELHMC is an H(D)C, while the nine housing co-operatives (such as  the Kanya Gardens Housing Co-operative and the Balindlela Housing Co-operative) are H(PO)Cs. 

Housing co-operatives have traditionally been seen to fall within the Social Housing sector in South Africa, but this is only true of H(PO)Cs, which make use of the government’s institutional subsidy. H(D)Cs can either use project-linked subsidies, if the houses are to be owned individually, or institutional subsidies if the houses are to be owned collectively by an H(PO)C.

To avoid any confusion in any discussion on housing co-operatives, it is important to know the distinctions between the types of housing co-operative being discussed.

When discussing H(D)Cs you need to look at how H(D)Cs compare to other forms of housing delivery, which include:

“Developer”-driven housing: a “developer”, be it a for-profit developer (such as a construction company), a non-profit developer (a housing association), or a government structure (such as a municipality), organises to build houses for other people. The “developer” decides on the type of housing to be built and beneficiaries may or may not be consulted.

H(D)C-driven housing: a group of people form an H(D)C and negotiate for land, finances and technical support (such as engineers) to help them build houses. The group makes decisions on the type of houses to be built and the beneficiaries are consulted as they are the group members.

Individual-driven housing: Individual households decide to purchase a house or work through a financial institution to buy or build housing for themselves. The individual decides on the type of houses they want built.

Types of tenure

When discussing H(PO)Cs people need to look at other forms of tenure arrangements. Tenure is the way in which a property is owned and used. Examples of tenure options include:

Individual ownership: The name of the person who has the right to use the land is registered on the title deed in the deeds office, which legally links a person to a specific erf or piece of land. The person is able to sell their property on the open market. Sectional title is a variant of individual ownership, where the individual owns a portion of land in the same way as described above, but also owns a portion of the common property collectively with other households through a body corporate. Many blocks of flats have this type of tenure.

Co-operative ownership: The title deeds are in the name of the housing (property-owning) co-operative. The person’s membership, as outlined in the use agreement signed between the member and the co-operative, entitles the person to occupy a specific unit for as long as they pay their fees and abide by the rules of the co-operative. Here there are three types of co-operative ownership:

• Full equity: When a person leaves the co-operative they can transfer their share (and associated rights) to anyone at market rates. This is similar to individual ownership except that the share in the co-operative, and not the title deed, changes hands on transfer.

• Restricted equity: When a person leaves the co-operative they can only transfer their share to someone who is on some form of waiting list and at a price determined through a formula outlined in the constitution of the co-operative. For example, this could be at a price that takes into account what the original member contributed, plus the value of improvements made by the outgoing person, plus a percentage for inflation over the period, less any depreciation or administration transfer or other fees. This is the form of tenure ownership found in the H(PO)Cs in the Amalinda co-operative settlement project.

• No equity: This means that when a person leaves the co-operative they do not get any money back from the co-operative (except perhaps a nominal share). This is similar to rental tenure, except that the person rents from the co-operative that they own, and not from a separate landlord.
• Rental: The tenant who occupies the unit enters into a lease agreement with the landlord who owns the building. The tenant needs to get permission from the landlord if they want to make any changes to the property. If the tenant leaves the unit, they do not get any money back. Within rental tenure there are three types of rental:

• Rent to rent: The person pays rent every month for as long as they stay in the unit. The rent is used by the landlord to cover all expenses of managing the property plus any profit.

• Rent to buy: The person rents the unit as described above for an agreed time frame. At the end of this time frame the person has the right to purchase the unit.

• Rent to own: A proportion of the rental each month goes towards purchasing the property. Once the tenant has paid off an agreed amount, the property is transferred to the individual who then takes individual ownership of the unit.

People need to carefully examine and weigh up the advantages and disadvantages of the two main housing co-operative types before they decide which one suits their needs best.

The following is a summary of some of the advantages and disadvantages of H(D)Cs and H(PO)Cs:

1.  Housing (Development) Co-operatives

Group: Homeless

Need: Land, services and houses

Advantages:

Find land and subsidies.
Train members in housing development.
Arrange for members to save.
Employ developers.
Allocate members to houses. Can negotiate with the municipality to obtain land and subsidies cheaply.
Establishes an organisation through which people can save and add funds to government subsidy.
Enables people to take responsibility for their own development.
People can gain skills through training, experience and exposure.

Disadvantages:
Requires certain levels of skills to manage.
Requires some capacity building for the leadership and members and this costs money to arrange.
The process of getting a house can be long and complicated, leading to frustrations from members.
Can have “bad” elements in the community who disrupt the process.
If the group is not properly organised, group dynamics can lead to tensions and conflicts.

2. Housing (Property-Owning) Co-operatives

Group: People living in a block

Need: Secure and well- managed neighbourhood Maintain property and keep it clean.

Advantages:

Give approvals for people to make improvements to their houses.
Collect fees from members for rates, services, maintenance etc.
Deal with defaulters.
Make rules of what can happen on the property.
Manage transfer of shares from old members to new members. People work together to create better living environments (planting trees, building crèches on their property).
Share common facilities (braai areas and parks).
Rates payments can be made smaller when averaged across all the members.
The co-operative has total control of who can join the co-operative.
Co-operative can set rules for what happens on the property, including deciding what activities can take place (such as stopping people setting up shebeens).
Co-op can set design rules like having all houses painted a certain colour, or outlawing fencing that blocks views.
The co-operative can have a say in who can take over a house when a member leaves.
If a person leaves the co-operative (that was built using housing-subsidy money) they can get another subsidy somewhere else.
The price that the incoming person must pay can be restricted making it cheaper for incoming people to get a house.
The group can start to address other issues like children’s play areas, common braai areas, and security. Members do not qualify for indigent discounts on municipal rates and services if they are poor, as they are not the property owners.
People understand and generally seem to like title deeds rather than ownership of shares as proof of “ownership”.

Disadvantages:

Collection of rates and services from members can take up time and resources.
The co-operative has to spend time and resources to get defaulters to pay.
If some people don’t pay their rates and services then the municipality can take the whole co-operative to court and everyone could lose their property.
If a person leaves their property (that was built using housing-subsidy money), the incoming person has to satisfy government subsidy criteria. This creates problems for inheritance of units by people who don’t qualify for subsidies (those younger than 21).
The price that the outgoing person gets may be less than what they could get if they sold the property on the open market.

Consideration should also be given to other forms of holding or owning property and not just co-operatives. Other forms also provide opportunities for people to work together. For example, a group of people who want to work together to arrange to build houses may decide to set up a voluntary association, which subscribes to most of the co-operative principles. Another example would be a group of people who live together and who decide to establish a homeowners’ association (a form of voluntary association) to take ownership of the common property and those who own their own houses individually.

Existing experiences of co-operatives have shown:

• Housing (Development) Co-operatives have huge potential to contribute towards addressing the housing challenges of South Africa. Many people are in need of housing and they would benefit from working with each other to develop individually owned or group-owned houses;
• Housing (Property-Owning) Co-operatives have potential to address specific needs in certain unique contexts. The people involved in the project need to fully understand the unique characteristics and implications of this form of group ownership;
• Voluntary associations that subscribe to co-operative principles may be more appropriate for many people than H(D)Cs or H(PO)Cs. This is particularly true in the early stages of setting up an organisation. Once the organisation is strong, the group can then formally register as a co-operative; and
• Raising the awareness of the group is very important before any group embarks on a housing co-operative venture. People need to understand the different co-operative types and they need to understand how housing co-operatives are different to other forms of housing delivery and tenure.

The Local Government Transformer August/September 2007