Overcoming the scale issue for cooperative housing investments

CSHC goes to Belgium! An EU conference in Brussels was held on how to aggregate and scale housing co-op projects to create investment-grade loans. Stefan Moser from the European Commission’s Housing Task Force noted that housing co-ops and community land trusts face systemic barriers to scaling. There’s a mismatch between the scale and structure of these projects and the requirements of institutional lenders. However, there’s a growing interest in aggregate models that pool projects and act as intermediaries. He noted the potential to leverage PSLF, invest EU, and EIB loans, along with additional grants. 

Rosanna Zaccaria from Legacoop Abitanti in Italy spoke about the benefits of housing co-ops to the society they belong in. Housing co-ops derisk social housing, don’t tend to leave like for-profit housing and reinvest in future housing. This housing also avoids promoting speculative markets. Legacoop Abitanti currently has a few hundred thousand members, with rents 40-50% below market rates. She noted that to successfully aggregate these projects it must be clear from the start who the target beneficiaries and rents are, as well as the number of units. These projects can have private investors but shouldn’t undermine social housing principles.

The Director General of CISN Matthieu Nédonchelle spoke about his organization’s limited equity model. He noted the need for equity was the most important part of any project. However more and more equity and time is needed to make housing every year. The same capital today makes fewer homes.

Guillaume Olivier from the European Banking Authority noted that part of the difficulty in funding these projects comes from some inherent risk baked in, including that construction costs and market rates for housing can change over the course of the project. However, there are benefits as well, including that immovable property can be used as collateral, allowing access to better rates. He also noted that banks initially need to use standard corporate rates for these projects (at 100% risk weighting) before developing their own internal models that can drive this RW down. Representatives with knowledge of the Austrian and other banking sectors noted that they’ve managed to drive this down to 50% RW. However, very few banks take the time and resources to actually go through this process to provide housing cooperative projects with better rates, so most use a standard RW.

We also heard from the Spanish finance agency Instituto de Crédito Oficial (ICO), that is building up their profile of housing co-ops.

The Danish national building fund Landsbyggefonden outlined their incredibly stable business model. They currently support around one million residents in Denmark, about 20% of its population. This fund deals with maintenance and building, and has never had a bankruptcy. The representative also noted that their social housing creates tangible health benefits so the Danish government spends less on health care. As a result, the Danish government compensates them with additional funding.

We heard from LIST Amsterdam, a loan platform that facilitates loans to, among other entities, housing cooperatives. 

One of the difficulties brought up during the conference was acquiring funding for new start-up housing cooperatives. Older, more established housing cooperatives have a cash flow and collateral, but new start ups lack these resources and have a difficult time acquiring loans.

We heard from Alessandro Bragonzi, a representative from the European Investment Bank (EIB). The EIB aims to increase housing supply by one million by 2030, and housing cooperatives could be part of the solution. We also heard from the Council of Europe Development Bank (CEB). They are also attempting to expand more into the housing cooperative sector.

Community Land Trusts around Brussels and elsewhere noted the difficulty in securing equity, and mentioned that one of the few avenues available to them is for community members to give them low-interest sweetheart loans to act as equity for bigger investor loans. 

Jens Kohler from Studentendorf and ESCHA also talked about the various projects his co-op is attempting to establish and the difficulty in finding equity.

Finally, we heard from the MOBA accelerator, a transnational co-op of co-ops that finances community-led housing across Central and Southeast Europe. While fairly young, they’ve managed projects across multiple countries and their potential is very exciting!

This conference was a terrific learning experience that gave insight into how the sausage is made, as it were, and it was great to observe the high-level planning into housing cooperatives occurring at the EU level.