A 'third Way' Between Buying or Renting? Swiss Co-Ops Say They've Found It
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The article discusses Swiss co-ops that offer a 'third way' between buying and renting housing, sparking discussion on the feasibility and implications of such models in other countries, including the US.
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[0]: https://culturestudypod.substack.com/p/how-private-equity-de...
If they will more than another change, it will durably improve housing costs. If it doesn’t make more housing, but only changes how it’s bought and financed, it’s probably just noise and distraction.
I feel like the problem in the US isn't necessarily that the government won't directly pay for these kinds of things like they do in Switzerland, but that it's very very hard to finance a co-op, possibly illegal (that is, you wouldn't have the same legal protections a condo does).
I would be curious to see the finances of the buildings they mention in the article. Assuming that you could arrange the two major financial aspects: 1) financing at a level of a normal home loan 2) cut out the real estate developer profit margin, I wonder if a co-op model would become viable in the US.
Edit to add: Intuitively it seems like the math could work out, if you figure that a co-op takes the appreciation of the real estate out of the picture for the people living there, and that being able to rebalance that lost value towards the initial cost or towards future costs would be a trade-off normal people would be willing to make.
In that sense a co-op is more like an alternative to renting rather than an alternative to home ownership.
I think that NYC's co-ops (TICs in San Francisco) provided an interesting alternative model. They usually require owner-occupancy, can't be rented easily, and are difficult to finance.
These restrictions eliminate investors and speculators, and shields the the units from the inflation that happens from fed intervention and super low rates.
The result is that they're usually priced a lot lower and appreciate more slowly than they would be if they were condos.
I wasn't saying that coops or TICs are ideal, just that they show what happens when you remove the speculative and investment aspect as well as the subsidy of below-market interest rates and mortgages that any idiot can qualify for. The result is prices which are lower by 10-20%.
People seem to want an engineered, top-down, state provided solution that makes homeownership more affordable. But we've already tried many of those solutions and they just inflate prices and encourage speculation and securitization.
A better approach might be to end the various implicit and explicit subsidies on mortgages and homeownership, keep speculators, investors, and big developers out of the market, and focus on owner occupied dwellings. I think this would disinflate the housing market and allow it to get back to where it should be.
Yes, totally agree. I think my impression of TIC is that it's a legal loophole because condo-izing buildings isn't politically tenable, but offering a worse option is. A TIC owner still owns an asset but now it's just devalued because it's harder to sell.
My original thought was that a true co-op without the pressure of the owners accumulating pent-up capital in their home would be a healthier situation. Maybe that lost value can basically be recouped to make the overall cost of ownership lower. Maybe a different co-op legal structure makes it easier to pay a true market rate to live in an owner occupied dwelling, for a slightly different definition of "owner" (someone who doesn't plan to profit off the appreciation of their home, but still "owns" a place to live).
With that in mind, housing associations or co-ops and the like take the place of banks, that is, they possess the capital and rent the property to the residents, but keep a portion of the revenue for future renting, as a bank does for future lending.
The difference between the two is that the housing association is typically not-for-profit, and that in a housing association the resident does not accumulate capital, which allows for a reduction in costs compared to a mortgage.
This is the model most Anglophone countries adopt. However, what most miss in this model is that the cost of doing so is much greater than they realize. The most obvious extra cost is the interest paid on mortgages, which can amount to 2-3 times the value of the property by the time the mortgage is fully paid.
A further cost is politically imposed, in that governmental policies will avoid making homes more affordable, as this is perceived as a "loss" by many mortgage-holders and home owners.
I thought this is actually one of those “myths people believe about owning real estate”. In most markets, it is a depreciating asset that takes considerable time and money to maintain at the original capital value. This is why the cost is much higher, like you said, but not exactly for the reason you said. The net present value of that added interest payment is typically very low. It is a competitive market. It is uncertain whether I’d come out ahead or behind if I pay off the mortgage on day 1 or put that equivalent lump sum in the market and use that asset to pay off the mortgage instead. The political cost isn’t merely perceived loss, that is a real loss as it should cause the sale price to reflect the actual depreciation of the asset of an pre-owned house instead of being able to claim the added value of getting ownership.
However, in a mortgage situation, the borrower does accumulate capital, whereas in a housing association scenario the resident/renter does not.
The major factor distinguishing the returns on the two options (lower rent vs mortage + depreciation) is whether the value of the property increases more than the costs of the mortgage, and what else the renter might do with their money. Note that most of the value of prime property (e.g. that in or near major cities) is in the value of the land, not the structure.
So there is substantial political pressure to support land value increases, to the cost of everyone except mortgage lenders....
Further, the notion that the cheaper costs achieved by housing associations and the like, including public housing are the result of subsidies can be shown to be incorrect. They're cheaper because of the different treatment of capital.
If the buyers don't have a profit motive (neither the builder or the lender) how much lower will the true cost be? It could be low enough for a non-profit co-op to own the building instead of a bunch of investors.
https://www.immobilienscout24.de/expose/161188147
Or it could be a luxurious 300m² apartment with 3 big rooms that goes for three time that price:
https://www.immobilienscout24.de/expose/157476995
> Claude Waelti’s 1,180-square-foot apartment in Lausanne costs around $2,200 a month. The rent has barely increased since he arrived in 1991.
So about 110 square meters which is pretty good for number of rooms in Switzerland.
https://da.m.wikipedia.org/wiki/Andelsboligforening
The issue with them is that the loans to build the properties are socialised, so if the other members can not pay the debt, the entire loan is the responsibility of those members who can.
Also, the incentives of a cheaper than market rate flat, means that corruption and nepotism is rampant in those buildings.
It is not pretty in practice.
Maybe there's some middle ground between socialized housing that incentivizes people to take advantage of overly cheap housing, and a 100% capitalist USA style housing market where lots of people are 1 missed paycheck away from being homeless.
Maybe there is, but human history proves we can't easily reach a equilibrium where everyone has it equally good, due to human greed, envy, cronyism and corruption, making any kind of equality just a fairytale utopia.
So we just bounce between extremes because as always, few people strive have it good and the rest get screwed over in order to pay for the privileges of the select few. There will always be haves and have-nots, no matter how many thumbs the government puts on the scales to try to balance things out for everyone which only breaks things for the worst as they distort economic reality.
Meanwhile from the numbers I gathered, despite the "evil capitalism", statistically by most metrics, Americans enjoy the highest purchasing power for home ownership in the developed western world by a large margin. So Americans love to complain too much, but the truth is by the numbers, most of the world has it much worse than they do.
See David Graeber's The Dawn of Everything for a deep dive into some of the many successful systems of human societal organization.
In that sense they're doing really well. Actually their system is the hybrid market/subsidized one I theorized about above.
But if it were a flat/apartment, the owner/manager may not actually take good care of the apartment. Which is worse?
This is purely anecdotal, but I find that the buildings with professional management and purely renting tenants, look better and seem more well kept, compared to the smaller "Andelsforeninger" where its a volunteer management team trying to run it.
Generally selling a single piece of real estate that you entirely control has the highest investment returns. Things like condos are always competing with each other and coops can be even worse.
Maybe it’s more affordable because it has super low investment returns.
Treating homes as investments rather than places to live is a significant contributor to their lack of affordability, as it creates two demands for the same property.
This phenomenon is not "necessary", but appears to be particularly common in the US, UK and other Anglophone countries, see this chart: https://i.imgur.com/h1CkkNE.png
In Florida right now, in the wake of the Surfside disaster, a lot of condos are struggling with solvency because of the cost of the new safety requirements. Then there is always new technology (asbestos, aluminum wiring, spray foam insulation, polyurethane cladding) that will one day have to be remediated. Then there is climate change.
I think the key is good management and good construction. Unfortunately, both of those things are very opaque for your average person.
https://www.zb.uzh.ch/en/zuerich/Money-makes-the-world-go-ro...
https://en.wikipedia.org/wiki/Housing_cooperative
This does not and has never made sense, in the same way that only buying food with an eye towards someday making a profit from it does not make sense.
It does make sense within our current economic system, which sadly does not make any distinction between the fundamental requirements of human life, and all other products or commodities. We all are worse off for not being able to see the difference and separate the two.
When somebody become so weak (ill or old), cannot care for himself and unfortunately have no family, they could ask to local private care to live in their specialized hostel. And it is not always just ordinary hostel with one room for 5 persons, but some are more like classic motels, with rooms for two persons.
Also, similar infrastructure existed for a long time in Italy, under Catholics church, and I know few good young people, who grown there.
As I know in Northern Europe (Sweden), there are many community buildings (under municipalities), very cheap to rent and even possible to get social donations and not pay at all.
Existed also non-church homes with similar economy (and also not designed as charity), but their examples are not always good. For example, Pruitt–Igoe in St. Louis, Missouri, United States, becomes huge crime center. Other not good example, some bad districts in exUSSR (for example Biryulyovo in Moscow, or Orekhovo-Zuyevo in Moscow Oblast, Russia), also known for their criminal level.
From Pruitt–Igoe experience, people created few rules about so called social homes, and one rule, they must be non-comfortable, to motivate people to grow to commercial rentals or even to once buy own home; second, should be some power, who will constantly monitor residents for crime and immediately deport offenders. So they are not "Third way", they are just temporary solution of very old problem, and not easy solution, even not cheap.
https://en.wikipedia.org/wiki/Pruitt%E2%80%93Igoe