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A Minnesota Housing Market That Doesn't Collapse

July 29, 2009 By Lee Egerstrom, Economic Development Fellow
While economists and homeowners nationwide look for signs indicating a bottom has been reached in the housing market, senior citizens in Minnesota keep plugging along with a unique niche in the market that seems oblivious to national housing and financial crises. 

Senior housing cooperatives are a market segment that hasn't collapsed. They haven't played a role in the financial crisis that spread out from bursting the nation's housing bubble. And while construction of new housing has nearly stopped, senior co-ops have more projects under development in Minnesota and a few other states. 

The average single-family home in the Twin Cities metropolitan area has lost more than $70,000 in value since reaching a peak in 2006. Partly for that reason, and partly because of the impact the housing collapse has had on the greater economy, Minnesota 2020 earlier this year proposed a "Minnesota Home Values Guarantee" program that was considered by the Minnesota Legislature and is likely to be considered again early next year.

While the related housing and finance problems continue to plague the economy, senior co-op housing keeps plugging along and gains about 1 percent in homeowner-member value each year.

"These aren't speculative investments," said Betty Haas, a resident and member of the Realife Cooperative of Phalen Village in St. Paul. "We wanted to buy a nice home without a lot of yard work or other worries. That's what we purchased, and we haven't lost anything, either."
That is the motivation behind most of the investor-members in senior co-ops, said Dennis Johnson, board chair for the St. Paul-based Senior Cooperative Foundation that assists co-op members, developers and communities establish and maintain these housing developments.

There are 94 such senior co-ops nationally, and 74 of them are in Minnesota. At last count, there were 5,700 home units within the Minnesota co-op developments that house a population of approximately 7,500.

Minnesota Tradition

It is somewhat fitting that Minnesota leads the nation in senior co-op housing since Minnesota is the most cooperatively organized state in the nation. Over the past 30 years, the housing co-ops have received support and accessed expertise from cooperative members and managers at CHS Inc. in Inver Grove Heights, Land O'Lakes Inc. in Arden Hills, and from the cooperative farm credit banks in St. Paul that have since merged into AgriBank FCB in St. Paul or CoBank in Denver.

Johnson, for instance, is a former president of the St. Paul Bank for Cooperatives that is now part of CoBank.

But while expertise is here and a cultural understanding of cooperatives exists in Minnesota, the popularity of senior co-op housing is more like patterns of immigration to states and regions of the country, Johnson said.

"Someone knows someone else who lives in a co-op and says, 'That's a good idea.' So they follow. We see that happening again with a co-op development in Montana. The people there knew some Minnesotans who live in a senior co-op and said, 'We should do that.'"

Barbara Bowling, a member of the Realife Cooperative of Hibbing, is a case in point. The retired school teacher was a member of the Gramercy Park Cooperative in Duluth when the Hibbing co-op was under development in her hometown on the Minnesota Iron Range. She sold her equity stake in the Duluth co-op and "moved home" when the Hibbing co-op opened in 2004, she said.

 A Different Approach   

In a 1997 article for the Cooperative Housing Journal, University of Kansas researchers Deborah Altus and R. Mark Mathews note that housing cooperatives have existed in the United States since 1876. Most often, this cooperative form of ownership was a tool for students, low-income people, singles or others who had reasons to explore alternative housing models.

The senior co-op housing model widely used in Minnesota, however, dates back 30 years to the opening of the 7500 York Cooperative in Edina. Unlike other housing co-ops that facilitate entry into ownership, the senior co-ops are more geared to people who want to sell existing homes and live in more convenient, less stressful environments.

Senior co-op members don't buy their units like buying condominium homes, Johnson said. Rather, they buy an equity position in the cooperative building or complex.

Usually, that equity stake is equal to about 40 percent of the appraised value of the unit, he said, although that may range from about 35 percent to 50 percent depending on the co-op's strategy. So, a senior citizen or couple may sell an existing home and pay $40,000 for an equity stake in a co-op that has a unit valued at about $100,000, or possibly $80,000 as a stake in a co-op with $200,000 units.

Over time, the co-op members pay monthly fees for maintenance and improvements and to keep acquiring equity that increases the value of their investment by from 1 to 2 percent per year. The co-op makes the market for resale, and it has worked because there are waiting lists of perspective buyers at most of the co-ops. There are no foreclosures.

Bowling, at Hibbing, said there is a 30-person waiting list at her co-op and that is one of the reasons why a second co-op is planned in that community. In St. Paul, however, Haas said some new purchases of co-op stakes have been delayed as prospective buyers have difficulty selling existing single-family homes they want to vacate.      

These co-ops will also serve as a model for future cooperative development in Minnesota and elsewhere, across various demographic and economic lines. Minnesota has an aging population. Nearly entire blocks of single-family dwellings are under stress or have been foreclosed in some Minnesota cities. Health care problems are on the rise affecting even greater numbers of Minnesotans.

Creative cooperative responses should be explored by public policy makers and socially engaged civic organizations. The recession will end in time, but we will never return to what was once considered "normal" for health care, and our senior citizens won't get any younger.   

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