Howard Law Journal
Copyright (c) 2002 Howard University
Howard Law Journal
46 How. L.J. 85
LENGTH: 17323 words
ARTICLE: The Limited Equity Coop as a Vehicle for Affordable Housing in a Race and Class
* Ronald Curtis, J.D., Howard University School of Law, 2002. Member, Howard
Law Journal, 2000-2002.
... The limited equity cooperative is a form of housing tenure in which
shareholder residents manage their buildings, within limits imposed by a
charter, and have the right to get back what they have paid for their shares
plus an allowance for improvements, if and when they decide to leave. ...
Tenant management initiatives in public housing move that tenure form in the
direction of the LEC. ... Housing that would be viable and affordable in a
stable neighborhood may be eliminated by abandonment in a downward spiral, or
shifted to upper income use in an upward spiral. ... As I've explained above,
the basic motives for choosing the LEC tenure form are the desire to spread the
subsidy over time, rather than concentrating it on a first recipient of fee
simple title, the desire to provide a higher level of participation in property
management than tenants get in either private subsidized or fully public
housing, and the desire for community responsibility in property management.
... Given the scarcity of affordable housing for the poor and probable future
cutbacks in government assistance to poor renters, there is likely to be a
large demand for subsidized LEC units. ... It should be kept in mind, however,
that state courts have the power to impose non-waivable terms in contracts in
general, and are likely to see the LEC resident as occupying a status somewhere
in between that of tenant and that of coop shareholder, rather than as
unequivocally in the category of shareholder. ...
The limited equity cooperative is a form of housing tenure in which
shareholder residents manage their buildings, within limits imposed by a
charter, and have the right to get back what they have paid for their shares
plus an allowance for improvements, if and when they decide to leave. The
limited equity cooperative (hereinafter
"LEC") is neither a common form, nor one that seems likely to become common in the
near future. It is nonetheless a hardy if rare perennial.
In this article, I try to bring together three strands of generally progressive
legal thought as means to understand the pros and cons of the LEC as a vehicle
for subsidized low-income housing. The three strands are
"alternative forms of property" thinking, critical legal studies (CLS)
"contradictions analysis," and critical race theory (CRT). I will explain each of them in more detail in
the course of the article.
Part I introduces this specific institutional form as one of the elements in a
progressive housing agenda (and defends it against various criticisms). Part II
shows how the apparently mundane activity of drafting the details of a LEC
charter forces whoever is doing the drafting to choose among conflicting
progressive objectives, and among conflicting progressive visions. Part III
shows how, in the context of the LEC, critical race theory and critical legal
studies discussions of race and class help define the parameters within which
the decision maker performs these tradeoffs. The Conclusion briefly discusses
[*86] the utopian aspirations, as opposed to the pragmatic objectives, of the LEC
I. THE LEC AS AN ALTERNATIVE FORM OF PROPERTY
Why would a developer set up a limited equity cooperative? First of all, he or
she would be acting in a long American tradition that combines a pragmatic
approach to property law and theory with a set of utopian aspirations. This is
the conception of property rights in which we see them as instruments for our
social purposes and try to design them, rather than just accepting the
traditional off-the-rack version of property as the one and only solution for
all problems. Designer property fits within the general category of property,
but with the sticks in the bundle modified in the hope of achieving results
quite different from those that have flowed from the traditional model.
The goals that people in this tradition have tried to achieve through re-design
have been various, depending on whether they are talking about agricultural
land tenure systems, consumer coops, irrigation systems, retirement
communities, marketing coops, or worker-owned firms.
n1 This paper deals with third-way property--neither the traditional market form
nor state ownership--in the area of urban residential housing. The LEC as a
species of third-way property looks different according to whether we are
talking about what we would consider the ideal form of housing tenure in a
n2 about the LEC as a vehicle for the privatization of formerly public housing in
a post-communist or post-socialist economy,
n3 or, as in this article, about the LEC as a vehicle for housing subsidies for
low-income people in a developed capitalist economy.
[*87] The LEC typically splits up the traditional property bundle in the following
way: A non-profit entity, often a land trust, owns the land and has the right
to enforce the rules that govern the coop that owns the building. The residents
own shares in the coop. They can, within limits, manage it as they wish, but
when a resident sells his or her unit, he or she gets back only what he or she
has put in, with adjustment for inflation and sometimes a share of equity
appreciation. Equity appreciation over and above the resident's share belongs
to the coop and the land trust. If the market value of the shares is less than
what the resident has paid for them, then the resident absorbs the loss, unless
the coop charter has provided for a reserve fund of some kind to make up the
difference between market value and shareholder contribution.
Residents accept the restrictions imposed by the LEC form for various reasons.
They may regard them as desirable aspects of the unit, because they constitute
the property as social, or based on the stewardship conception. More likely,
they buy the shares because the small down payment (low share price) and low
monthly payments make the unit significantly cheaper than market rate units of
similar quality. They regard the obligations and restrictions as a necessary
price to obtain equity, albeit limited equity. The low share price and low
monthly charges are usually made possible by a subsidy package. The package may
have many different elements, including low-income housing tax credits, below
market land acquisition, mortgage subsidy by state or local authorities, and
financing by non-profits, such as community development banks or land trusts.
By contrast with residents, developers of subsidized low-income housing
typically have a complex agenda. If they are interested in the LEC form, it is
likely to be because they believe it can simultaneously accomplish three
distinct goals. These are affordability, participation (resident empowerment
through self-management), and community responsibility. I will discuss
affordability, participation, and community responsibility in that order, but,
of course, a developer might rank them differently or have other objectives
The first objective is affordability. This objective is to increase the supply
of decent housing that the low-income part of the population
[*88] can afford, beyond the supply that the private housing market, along with
existing government construction, subsidy, and regulatory programs, will
provide on their own. Although it sounds simple, the goal of affordability is
actually quite complicated.
We start from the observation that the poverty of the poor (say the bottom
twenty percent of the income distribution) is reflected in their housing, in at
least three ways. (1) They live in housing that, according to societal
consensus, is relatively undesirable, whether because it was built bad (not
much light and air); is badly maintained (heat only works sporadically, rodent
infested, looks terrible, etc.); or is sited near undesirable environmental
features (toxic waste sites, highways, factories, abandoned buildings, etc.),
and far from desirable ones. (2) The poor don't consume very much of it,
compared to richer people--they are relatively crowded, and many of the poor
are homeless. (3) It takes up a lot of their income. Here the notion is that,
for the poor, housing expenses are a first claim on income, and one that is
indivisible. In a given housing market, there will be an effective minimum
price for a rental apartment. These minimum prices are high enough so that when
a poor family has paid the rent, the money left will buy only an inadequate
level of food, clothing, and other necessities.
It might at first seem that this is no more than to say that the poor don't
have enough money to buy good housing and still have money left over for other
things. So the remedy should be to give them more money, and let them spend it
any way they want. There are two responses from people who see affordability as
an objective separate from the general objective of raising the incomes of the
The first response is that society has a moral obligation to provide shelter
(and food and clothing) to all its members that is distinct from its
obligations to provide income in the abstract. Housing is a necessity, and a
building block for other kinds of welfare. Everyone, including the children of
the poor, should actually consume a minimal level, a decent level, of housing.
The second response is that there are major externalities from the provision of
good housing for the poor. Good housing improves family life, and it improves
neighborhood life. Bad housing is one (just
[*89] one) of the elements in the environment that can produce downward spirals of
living conditions. Bad housing drives out good housing. Good housing
stabilizes, and it also can change incentives so that neighbors increase
maintenance and generate an upward spiral.
These two lines of argument justify targeting subsidies for housing and
providing it in kind, rather than providing equivalent cash and letting the
poor decide. In other words, they justify a measure of paternalism. Of course,
the degree of paternalism may be very small if the intervention mainly reduces
the rent payments of the poor, leaving them more money to spend on other
things. Moreover, the paternalism serves efficiency, as well as democratic and
egalitarian aspirations. It aims to maximize the effect of subsidies by taking
advantage of the externalities generated by housing improvements, and to give
the poor a base from which to pursue their interests more effectively.
State, federal, and local governments play a major role in setting the incomes
of the poor, and they provide in kind housing services through construction,
subsidies, and regulation.
n6 The premise of the LEC movement is that they don't do enough, and don't do
what they do well enough, to make it unnecessary (or undesirable) for the
non-profit sector to try to increase poor people's housing resources.
People interested in affordability achieved through third sector initiatives
"do-gooders." We reject the notion that it is only the government that should pursue the
public interest. The movement is therefore open to the classic American
suspicion that there is something inherently wrong with allowing or encouraging
entities without democratic political accountability to do things that affect
the lives of citizens, unless, of course, they are doing those things for
profit. And the movement is defensible as quintessentially American in its
rejection of the idea that we should leave social improvement to the government
rather than pitching in ourselves as private citizens at the grass roots level.
The LEC idea is not inconsistent with government subsidies to the coop
movement, or government preferences that would increase the incentive to create
this kind of housing. Moreover, there is no bright line between public housing
and third sector housing. By a series of small steps, we can move from a very
clearly non-government coop housing model to public housing. For example, the
land may be
[*90] owned not by a Land Trust but by the City, which has converted buildings on
the land to limited equity coops under the terms of a local ordinance. Tenant
management initiatives in public housing move that tenure form in the direction
of the LEC.
LECs do represent a specific choice about how to design in kind housing
subsidies to the poor. They stand in contrast to other policies, such as: the
provision of housing vouchers through which the government supplements the
rents that the poor can pay while leaving them free to choose their private
landlords; government-owned and operated new housing construction; government
subsidies to private builders of new low-income rental housing; government
subsidies for low-income home buyers, and for construction of affordable home
ownership opportunities. They also contrast with other non-profit initiatives,
such as rental housing subsidized by churches or other non-profits, and
charitable support for sweat equity programs that give the participants fee
Like public housing and subsidized private rental housing, LECs create
low-income housing that will be available for the indefinite future. This
represents a decision to allocate the subsidy built into the coop to a series
of people who will occupy the unit over its lifetime, rather than concentrating
the subsidy once and for all on the first occupant. Like home ownership
initiatives, LECs provide residents with governance rights that go well beyond
those of private sector tenants. Like home ownership and subsidized private
rental housing, LECs rely on entrepreneurial rather than political initiative,
and on private rather than public service management methods.
If we create lots of cheap home ownership opportunities, through subsidies and
sweat equity programs, for example, we help some of the most competent poor
people better their situation. They become full owners of their new homes and
can sell them at whatever the market will bear. A cooperative sector that gives
low-income residents unrestricted shares in their apartments creates the
possibility that, if the neighborhood gentrifies, they will be similarly
enriched by the increase in their equity. But when the subsidized low-income
homeowner or cooperative shareholder sells, the units will no longer be
affordable for any other low-income buyers. The subsidy improves the
possibilities of upward social mobility for the sellers, thereby marginally
increasing the chances for low-income people to join at least the lower middle
[*91] By contrast, when current LEC residents die or move up or out, they are
replaced by other low-income people, rather than by whoever will bid the most
for the unit in the market as it exists when the resident decides to sell. This
design strategy stems from distrust of the notion that the market will, over
the long run, cure the
"transitional" problem of bad living conditions for the poor. It seems more likely that the
income inequality and the racial and cultural differences that define American
poverty will persist for the indefinite future. LECs will be available into
that indefinite future. The federal government subsidy programs of the late
1960s and 1970s took the opposite approach, and time-limited the affordability
obligations of subsidized developers, giving rise to the
"expiring use" crisis of the 1980s when the time limits ran out. The point is not just to
help people move up through the market system, but also to counter the tendency
of the market to generate, through the combination of employment instability,
neighborhood instability, and the various forms of racial and class
discrimination, an endlessly renewed sector of urban misery.
Of course, we could achieve the goal of creating a permanent, non-profit,
affordable housing sector through subsidized rental tenure, rather than through
LECs. In order to explain the LEC form, we need to add the further objectives
of resident empowerment and community responsibility.
The second basic objective is that the occupants of low-income housing should
participate in the management of their buildings.
n7 The background is a critique of the landlord-tenant relationship as it
typically exists in the low-income rental market. It seems to have many
undesirable characteristics: tenants are passive, without choice in how the
building will look, in the level of maintenance versus other uses of rental
income, in decisions about who should fill vacancies, and decisions about who
should be evicted or subject to lesser sanctions for anti-social behavior.
Landlord-tenant relations seem to vary between patriarchal, with landlords
operating with excessive day-to-day power over tenants, and alienated and
bureaucratic in large buildings. Renter status is often month-to-month, but
even year leases give only
[*92] the most limited incentive for the tenant to put money or even effort into
maintenance, let alone improvements.
LEC advocates value participation for its own sake, as a form of
self-management, but we also value it for the effects we hope it will
encourage. Participation is a form of training or preparation for citizenship
in a democracy. Properly organized, it furthers the autonomy of stigmatized and
oppressed groups. When it combines with (limited) equity to create the
expectation of long-term occupancy in a stable environment, it creates
incentives for residents to invest in their units. This, in turn, should and
sometimes does generate positive neighborhood effects, or externalities, and
sometimes can be a factor in upward spirals.
There is thus an overlap, but not identity, of the arguments for LECs and the
general argument for home ownership, as opposed to renting, that has
characterized American social policy since the 19th century. Both tenure forms
encourage residents to invest, but cooperators can get back only what they put
in, and are legally enmeshed with their fellow residents, rather than operating
simply as local property owners.
The LEC will have an initial charter that lays out the terms of cooperation,
specifying the rights and duties of shareholders and the powers and obligations
of the Coop Board and the Land Trust. When the shares are sold and the building
occupied, the cooperators will have some power to modify the rules governing
their interaction as simultaneous residents and managers of the building. But
the mere fact of having to change an existing arrangement places severe
obstacles in the way of tenants substantially altering the initial set up.
Moreover, there will be limits on the residents' legal power to modify the
charter without the consent of the Land Trust. For example, the residents won't
be able to get rid of the maximum income qualification for new residents. They
won't be able to sell their interests in the building to a private for-profit
landlord and convert themselves into tenants, or to turn themselves into
limited equity condominium owners, even if they all agree that either option
would be preferable to having to deal with one another as self-managers. Given
the shortage of affordable housing, the developer is offering an incentive, in
the form of affordability and limited equity, that induces residents to enter
an arrangement--the cooperative as opposed to fee simple or rental--that they
might not have chosen if other things were equal. It is true that they can sell
their shares and go elsewhere, perhaps
[*93] to similarly subsidized rental, if they ultimately find the arrangement
undesirable. This exit option, though real, nonetheless imposes costs and risks
of its own.
It would require an odd position indeed, combining radical individualism with
paternalism, to say that the poor should not be allowed to choose the LEC
option if they want it. But it seems important to recognize from the beginning
that the developer is doing something more than simply increasing options, as
would be the case if the units were offered without a subsidy, at a price
reflecting the actual costs of operating under this particular legal regime.
LEC development gambles that the people offered the incentive of the subsidy
will make the coop arrangement work, and reap the inherently somewhat
speculative benefits, rather than seeing themselves as having been manipulated
C. Community Responsibility
A third basic idea is that the owners of property in general, and urban
residential property in particular, ought to operate with more regard to
residents, to the communities in which the property is located, and to the
environment, than they now do.
n8 Of course, legislation, regulations, and judge-made rules already impose many
duties on owners of private residential property. Moreover, public housing
authorities operate under a complex set of federal and local regulations. An
important idea behind advocacy of LECs is that the community responsibility
objectives behind these existing regulations can be better achieved by building
duties of stewardship into the definition of the property rights of the people
who will be involved with the housing.
1. The Non-Profit as Steward
There are two principal ways in which the LEC does this. The first is that the
owner of the land is a non-profit entity mandated by its charter to act as a
steward of the property. The second is that the residents are shareholders with
limited rights, rather than fee owners, and the equity they don't get remains
available to the non-profit to use for the good of the community.
The gamble here is that the non-profit entity will behave in fact differently
than and better than a commercial landowner operating
[*94] under the existing legal regime with respect to resident welfare, neighborhood
interests, and the environment. The people who control the non-profit, we
believe, will very often take it as their mission to manage the land to further
what they figure out, within their limitations, to be the public good, or the
interests of the community. There are quite a few concrete situations in which
they are likely to define these general ideals differently than we would expect
a for-profit landowner to define his or her objectives. So we anticipate that
there will actually be different decisions from the two types of owner.
A for-profit landowner could tear the building down and devote the land to a
non-residential use, including a use that would be environmentally or socially
detrimental to the neighborhood, yet not in violation of the law of nuisance or
local land use regulations. Landlords may be racist or have economic interests
in racial discrimination, and existing anti-discrimination law is unlikely to
be an effective check on racially motivated action. A landlord could also
gentrify the building, or let it deteriorate, when these strategies were profit
maximizing, to the detriment both of the sitting tenants and of the
A non-profit landowner with full legal power could do these things too, and
might enlist the coop's share-owning residents to participate when they might
benefit financially, or act against the interests of residents. Nonetheless, we
anticipate, realistically, that this is less likely to happen under a
non-profit owner than under for-profit ownership. This expectation is partly
based on what we think the people who undertake to manage non-profits are
likely to do of their own accord, but not only on that. The charter typically
builds in legal obligations to the community, the residents, and the
environment. The people who manage the non-profit will be fiduciaries, public
officials, or community representatives selected with some accountability to a
local constituency. The explicit terms of the charter of the LEC, plus the
usual legal and political mechanisms of accountability, create some hard
incentives for the non-profit to behave differently than the for-profit.
2. Neighborhood Dynamics
In recent years, there has been more and more recognition that the housing
circumstances of the poor are a function not just of their incomes in relation
to the resource costs of housing (building materials, fuel, labor, etc.), but
also of the dynamics of the neighborhoods
[*95] where they live.
n9 In particular, it is important to recognize three dynamic configurations:
hyper-stable low-level equilibrium; downward spirals of disinvestment and
abandonment; and upward spirals, or
gentrification. A low level equilibrium is hyper-stable when the neighborhood responds to
investment in ways that counteract its positive potential, for example, through
vandalism or street crime, and does not respond by actions like imitative
reinvestment and increased respect for public spaces. Upward and downward
spirals are likely to be responses to national trends or random shocks, but
greatly amplify the impact of the stimulus through self-reinforcing feedback
This means that reductions in the available affordable housing stock in the
neighborhood can occur not just because the poor don't have enough money to pay
the resource cost of providing them housing, but also because the
neighborhood's dynamics prevent the low-income residents from realizing
anything like the full value of the money they put into housing. Housing that
would be viable and affordable in a stable neighborhood may be eliminated by
abandonment in a downward spiral, or shifted to upper income use in an upward
spiral. Investment in a bad neighborhood that would be adequate to support
affordable housing, or even to generate an upward movement across the board,
may be destroyed if the neighborhood response is negative.
Private landlords, including land trust and cooperatives, participate in
neighborhood dynamics whether they want to or not. They decide how they will
respond to anticipated changes, upward or downward, and the responses feed or
impede the changes, or have no effect. The familiar negative logic of
collective action, or prisoner's dilemma scenario, may be a major factor here.
Individual landowners may consider their properties to be viable or even quite
profitable on the assumption that things remain as they have been, but choose
to disinvest, sell at a loss, or abandon because
[*96] they anticipate that others will do the same, and that the last out will be
left holding the bag of losses. They may calculate that what they do will not
affect the outcome, except as a small contribution to a large trend. Since
nothing they do will change the outcome, they will likely feel that they should
do whatever is necessary to minimize their losses, on the assumption that all
other owners will behave in the same way. As a result, all owners bail out,
leaving everyone worse off than they would have been had they been able to
reach an agreement that none of them would bail.
The mere fact of non-profit ownership does not eliminate the possibility of a
neighborhood prisoner's dilemma, and the Land Trust will have a responsibility
to protect its investment, just like the for-profit landlord. On the other
hand, the Land Trust has a commitment to the general improvement of the
neighborhood rather than a narrow bottom line, and should be willing to invest
more than a for-profit landlord in counteracting downward spirals. For example,
in a downward spiral, the Land Trust might put resources into organizing to
stem decline, rather than adopting a short run, least-cost escape strategy. The
equity of the cooperators, even though limited, gives them a stake in the
neighborhood beyond that of renters, and therefore an interest in countering a
downward spiral beyond that of renters.
On the up side, the combination of a non-profit land trust with limited equity
in the shareholders means that equity generated by the increase in neighborhood
land values is available for use in the public interest, rather than
appropriated by the for-profit landlord, or by the fee simple condo or home
owner. If the building is worth twice the sum represented by the residents'
shares, then there is the possibility of realizing and allocating some of that
excess equity. One possibility would be to rent vacant units at market, or sell
them outright, and use the proceeds to subsidize a larger number of new
affordable units in other buildings. A second possibility would be to buy out
the residents and sell the whole building. Or the equity can stay put,
preserving an affordable sector even in a rapidly gentrifying neighborhood that
would otherwise become homogeneously upper income.
D. Typical Objections
In spite of all of the above, it is a common intuition that a non-profit
cannot be as good an instrument for the welfare of the community
[*97] as a for-profit entity. This intuition takes a number of different forms. The
"without the profit motive, the property will be badly or inefficiently managed." As a general matter, a good portion of the economy is non-profit, and managed
within the same range from good to bad as the for-profit sector. Think of
non-profit private schools, universities, hospitals and clinics, as primary
examples, not to speak of charities, churches, and synagogues with their
various satellite operations (including a lot of housing). Of course, there is
a serious set of problems that arise when we try to empower residents through
self-management, as discussed infra Part III, but these have to do with a
particular mode of non-profit operation, rather than with the non-profit form
in the abstract.
A second objection:
"If the non-profit disregards the bottom line, it will be economically
nonviable, or just a mechanism for subsidies; if the non-profit does pay
attention to the bottom line, it is no different than a for-profit." This argument is based on a loose use of the notion of a bottom line. The
bottom line for the non-profit is to maximize LEC objectives for any given
allocation of capital. High on the list of objectives is that the LEC should be
financially viable, in the specific sense that it must generate at least enough
monthly income to pay the building's carrying charges. If it doesn't, the
non-profit will face a choice between providing an operating (as opposed to a
one shot capital) subsidy, and losing the building. The non-profit must indeed
be totally attentive to the bottom line thus defined. However, such
attentiveness will not require the non-profit to make the same choices that a
for-profit landlord would make. The reason for this is that the capital subsidy
gives the non-profit a margin between the building's monthly costs and those of
a for-profit building, and there are no stockholders motivated to realize this
margin for themselves. The non-profit allocates the money that this margin
represents among the various social objectives we have been discussing.
A third objection:
"If the form were economically viable, why wouldn't it already be common?" True, the private housing market does not generate a limited equity sector.
This does not indicate or even suggest that such a sector will be inefficient
if and when non-profit entities with one-shot subsidies bring it into
operation. A sale of low-income housing tax credits, a mortgage subsidy from
the state, below market land acquisition, funds generated by office building
linkage requirements, bank low interest loan commitments in response to
Community Reinvestment Act challenges, or a share of revolving
[*98] capital funds from the non-profit banking sector--all amount to one-shot
allocations of capital to this particular purpose.
This allocation is based on the view of the donors, whether public or private,
that the capital will have a total return, evaluated according to the donor's
ideas about what counts as a return, higher in this use than in alternative
uses, just as is the case with other subsidy or charity decisions. If the
residents pay their taxes, maintain the building, and pay off the mortgage, so
that the expectations of the donors are fulfilled, then the standard argument
for the efficiency of private choices applies here as elsewhere. The donors and
the residents chose this form because it best fulfilled their purposes, given
their alternatives. The point of LECs is to provide more long-term
affordability, resident empowerment and community responsibility than private
landlords or Public Housing Authorities (PHAs) currently provide. We expect
them to come into existence only when private or public providers of one-shot
capital subsidies prefer this form over alternative ways to pursue their ends.
Their limited extent indicates limited donor interest and resources, but it
does not indicate that they have failed a
"market test" of viability.
A fourth objection:
"LECs are second class home ownership for the poor." Because the LEC form is complex, there is a danger that residents won't
understand it, and will believe they are getting something closer to standard
private market fee simple, condo title than is actually the case. That danger
argues for full disclosure and highly informed consent. Supposing there is
informed consent, it would seem that the standard argument applies once more:
the residents choose the LEC form because, even with the restrictions, the
combination of low share price, low carrying charges, and ownership features
(and possibly social aspects as well) seems to them a better deal than what
they can get in the rental, fee simple, condo or home ownership markets.
A final variant is that whatever the residents may think about it, their true
or real interests would be better served if the donors allocated the capital so
as to provide them (the low-income beneficiaries) either with fully public
housing or with subsidized home ownership opportunities. As I've explained
above, the basic motives for choosing the LEC tenure form are the desire to
spread the subsidy over time, rather than concentrating it on a first recipient
of fee simple title, the desire to provide a higher level of participation in
property management than tenants get in either private subsidized or fully
[*99] housing, and the desire for community responsibility in property management.
It is a question worthy of careful consideration whether it wouldn't be better
to abandon these objectives, in favor of the view that what the poor need is
upward social mobility, and that in the 21st century United States, as in the
20th century United States, that means home ownership rather than inherently
unworkable empowerment schemes. And it is another question worthy of serious
consideration whether the progressive goal shouldn't be the ultimate
decommodification of housing by making all of it public. These questions seem
best addressed infra Part III, when I analyze the underlying conflict of
strategy and vision within critical race theory (CRT) and within critical legal
studies (CLS) thinking about race and class.
II: HOW THE DESIGN OF THE COOP TRADES OFF CONFLICTING OBJECTIVES
A. Legal Structure of a Limited Equity Coop
With the emphasis on the places where tradeoffs are likely, the design of a
limited equity coop looks something like the following:
(1) The land is owned by a non-profit publicly oriented entity. For example, by
a land trust, public agency, hybrid entity combining elements of political
(public officials, such as the City Council), community (some system for ad hoc
resident elections to a Board), and non-profit (a charitable foundation or
trust) control. I have been calling it the Land Trust, but it might be a
Community Development Corporation or a non-profit Neighborhood Development
Bank. In any case, the Land Trust leases the land to the coop, which owns the
building. The Land Trust has the power to enforce the various restrictions on
residents that are built into the limited equity coop structure and a residual
right to the building if it ceases to be a LEC.
(2) Residents buy shares in the coop. The shares give occupancy rights, but
also come with various obligations and limitations. There will be a duty to
occupy--no absentee ownership is allowed--and a duty to obey the rules laid
down in the charter and by the Coop Board. An important legal vulnerability
arises from the institution of the group mortgage, which makes all the units
security for payment of the carrying charges.
A resident's ownership interest is subject to limitations of several different
kinds: (a) A limit on the price on resale that goes to the
[*100] resident. The resident can usually recoup the initial equity investment plus
amortization payments, corrected for inflation, the value of improvements (with
some limit to prevent
"goldplating," i.e., improvements that make the unit unaffordable), and possibly some share
of appreciation. (b) A limit on alienability that gives the coop a right of
first refusal, so it can buy any unit a resident wants to sell, and sell it
itself, to guarantee that new buyers meet the definition of low-income status
imposed in the lease from the Land Trust and also to secure the coop's
privilege of determining its own membership. There may also be a limit on the
right to pass the property along after death, by will or otherwise. (c) A limit
on subletting designed to prevent the shareholder from realizing equity
appreciation without selling. (d) A provision limiting the resident's ability
to decide collectively to terminate the limited equity feature and cash in on
(3) Residents manage the building. Residents set and collect monthly charges,
make maintenance and improvement decisions, choose how to fill vacancies
(within the limits in the charter), and make and enforce rules of resident
behavior. These rules will lie somewhere between the largely compulsory,
state-defined regime governing landlord-tenant relations in the jurisdiction,
and the rules of a typical fully private residential coop or condominium.
Resident administration of the regime will be subject to limited review by the
land trust or other owner of the land to prevent (a) goldplating, meaning
improving the building or individual units to the point at which units will not
be affordable when current residents decide to sell them; (b) deterioration,
meaning a collective decision to under-maintain or maintain abusively so that
the building loses its character as socially decent housing; and (c) abusive or
discriminatory management decisions.
The full legal structure will be more complex than the one described, because
I've restricted myself to the provisions of a coop charter that most obviously
require the drafter to make tradeoffs among the objectives that lead to
choosing the limited equity form in the first place.
B. Conflicts and Tradeoffs
My goal in this part is to describe the ways in which the three general
objectives may come into conflict, and the ways in which each generates
sub-goals, or questions of definition, that must be resolved by the designer of
a LEC charter. I do not think that there is a single
[*101] best solution to any of the design problems I discuss, for two reasons. First,
the solution depends on the circumstances. Second, the solution depends on how
the developer weighs the conflicting objectives, and on the developer's
commitments as between the conflicting interpretations of the best way to
achieve each objective. These deeper conflicts are explored further infra in
My goal is not charter terms (though I've tried my hand at them in the past),
but a check list of issues that will be resolved, one way or the other, whether
they are recognized or not, in the hope that they will be better resolved in a
considered than in an unconsidered way. A second goal, of a quite different
kind, is to suggest ways in which what appear to be issues of detail, arising
after we have decided to design a LEC, reproduce the very same political and
philosophical dilemmas that we thought we were resolving by choosing this form
in the first place.
1. Conflicts Over How to Define Affordability
a. The allocation of the subsidy between present and future residents
As we saw in Part I, we choose the LEC form because we want to spread the
subsidy over time, allocating it to a series of low-income residents, rather
than concentrating it once and for all on the initial recipient. In choosing a
particular set of rules for the LEC, the drafter of the charter will have to
decide just how much goes to the first and how much to subsequent residents.
The drafter resolves this conflict of interest when he decides how to set the
price at which a resident can sell his or her share. For example, there is the
question about how much to restrict recovery for improvements to avoid the
goldplating that renders a unit unaffordable. There is the question of how
much, if any, of the equity appreciation to allocate to the resident.
n12 And there is the difficult question of how seriously to restrict the right to
sublet (to avoid a situation in which a resident appropriates an increase
[*102] in the value of the unit by moving out and renting it to someone who can
afford a market rent).
A strong orientation to the interests of sitting tenants suggests allocating a
part of market appreciation to them, especially to the extent that it is the
product of general price rather than local real estate market inflation. But
there are many distinct options: (1) using the money as an insurance fund to
cushion the impact of employment and other kinds of instability on resident
ability to pay, or to make it possible to buy back residents' shares at their
initial purchase price even if the market value of the units has fallen; (2)
using the money for collective coop purposes, such as improving common areas;
(3) permitting a measure of goldplating; and, (4) increasing residents' equity
In each case, the drafter allocates the possible benefits of market
appreciation of the unit toward the current low-income residents and away from
future low-income residents. This choice will have implications for the way the
Land Trust participates in the life of the community. The more the charter
allocates the benefits of rising land values to the Land Trust, the more
opportunity there will be to use appreciation, realized, for example, by the
sale of vacated units at market, for social objectives, ranging from increasing
the total supply of affordable housing to trying to stem downward spirals or
slow upward ones.
b. Allocation among needy applicants in the present
There is a second allocational issue that is just as difficult. Given the
scarcity of affordable housing for the poor and probable future cutbacks in
government assistance to poor renters, there is likely to be a large demand for
subsidized LEC units. The various subsidizing agencies, whether the federal or
state government or non-profit providers of below market loans, will have their
own different definitions of what counts as low income, and of what counts as
affordable for different low-income groups. The developer will choose among
different kinds of subsidies, and then, within the limits established by the
lenders, choose between applicants whose incomes are high enough so that the
unit will be affordable to them with a relatively small subsidy, and applicants
whose incomes are so low that they require deep subsidies.
The problem of how to allocate the subsidy among present applicants is
dramatically illustrated by the demand of homeless advocacy groups, in the late
1980's and early 1990's, that public housing should
[*103] be housing of last resort, and give priority to homeless over housed
applicants. At the other extreme is the notion that the Land Trust should
require the coop to allocate the unit to the most qualified tenant within the
eligible pool, defined as people with incomes below some percentage of the
local median. In this model, sometimes called
"creaming the applicant pool" or
"cherry picking," the coop takes the applicant who is at the top of the queue, ranking tenants
according to criteria such as income, employment, education, credit history,
references, and ability to contribute to building management, and screening out
applicants with identifiable behavior problems.
The developer is likely to anticipate that creaming means minimizing the amount
of necessary subsidy per unit, and maximizing the number of units for a given
subsidy, by contrast with the last resort strategy. For this reason, the
conflict is not simply over which part of the target group gets the help--it
costs more to help the very needy. Moreover, a choice along the spectrum of
target populations has implications for the goals of participation and
community responsibility, as will be clearer as we now turn to tradeoffs in
2. Conflicts Over How to Define Participation
Realistically speaking, we have a class and race system, so that many of the
people the coop movement would like to benefit are lower class or underclass,
many unemployed or on welfare, and many of them are people of color, mainly
African Americans and Hispanics. Low-income people of color are in many ways a
victim group--victims of various kinds of racism, but also of class bias, and
of the ways in which the economy structures jobs and government benefits
arbitrarily and irregularly. We also recognize realistically that each American
ethnic and racial group, native born whites very much included, has its own
culture of poverty, no matter how strongly radicals and minority activists once
denied it, and that many in these otherwise diverse cultures have problems of
addiction, family disorganization, illiteracy, high crime rates, and domestic
and child abuse that are different than and in some respects more severe than
those of other social groups.
The combination of the ideal of participation with the specific social
characteristics of those most in need of affordable housing generates another
set of tradeoffs in deciding how to deal with conflicts between residents and
management. It may be useful to understand these as on two dimensions. First,
there is a conflict over the best strategy of empowerment, a conflict between
what we might loosely call a
"tenants' rights" and a more
"collectivist" approach. Second, there is an at least potential conflict between maximizing
the supply of affordable housing through LECs and maximizing the institution's
contribution to empowerment. The choice of solutions for these conflicts will
in turn have an impact on the goal of community responsibility.
a. Tenants' rights vs. collectivism
Tenant lawyers generally see themselves as protecting tenant interests in two
ways. First, by zealous advocacy to prevent eviction, whether for non-payment
or late payment of rent, or for alleged bad conduct, whether the conduct
involves the physical condition of the building or relations with other
tenants. Second, by the long-term effort to reform landlord-tenant law to make
it more favorable to tenant interests, by, for example, outlawing self-help
eviction, abolishing tenancy at will (so that all tenants have a right to a
grace period before eviction), establishing a warranty of habitability (making
the obligation to pay rent conditional on performance of the warranty),
permitting rent withholding as a response to the landlord's breach of warranty,
enacting security deposit laws, establishing due process rights for public
housing tenants, securing rights to appeal evictions before execution and
without bonding requirements, and so forth.
These efforts have gradually transformed the regime of summary process that
characterized the law from the late 19th century through the 1960's into a much
more tenant-friendly regime. In states that have adopted the reforms, a tenant
who is well represented can often make it difficult, expensive, and
time-consuming for a landlord to evict him or her, whether for non-payment of
rent or for nuisance behavior. The most important tenant protections are
non-waivable. An agreement in the lease for eviction on terms more favorable to
the landlord is not legally enforceable.
By contrast, standard private coops are usually free, under loose, ad hoc
judicial supervision, to specify by contract the procedures for the collection
of monthly carrying charges, and to make their own rules both about resident
conduct and about the procedures for enforcing those rules. Likewise, they are
usually free to specify the terms under which individual shareholders can force
the Coop Board to perform its obligations. It should be kept in mind, however,
that state courts have the power to impose non-waivable terms in contracts in
general, and are likely to see the LEC resident as occupying a status somewhere
in between that of tenant and that of coop shareholder,
[*105] rather than as unequivocally in the category of shareholder.
n13 The drafter of the LEC charter has far more options than a landlord drafting a
lease. But he or she may find his or her decisions summarily rejected by a
court if they are perceived as
"going too far" in a pro-management direction. In such a case, the court is likely to treat
the LEC charter as
"really" a lease, and therefore subject to the non-waivable rules of landlord-tenant
In designing the rules for a LEC, tradeoffs have to be made, within the above
limits, on several dimensions. First, should the shareholders as a collective,
represented by the Coop Board, have strong coercive powers, with limited due
process, to enforce resident payment obligations and rules of behavior, or
should the LEC charter emphasize due process and values of leniency and
forgiveness for the individual resident? Should we emphasize collective
responsibility of the occupants of a unit, for example by terminating the
shares of families for misbehavior of individual members, or rather treat the
shareholder as not responsible for family member behavior?
Second, there is the question of the Coop Board's obligations to the individual
residents. The choice is between seeing the LEC as the legitimate
representative of the common resident interest, or as a management at least
potentially opposed to the interests of individual unit owners. The question is
posed clearly when a LEC resident sues the LEC alleging, say, failure to repair
common areas, or non-negligent failure to provide heat to the standard required
by the local housing code. The charter can try to make sure that such suits
fail, leaving the resident no effective recourse other than the LEC governance
mechanism, or treat the resident more like a tenant in a rental unit, entitled
to outside intervention against landlord violation of compulsory lease terms.
Third, the developer can build an outside management company into the
structure, taking many of the Coop Board's powers and obligations away from it.
Professional management may compensate for the limited self-government
capacities of the residents and safeguard the interests of the Land Trust and
the mortgage lenders, but at the expense of the participation values that
motivate LECs in the first place.
[*106] What makes this such a difficult set of choices is that there is no consensus
in the low-income advocacy community as to what strategies for empowerment work
best. On the one hand, there is the notion that we empower poor people by
making them rights holders, securing their autonomy as individuals or as
families against the various institutions that are interested in disciplining
or just controlling them, and increasing their incomes. This idea favors a
combination of the
"tenants' rights" approach, which paradoxically makes the resident shareholder look more like an
owner, with delegation to an outside management company.
On the other hand, there is the notion that the poor need not just money and
rights understood as security, but experiences of group self-government that
are transformative--that empower in the strong sense of changing capacities for
self-mastery and effective common agency. This notion is oriented not just to
creating groups that represent, but groups that act on their members, and so
favors the more
"collective" approach, with weak resident protections against eviction, weak resident
powers to force Coop Board action, and a weak management company (if any). It
is important to remember that the choice the developer makes among these
options will be difficult, if not impossible, for the residents to change, even
with consent of the Land Trust.
b. Participation vs. maximizing the supply of affordable housing
As I suggested in the discussion of affordability, depending on how these
tradeoffs are resolved, there may be a second tradeoff between the goal of
participation and that of maximizing the supply of affordable housing. Creaming
the resident applicant pool, so that residents are chosen from the top of the
queue, is likely to reduce the costs of participation, because the residents
will be better educated and have more management skills. Reducing the costs of
participation increases the number of units that will be generated by a given
There is likely to be disagreement about what style of participation is best
from the point of view of preserving the assets available for affordable
ventures. The model closest to the private rental market would be one in which
there was a management company with large powers independent of the Coop Board,
and a regime of strong residents' rights modeled after tenants' rights. At the
other extreme, there is a powerful Coop Board, and weak resident rights. Which
[*107] require a deeper subsidy? The individualist strategy, combining residents'
rights with outside management, may allow individual residents to endanger the
whole building, by failing to pay, by anti-social behavior, or by taking the
building to court, without the resident association having adequate tools to
defend itself. The more collectivist approach to management may founder where
residents lack the necessary technical skills, or the kind of social and
political skills necessary to generate consensus.
c. The group mortgage
This conflict is rendered particularly acute by the institution of the group
mortgage, which, as mentioned above, means that the interests of all residents
are security for the performance of each individual mortgagor. The virtue of
the group mortgage is that it increases the credit worthiness of the LEC over
what it would be if each resident were responsible only for his or her own
mortgage payments. So the group mortgage may mean more and cheaper financing,
and therefore more units, for a given subsidy.
At the same time, the group mortgage makes the internal governance mechanism
and the choice of a mode of participation crucial to the viability of the whole
coop. It therefore creates pressure for a management form that will effectively
guarantee that individual residents will meet their obligations. In private
rental and public housing, individual tenant nonpayment or destructive behavior
impacts other tenants' finances only indirectly, through the landlord's or the
Public Housing Authority's rent, investment, and maintenance decisions. In the
group mortgage context, bad actors can jeopardize the whole building in the
short term. If the Land Trust plays the buffer role of the landlord or Public
Housing Authority (PHA), then the individual resident's bad behavior
jeopardizes the supply of non-profit low income housing. (Or simply reduces the
supply, if the Land Trust requires coops to deal with the risk of default by
accumulating reserves, thereby reducing the monthly income available for
d. The choice of scale: single building coops vs. multiple building coops
One way to reduce the dangers of the group mortgage is to increase the number
of units in a given coop. The more units the coop cross-collateralizes, the
less the impact of any individual shareholder's
[*108] failure to pay, the less the risk for the bank, and the less the risk for the
Land Trust in its role as back stop. Increasing the size of the coop may
detract from the goal of empowerment through self-government, since size
dilutes participation. But opening up the question of the scale of the coop
highlights a new set of governance options as well.
We commonly begin by thinking of a LEC as a building. But the coop can consist
of several buildings, single-family homes, or a mixture. And the coop structure
can include a division of governance authority between the building as a unit
and the coop as a whole, as well as a division between the coop and the Land
Trust. For example, in a multi-building coop, goldplating might be controlled
by the requirement of coop approval of improvements, while leaving buildings as
units responsible for choosing among income qualified new residents, and for
enforcing conduct rules.
All of the decisions we have discussed, both in this section on participation
and in the previous one on affordability, will generate further conflicts and
trade-offs with the goal of community responsibility, to which we now turn.
3. Conflicts in the Definition of Community Responsibility
There is a conflict between designing the Land Trust and the LEC so that they
will function as a neighborhood strategic actor and designing them so as to
guarantee to the utmost the interests of the residents. The conflict between
the two approaches plays out both in the choice of how to govern surpluses and
losses generated by changes in the value of the building, and in the choice of
scale discussed in the last paragraph.
a. What happens to gains and losses
The coop's ownership structure, and in particular the limits on the price
residents can collect for their units, is designed to allow a public
appropriation of the increase in the value of the building in the event that
market forces increase its value faster than the shareholders' interest
appreciates. I pointed out above that the division between the individual
resident and the coop or the Land Trust is also the division between present
and future beneficiaries of the one shot capital subsidy. But it is also
division of control over the use or non-use of the accumulated equity (or for
that matter accumulated losses) in the present, as well as in the future, with
the alternatives including
[*109] denying anyone access to the surplus, so that it stays in the building to
guarantee affordability, and making it available for strategic action.
b. The choice of coop scale
The scale choice will also either facilitate or impede the Land Trust's
adoption of a community-oriented strategy in the face of neighborhood
instability (or low level hyper-stability). The more units a Land Trust can
influence, or that a single coop can influence, the more chance there is of
responding effectively to spirals or stagnation. At the same time, binding
buildings together in a larger coop structure enmeshes the individual residents
even further than is implicit in the coop structure at the building level, and
makes all vulnerable to strategic mistakes by the central decision makers.
c. Strategic actor or protector of resident interests
In the simplest model, equity stays put in the coop. There is no possibility
of realizing any part of it, and the Land Trust renounces any possibility of
influencing neighborhood dynamics through its disposition. The result should be
at least tendentially to make the LEC a stabilizing force. The owners (the Land
Trust and the coop) will not sell or convert to profitable non-residential uses
when there is an upward spiral, so the units remain affordable. This might have
a braking effect on the spiral, or simply reduce the total loss of affordable
gentrification. In a downward spiral, the inability of the Land Trust to maneuver to cut its
losses means that it won't bail out, and so won't exacerbate the prisoners'
Toward the other end of the spectrum, the Land Trust can retain significant
power to realize and redeploy equity appreciation for community purposes. One
could imagine selling a unit in a building in a gentrifying neighborhood, for
the high new market price, or mortgaging the non-resident equity interest, and
using the proceeds to create two LEC units in a lower priced neighborhood,
possibly with neighborhood stabilization objectives. A successful coop might
expand by adding buildings purchased by loans secured by the surplus equity. At
the extreme, the Land Trust is a major neighborhood actor, working against
downward spirals and against displacement through
gentrification, as well as influencing the handling of neighborhood environmental, aesthetic,
and social issues.
d. Relation to affordability and participation goals
Minimizing freedom of action with respect to the surplus equity and the scale
of the coop, as opposed to constituting the Land Trust as a strategic
neighborhood actor, will have implications for affordability, but it is not at
all clear what they will be. Pinning the Land Trust down might lead to
disaster, or just to lost opportunities. Unleashing it could lead to disaster
and lost opportunities as well. The implications for participation are somewhat
clearer: if the Land Trust is a strategic actor, it may act against the
interests of coop residents, and the value of participation suggests giving the
coop some say in what strategic course is adopted. On the other hand,
empowering the coop creates a risk of paralysis, and so forth. It seems
unnecessary to play out the analysis any further.
III: THE LEC IN THE CRUCIBLE OF RACE AND CLASS (CRT AND CLS)
So far, I have outlined a set of complex choices that remain to be made after
the developer has opted for the LEC form. In this section, I suggest a larger
context of political debate that will condition those choices. The body of
literature that seems most relevant is that generated by CLS
n14 and CRT.
n15 For purposes of bringing this work to bear on the design of a LEC, here is a
summary of the most salient choices on the table.
The first issue: The developer could target the subsidy to help the most
deserving, competent, and potentially upwardly socially mobile of the poor to
move up into the lower middle or middle class. Or the developer could target
the subsidy to help the very poor, more likely demoralized and less upwardly
mobile (the underclass), to improve or transform their lives at the bottom of
the rigid American race/class hierarchy, without imagining that they will
assimilate to the mainstream multicultural American middle class model.
The second issue: The developer could choose a model of tenants' rights,
professional management, and
"juridification" (reliance on courts for resolution of disputes). Or the developer could choose
a model of the coop as a collective in which rights and duties are loosely
defined (through standards rather than rules) and residents must use
[*111] the political process of coop governance to accomplish their objectives.
Paradoxically, the tenants' rights strategy makes the resident look more like a
"normal" property owner than does the
"coop as collective" model.
The third issue: The developer could design the coop as part of a
community-oriented strategy of mobilization, particularly for defense both
against downward spirals and against
gentrification. Or the developer could design it merely as a stabilizer, devoted to securing
the best interests of the residents, even when those diverge from the interests
of the community.
The debates within critical race theory, and between CRT-- and CLS --
identified writers, have a lot of relevance to these issues, and at the same
time a certain quality of distance, abstraction, or even denial, at least as it
now seems to me.
A. Targeting the LEC Subsidy and the
"Talented Tenth" Debate
The highly respectful dialogue between John Calmore and john powell about
"ghetto enrichment" vs.
"fair housing" is relevant to the first issue, of how to allocate subsidies between different
classes of poor people.
n16 As part of general advocacy of dispersal of ghetto communities through housing
and educational desegregation, powell emphasizes the importance of choice for
minorities, including the choice to exit the ghetto, either to a predominantly
minority middle class community or to an integrated community.
n17 (He is particularly concerned with access to good education.) He is against
the notion that the interests of those who would leave if not subjected to
racial discrimination in the housing market should be sacrificed to the
interests of those who will stay in the ghetto and be worse off as a result of
the exit of the better off.
Calmore emphasizes, first, that putting resources into dispersal through fair
housing law will mainly benefit the upwardly socially mobile
[*112] at the expense of the more disadvantaged, and that it will dilute minority
political power, dispersing elites and reducing the capacity of ghetto
residents to mobilize to protect their interests.
n19 This debate gets added urgency from William Julius Wilson's analysis of the
"concentration effects" produced by the departure of the black middle class from the ghetto beginning
in the 1960's.
n20 According to Wilson, the class-segregated communities of the
"truly disadvantaged" reproduce a variety of
"pathologies," in part, because of the absence of black middle-class role models and black
In our context, the issue presents itself somewhat differently. Allocating LEC
units to those who need deeper subsidies may reduce the number of subsidized
units, for two reasons: by increasing the amount of initial capital subsidy per
unit (so that monthly charges are affordable for the target group), given lower
income residents, and by increasing the costs or difficulties of LEC resident
participation in governance. Moreover, subsidizing the upwardly socially mobile
does not remove them from poor neighborhoods, assuming the LECs are sited there
(though LEC residency may be the first step on the way out). These factors
somewhat reduce the power of the Calmore critique in this context. But here's
the rub: the underlying difference of approach is deep enough so that it is
unlikely that anyone committed to either position will think that these
particularities of the LEC context should tip the balance. The heat of the
debate comes from factors that apply fully to LEC's.
First, there is the question whether the LEC subsidies are likely to be wasted
if not directed to the upwardly socially mobile. There is no consensus among
CRT or CLS writers about the nature of class divisions either within minority
communities or within the various white communities. In one view, there are
diverse cultures of poverty, so that helping the very poor, whatever their race
or ethnicity, emphatically requires more than just non-discrimination and job
access. There is a real danger that directing LEC subsidies to the very poor is
just to waste them, whereas targeting them by
"creaming the pool" or
"cherry picking" holds out a much greater chance of success.
[*113] The upward mobility strategy is based on recognition that the total amount of
subsidies will never be enough to transform the lives of the masses of the
poor. The only plausible long run strategy for the poor, in this view, is
triage, chipping away, hoping to reduce the size of the poor population at the
margin. Eventually there will be few enough of the poor left so that it is
plausible to make a large societal investment in
"upgrading their human capital," so that they too can be integrated, socially and economically, into the
The response might be twofold. The main thing the very poor need in order to no
longer be poor is to be freed of racial oppression and given access to economic
opportunity. The anticipation that they will waste the subsidies is largely
based on a stereotype.
n22 Moreover, non-profit community-based affordable housing initiatives have a
moral obligation to the whole community, not just those capable of exiting and
likely to do so. In the long run in which triage reduces the mass of the poor
to manageable proportions, today's poor will most certainly be long dead.
Suppose we define success of the subsidy as, at a minimum, the creation of a
viable affordable unit whose occupant does not deteriorate the quality of life
for his or her neighbors, and on the upside as the use of the subsidy to
significantly improve the overall quality of life of the resident. Even if the
rate of success is lower for very poor than for upwardly mobile poor residents,
the allocation is justified by the obligation of the community, represented by
the Land Trust, to do what it can for the most needy, as opposed to those more
able to help themselves. (Note the analogy to the argument, mentioned above,
for making public housing, housing of last resort for the homeless.)
A second, distinct disagreement that is likely to influence one's view of how
to target LEC subsidies as between the upwardly mobile and the very poor has to
do with the participation ideal that is one of the motives for any LEC scheme.
Some of those committed to participation will see the attempt to combine
residents from different subcultures of poverty--the upwardly mobile with the
very poor--as analogous to denying them exit from the ghetto through fair
housing. Given the collective, interdependent character of neighborhood and
building life, the only hope for creating decent environments, characterized by
the middle class values and behaviors that the upwardly
[*114] mobile poor want, is to exclude the very poor. Or at least to restrict their
numbers far enough, in the name of the mixed income concept, to avoid
concentration effects and let the upwardly mobile have secure control, both of
formal apparatuses and of the informal life of the project.
In the other view, this position again relies on stereotypes, and is moreover a
typically uptight, black or white, bourgeois phobic reaction to the legitimate
particularities (as opposed to pathologies) of the cultures of the different
n23 Participation is a value for its own sake, but it is also a means to
empowerment. The LEC should have it as an affirmative goal to create contexts
for personal transformation through the admittedly often draining and
unpleasant process of group formation and skills building. To the limited
extent we decide to subsidize the very poor, we should try to do it in ways
that have at least the possibility of this kind of empowerment built into them.
The point is not to help them become in their turn upwardly mobile, but to help
them develop the capacities for organization and mobilization they need to
defend their interests in a system that systematically oppresses them.
Put in stark terms, the tension here is the same as that which motivated the
early W.E.B. Du Bois to formulate his
"talented tenth" strategy, aimed to provide high quality educational and other resources to the
minority of the black population most likely to be able to participate
effectively in mainstream American life.
n24 Critical race theory doesn't provide answers, but it poses the question with a
richness that was largely absent in legal discussions of race before the 1960's.
It is a mistake, it seems to me, to see this debate as internal to the African
American intelligentsia. The issue of whether to skim or to mobilize has
divided the white left in the United States, and the left in Europe, for a
hundred years (since the recognition of the social problem generated by
capitalist economic development). It is worth noting that the moderate
leftists, center-leftists, or social democrats, who have won elections and
developed legislative reform strategies over
[*115] the last hundred years, have almost always (not absolutely always) chosen the
skimming approach. For the more radical advocates of mobilization, it seems
obvious that one reason for this has been their fear that mobilization would
jeopardize their place in the larger political/economic capitalist system
within which they have real, however limited, access to state power.
B. The Definition of Participation and
"The Rights Debate"
n25 between some CLS writers and some CRT writers is clearly relevant to the
"tenants' rights" vs.
"coop as a collective" debate. In the rights debate, Patricia Williams
n26 and Richard Delgado
n27 each argued that minorities, in general, are rightly oriented to legal regimes
that provide clear, formally realizable, and easily administrable rules, which
define legally enforceable rights. They criticized critical legal theorists
like Peter Gabel,
n28 Frances Olsen,
n29 Mark Tushnet,
n30 William Simon
n31 and myself, who argued that, at least as a matter of utopian aspiration,
leftists should favor moving in the direction of regimes of standards (e.g.,
good faith, reasonableness) combined with small scale collective governance,
and oppose reliance on regimes of judicially enforceable individual rights as
In my doubtless biased view, Williams and Delgado each ignored the basic CLS
claim that rules and standards, juridified individualist and informal
collective regimes, respond to Americans' typically contradictory preferences
with respect to making ourselves vulnerable to other people. All one can do in
situations of internal contradiction of this kind is choose ad hoc compromises,
while hoping for transcendence in the long run.
n32 In the LEC context, for example, it doesn't
[*116] make sense to argue that minorities or people of color are intrinsically more
favorable to and better served by regimes of judicially enforceable rules
defining individual rights along with professional management and
juridification. It would make no more sense to argue, as Delgado's position
suggested, that as between people of color formality is dispensable because of
the vibrant community that characterizes their interactions.
Whatever may be the case when we are discussing relations between powerless
minorities and powerful majorities (e.g., police/suspect, case worker/welfare
recipient, or landlord/tenant interactions), as soon as we take up the design
of a LEC in which the residents are all poor and the majority of them are
likely to be people of color, it is plausible that if we polled them they would
split. Some would strongly favor the rules/individualism model, and others the
As a preliminary matter, but only as that, as we will see shortly, it seems
"tenants' rights" approach resonates with the upward social mobility strategy. It makes the
residents look more like owners than the
"coop as collective" model, and it promises them protection for their individual interests against
the possible arbitrariness of the LEC's governance structure, including both
the Coop Board and the Land Trust. Well-defined rules, professional management,
and juridification protect the resident's investment of hard earned savings in
the unit, and provide independence vis a vis the life style choices and other
preferences of fellow residents, while minimizing the amount of time and effort
that have to be devoted to running things. Time and effort better devoted to
getting ahead as best one can in the larger economic and social system.
On the other side, the
"coop as collective" model resonates with the idea that the coop is, first, part of a community
whose members recognize their inter-dependence and a shared culture forged in
adversity, not just a collection of atomized individuals. Second, it resonates
with a strategy of mobilization in which new forms of group living promise to
raise consciousness and provide a base for action in and of the community.
Since the conflicts provoked by the Community Action Programs of the Johnson
Administration, with their requirement of maximum feasible participation of the
poor, there has been, as far as I can tell, a
[*117] deep split among activists and intellectuals interested in these matters over
how to tilt, and how far, toward one approach or the other.
n35 To one side, it looks as though the participation ideal is utopian, often
destructive of the very values it espouses, and vulnerable to the evils of
elitist manipulation by professionals skilled at bureaucratizing, of chaos when
the limited organizational and managerial abilities of the poor are
over-strained, and of demagoguery and internal abuse when bad actors manage to
seize the vulnerable procedures that supposedly guarantee participation.
To the other side, professional management companies and courts seem likely to
be hostile to the participatory aspirations of the LEC, and to collaborate with
those residents who want to turn it into nothing more than another form of
low-income housing. To my mind, the most interesting, and the richest in
description, of the work on this topic is Lucie White's.
Speaking, again, realistically, the people who will decide this will be those
with the power to condition the subsidies that make the LEC attractive, and
those who develop the LEC. I don't think they can plausibly rely on any
supposed generic preference of people of color for one kind of solution or the
other. Moreover, I do not think it is plausible to take either solution to its
logical extreme. In short, I think the decision makers, whether they are white
or black or Latino, whether they have authentic ghetto roots or hereditary
elite status in their respective communities, will have to make up their own
minds based on their values and their politics, without being able to appeal to
notions either of community or of identity to solve the problem for them.
C. The LEC as Strategic Actor vs. Resident Interest Protector
The strategic actor idea has all the ambiguity of other strategies based on
the idea of mobilization. It is risky, it presupposes a common interest beyond
the building and also presupposes that the Land Trust will decide when to
pursue that interest, and it smacks of elitism or paternalism. The Land Trust,
however formally representative of the community, is almost certain to be
dominated by well-educated
[*118] professionals rather than by the disadvantaged residents and community members
in whose interests it will claim to be choosing and executing a strategy.
On the other hand, defining itself as the representative of the residents, and
disregarding the interests of the community as a whole, risks playing into a
downward spiral, hurting the residents themselves over the long run. In an
upward spiral situation, maximizing the residents' interests means
gentrification, with possibly disastrous displacement effects for the larger constituency that
is supposed to benefit from affordable housing initiatives.
The strategic actor conception will make it hard for residents to know where
they stand, because it relies on situational good judgment rather than on
rules, and it provides no final arbiter to which residents can appeal against
what they think is a misguided strategic decision. It conceives the Land Trust
as part of a community-oriented strategy rather than part of an individual
rights-creation strategy, and assumes that proactive intervention, as opposed
to passive minimizing of resident losses, is desirable in itself. It takes the
goal of community responsibility or stewardship much more seriously than does
the opposite conception.
D. The Deeper Political Conflict Underlying the Three Debates
As I have presented them so far, it seems obvious that the upward mobility
approach aligns loosely with the
"tenants' rights" and
"residents' interests" approaches to internal governance and neighborhood role. The notions of
mobilizing the very poor, of the
"coop as a collective," and of the neighborhood strategic actor also seem mutually supportive. In this
section, I speculate that this alignment derives from the existence of a deeper
level of division within CRT and CLS writings, between conflicting or
contradictory ideas about what a progressive social policy looks like in a
situation of race and class stratification in a modern post-industrial economy.
The underlying, not very much theorized conflict would be, to my mind, between:
Attitude I: The goal of racial liberation is to eliminate discrimination, both
its present diffuse, pervasive reality, and its historical effects. The problem
is that a racist system treats similar individuals differently, and oppresses
people as group members. The solution is to put minorities in the position they
would have been in if they had
[*119] operated under the same legal regime as the majority operated under, both the
formal law in the books and the informal law in action. Beside
anti-discrimination, the two clear implications are affirmative action in
employment and education, and reparations. Reparations, in turn, mean both
reparations for slavery, and reparations for the large economic benefit that
whites as a group have derived at the expense of blacks from the operation of
the system according to racist rules of the economic game.
n37 This might be described as the left liberal strand in critical race theory.
It is not at all classically liberal, because it is based on the ideas that
race is a group phenomenon, and that there is group responsibility of whites to
blacks based on the historical and present collective implication of whites in
the oppression of blacks. It is also race conscious rather than color blind,
and it is neither intrinsically assimilatonist (in Cornel West's sense
"integrationist." Demanding non-discrimination, affirmative action, and reparations is in fact
consistent with highly valuing black culture, and with resisting the dispersal
of black residential communities, the dissolution of black enterprises, and a
widespread practice of racial intermarriage. (It is also consistent with the
opposite, assimilationist and integrationist approaches.)
But it is liberal in that it is based on applying to the white community the
standards of justice and injustice, legality and illegality, that have
characterized the white community's own dominant internal ideology. It treats
the rules of the game in the white community, which combine a property and
contract regime with limited government intervention through tax and transfer
to redistribute in favor of the poor, as just. Or at least as sufficiently just
so that we can use the failure to live up to the standards of modern liberalism
as a way to measure wrongs to blacks, both the wrong of slavery and the wrong
of discrimination within the post-slavery economy and society. And it treats
the rules of the game as sufficiently just so that the white losers in the game
played according to these rules have no claim of injustice that they can set
off against or oppose to the minority claim that whites are collectively
responsible to blacks. There is no suggestion that poor whites have claims that
are close enough to those of blacks as a group to form the basis of an alliance.
[*120] Moreover, this first approach is liberal in that it embraces dominant liberal
ideals with respect to upward social mobility, meritocracy, ostensible
preference for rules over standards, devotion to legally enforceable,
justiciable rights, professionalism, and, finally, intense distrust of
collectivism and mobilization.
Attitude II: A quite different approach would say that the rules that apply
within the white community have the problem that they generate radical
injustice within the white community. If we imagine that the same rules had
applied to blacks, there might very well have emerged an even more radically
unjust, hierarchical class division within the black community than actually
exists. That is, differences among blacks in education, income, wealth, and
employment might well be even more stark than they now are. Moreover, leveling
the playing field through a combination of anti-discrimination, affirmative
action, and reparations today might well have the effect of accentuating the
current divisions within the black community. Unless, that is, the reparations
were used self-consciously to develop programs that would help minority
communities in ways that undermine rather than accentuating their internal
cultural differences and economic inequalities. This might be described as the
radical strand in critical race theory.
For the radical strand, the ideal is to forge minority communities that resist
collectively, rather than by acquiring individual entitlements defined in the
terms of the mainstream. The ideal is to base resistance on a revaluation of
the cultures that developed in oppressed communities in response to oppression,
and to link resistance to a wider program of transformation of the whole
political/economic modern capitalist system within which the different
resisting communities are embedded.
Each attitude has serious internal problems. For the left liberal attitude,
there is the problem that the ideal of joining the system by embracing
mainstream ideals (not including color blindness or integrationism, as
explained above) points in two directions. It favors an
"upward mobility" +
"tenants' rights" +
"residents' interests" model in many situations, for relatively obvious reasons. But there are other
situations in which upward social mobility, security of person and property,
and neighborhood quality seem to depend on abandoning that perspective for the
As we have seen, individual tenants' rights may empower the bad actors in the
building, permitting them to jeopardize everyone's interest
[*121] in the payment of the group mortgage and shielding anti-social behavior. In
this situation, LEC shareholders firmly in the upwardly socially mobile camp
may find themselves switching to an informalist collective attitude. Likewise,
when it seems that the neighborhood prisoner's dilemma will create incentives
for everyone to bail out to avoid being the last person, caught with the bag of
declining property values in a downward spiraling neighborhood, the
neighborhood strategic actor concept may seem the only hope.
That this is the case is interestingly illustrated by the emergence of tough
love anti-due process thinking, first in Boston in the debates about the
legitimacy of expedited eviction procedures, and about the eviction of
residents held responsible for acts of family members, in the context of tenant
management initiatives in public housing.
n39 More recently it has resurfaced in the writings of Tracey Meares and Dan Kahan
on Chicago public housing initiatives that restrict due process rights in order
to fight criminal and specifically gang dominance in public housing.
n40 In these cases, there is intense debate about what residents really want, and
neither side can plausibly claim to speak for the community.
For the more radical attitude, the problem is the vague and utopian character
of the aspiration to find ways out of what seems the overwhelming stability and
power of the dominant system. First, there is the raw power of force that
supports the system. Second, there is the more subtle, but perhaps more
important ideological hegemony that it has achieved for the upwardly mobile
members of oppressed communities, that is, for the very elites that seem
indispensable for successful mobilization of oppressed groups seen as
collectivities. But even if there were more of a will, the way is not clear. In
short, what exactly does it mean to ask that resources made available either as
reparations or as part of the general tax and transfer systems of the welfare
state should alleviate rather than exacerbate internal class differences and
promote the possibility of mass mobilization?
[*122] The two attitudes outlined are not mutually exclusive. It is not necessary to
choose between them. Most people seem to participate to some extent in both. It
is possible to compromise between their seemingly inexorable demands. More, it
seems to me that it is not only possible, but necessary and desirable to
compromise them as soon as one is speaking of a concrete policy initiative like
the LEC, given the internal problems of each. The more radical attitude is my
own, but I definitely do not hold it definitely. I see it as transcending the
left liberal attitude, but as requiring constant revision, limitation and
modification in the left liberal direction in the face of the actual
So for any particular LEC proposal, I would want to go as far as possible in
the more radical direction, but be willing to draw back in the direction of
"tenants' rights," and
"residents' interests" to the extent the situation demanded it. In other words, teasing out the
deeper conflicts that play out in designing any particular LEC doesn't solve
those conflicts, or indicate unequivocally what LEC design is best. What it
does is provide orientations, arguments, and larger understandings within which
to choose more intelligently.
By way of a conclusion, it may be useful to return to the question: Why LECs,
rather than subsidized non-profit rental or home ownership opportunities? I
answered above that the shareholders likely choose the LEC because the
developer offers it at a subsidized price. The donors and the non-profit
developer choose it for its mix of long term affordability, participation, and
community responsibility features. In the design of the details, these values
have to be traded off over and over again, and each value turns out to be open
to a variety of interpretations, or to comprise sub-goals that must be traded
off as well.
I approached this process of tradeoff in a pragmatic way, treating the LEC in
general, and the specific form chosen by the designer, as solutions to the
practical problem of what to do with available subsidies for low-income
housing. The choices made are inevitably influenced by a context that includes
our current lopsided maldistribution of income, our class and race system, our
social problems, and the dim prospects for their substantial amelioration in
the near future. In this specific context, the objections to the LEC form that
I canvassed in
[*123] Part I above seem weak, and the case for a much-expanded LEC sector quite
It is worth asking, and trying very briefly to answer, a somewhat different
question: Does the LEC form represent an ideal? Is it the housing tenure form
that we would prefer in an imagined utopian future society? The conventional
mainstream utopia is one in which people who work hard can, if they want to,
attain single-family home ownership. How does the development of a LEC sector
relate to that project?
In the discussion thus far, it was easy for me to ignore my own housing
preferences and choices. The role I adopted was that of the policy analyst
hoping to clarify the choices facing the designer of LECs for today's world.
Home ownership is expensive, and would allocate the whole subsidy to the first
occupant; subsidized rental comes with minimal incentives to improve, and no
participation rights; the LEC seems a good compromise. It is irrelevant that I
am the co-owner occupant (with my wife) of a single-family house in an urban
neighborhood, have the great bulk of my savings tied up in equity in that
house, that it has increased greatly in value since we bought it, and that we
would probably choose condo over either rental or coop tenure, if they were
comparably priced and home ownership not an option.
When we shift the discussion, from choosing the beneficiaries and the form of
subsidies for the poor in our existing society, to utopia, these personal
choices become relevant. My ideas about utopian housing arrangements are
influenced by my personal situation, although my actual choices have been no
less contextually determined than the policies for the poor we have been
discussing thus far. In designing a utopia, one is much freer than one is in
the real world, to try to implement a particular value orientation. For me,
this would be an orientation to spiritual and cultural development, and to
communal self-realization, over economic betterment, once a culturally relative
minimum level is achieved. It is a bias against materialism, and also against
the values of competitive capitalist acquisition as a way of life.
I am speaking of a general tilt rather than anything as coherent, demanding, or
specifiable in detail as a philosophy. But the bias suggests an attitude toward
one's housing, and toward the design of utopian housing schemes for society as
a whole. It suggests that it is important to secure housing minima, and then to
encourage the pleasures people can derive from improving the use value of their
[*124] housing, and from participating in collective decision making about the
building or the neighborhood where they live. It suggests less concern (than a
person with a different bias would feel--not no concern) for making sure that
residential housing is available as a vehicle for conspicuous consumption and
speculative investment, and less concern for making sure that people leave one
other alone within their respective spheres of right.
Of course these are by no means universally accepted values, but we are talking
about utopia, not revolution. They are not, contrary to what is often said,
particularly elite or elitist goals, since they are common, to a greater or
lesser degree, to the world's mass religions, as well as to a part of the
secular intelligentsia worldwide. LECs might be a useful element, though only
an element, of a utopian scheme that attempted to realize these values more
fully than they would be realized in the more mainstream utopia of universal
single-family home ownership, graduated in quality, and spatially segregated
according to income and class.
The creation of a right to housing, and decommodification, are the two most
familiar alternative ideas in this area.
n42 The right to housing usually means an entitlement, vis a vis the state or
federal government, to a minimum of shelter, regardless of ability to pay and
behavioral suitability. It is not a utopian idea, except in the sense that we
are a long way from realizing it, since it proposes a minimum, rather than a
housing ideal. Decommodification, on the other hand, is utopian: it proposes
that, in a good society, the group (not necessarily a large group or a central
government, but necessarily some local or more remote collectivity) would plan
the community, design, construct, and maintain its housing stock, and allocate
it on the basis of need. You could have a right to shelter in a decommodified
system, or not.
In such a scheme, it would make sense that participants were shareholders in
LECs. The form we have been discussing, particularized through all those
detailed choices in design, would allow different groups and sub-groups to work
out their own versions of use value, participation, and community
responsibility (and of conspicuous consumption, through the definition of
goldplating restrictions). We
[*125] could define the right to housing as a universal right to participate as a
shareholder, with the collective financing the whole initial payment, if
necessary. The LEC form would give the members possessory and participation
rights in whatever housing the collective allocated to them according to need.
I can easily imagine voting that LECs be the main form of tenure in the
decommodified sector (though, of course, there would be all kinds of special
needs requiring other forms as well).
In my utopian version, however, the decommodified LEC sector would co-exist
with a commodified housing sector, to which people could resort if they wanted
to spend surplus income on housing (in accord, of course, with the egalitarian,
communitarian, and environmental requirements of the utopia in question). They
might want to consume more than what was allocated to them on the basis of
need, or to live in communities designed and governed according to principles
different from those animating the collectively built community. They might
also want to use their private residences to gamble, speculate, or empire-build
in the real estate market. They might even create a fully private LEC sector.
The commodified sector would serve not just freedom of choice, but also the
orientation to play, creativity, and rebellion that complements the more sober
orientation served by the LEC sector.
Revisiting my own preferences, and trying to get a sense of what I would prefer
in my own utopia, I think it would depend on the historically contingent
evolution of its different parts, and that my preferences might very well vary
from time to time. But I would want to spend at least some substantial time on
the LEC side, and maybe all my time. So there is a utopian as well as a
pragmatic, utilitarian argument for LECs, at least to my mind, and it doubtless
influences those of us who favor this form as a vehicle for affordable housing
under our present far-from-utopian circumstances.
United States v. Lopez, 514 U.S. 549, 557 (1994) (quoting
Heart of Atlanta Motel, Inc. v. United States, 379 U.S. 241, 273 (1964) (Black, J., concurring)).
n2. H.R. Rep. No. 102-771 (1992).
18 U.S.C. 228 (2001).
n4. H.R. Rep. No. 102-771.
Lopez, 514 U.S. 549.
Id. at 558.
Id. at 558-59.
United States v. Parker, 108 F.3d 28 (3d Cir. 1997) (reversing district court's order finding the CSRA unconstitutional);
United States v. Bailey, 115 F.3d 1222 (5th Cir. 1997) (reversing district court's order finding the CSRA unconstitutional).
United States v. Faasse, 265 F.3d 475, 481 (6th Cir. 2001).
United States v. Black, 125 F.3d 454 (7th Cir. 1997).
Faasse, 265 F.3d at 490.
United States v. Faasse, 227 F.3d 660 (6th Cir. 2000), vacated en banc,
265 F.3d 475 (6th Cir. 2001).
Faasse, 265 F.3d at 490.
United States v. Lopez, 514 U.S. 549 (1994).
529 U.S. 598, 619 (2000) (holding that section 13981 of the Violence Against Women Act of 1994 is not a
constitutional exercise of Congress' Commerce Clause power).
Lopez, 514 U.S. at 558, 568.
514 U.S. 549.
n19. George Bush, Statement on Signing the 1992 Child Support Recovery Act, 28
Wkly. Comp. Pres. Docs. at 2122 (Nov. 2, 1992).
n20. See 138 Cong. Rec. H7327 (daily ed. Aug. 4, 1992) ("Nonpayment of child support should be a crime because children are far too
precious a resource to be abandoned without penalty.").
n21. H.R. Rep. No. 102-771.
n25. Robyn Shields, Can The Feds Put Deadbeat Parents in Jail?: A Look At The
Constitutionality Of The Child Support Recovery Act,
60 Alb. L. Rev. 1409, 1416 (1997).
n26. Ronald S. Kornreich, The Constitutionality of Punishing Deadbeat Parents: The
Child Support Recovery Act of 1992 After United States v. Lopez,
64 Fordham L. Rev. 1089, 1093 (1995).
n27. H.R. Rep. No. 102-771.
18 U.S.C. 228 (2001).
n32. See id.
n33. See 144 Cong. Rec. S5734 (daily ed. June 5, 1998).
n35. Kornreich, supra note 26, at 1099 n.105 ("The government has defended the Act numerous times on the grounds that it is a
valid exercise of Congress's commerce power.").
n36. U.S. Const. art I 8 cl. 3.
United States v. Lopez, 514 U.S. 549, 553 (1994) (quoting
Gibbons v. Ogden, 22 U.S. 1, 9 (1824)).
n38. Id. at 567 (stating that prior cases may have shown deference to congressional
action under the authority of the Commerce Clause, but the Court is no longer
expanding that authority).
n39. Id. at 551 (quoting
18 U.S.C 922(q)(1)(A) (1988)).
Prepared: January 24, 2003 - 5:02:29 PM
Edited and Updated, January 25, 2003
Kristen A. Stelljes