Ownership & Financing

Investing in Cohousing

Currency SymbolsA group of cohousing and intentional community residents had a Zoom call last week to begin gathering ideas about what an investment opportunity would have to offer to enable people to invest in cohousing by making loans to developing communities. And how to protect cohousing from becoming financialized. All owners in cohousing are investing in cohousing but how can investors help people become owners of cohousing units?

These are my thoughts on this issue along with some ideas that surfaced in the discussion. Since cohousing is just one form of cooperative housing, the concerns are equally applicable to other forms of resident-led development of intentional communities, rehabbing neighborhoods, and infill.

Developing Real Estate Means Investing Money

Developing cohousing requires that someone at some level invest money in real estate. There are far more potential cohousers than there are communities. Too often the only people who can afford to live in cohousing are those who have rich parents who give them a lump of money or are old enough to have already accumulated surplus money in savings, pension funds, and homes. This tends to limit the market to those over the age of 60 or households with two professional salaries. Great swaths of the population are excluded.

There are many reasons why senior cohousing is very attractive now, but one is that that is where the money is. The young two-professional-salaries-households don’t have time to think about developing cohousing and will have no more time when they move in. Cohousing is so expensive that unit owners can’t scale back on the hours they work or reduce the load of responsibilities they are paid so much to assume. They can’t work short days in order to meet with the plumber or stay up all night tending to a flood in the common house and be at work when the market opens.

How Can Cohousing Turn Its Liability Into an Asset?

With 100+ successful communities, it is time to begin thinking about turning our liability into an asset. We have 30 years of statistics on the financial performance of cohousing and we have a population of cohousers who make a living from their investments. This means we have both proof-of-product and somewhat available money floating around that could produce more of it.

Not billions of dollars but cohousing doesn’t need billions. We need loans for land acquisition, construction, and down payments. And bridge loans and other emergency short-term loans. 

Equally important we need to be comfortable with the concept of structuring investments in a way that prevents cohousing from attracting get-rich-quick schemers. We need traditional investing, to attract nurturing investors, not venture capitalists.

Cohousers living on the interest from invested savings will have to trust an investment fund that won’t be guaranteed by gigantic banks and pension funds. That trust will most likely develop from understanding how we can ensure that investors receive predictable returns and that investors can nourish cohousing, not feed on it.

I’ve been reading a very readable discussion of why ownership is important: Marjorie Kelly’s Owning Our Future. Kelly explains the difference between a generative and an extractive economy.  The power of the 1% and the 10% is not that they have all the money, it’s that they use that money to extract value from communities rather than enriching the communities. They use their money to control everything else. Ownership, not money, is the fundamental issue. How we structure ownership determines who is in control.

But anything (almost) that can be used to dominate and control can also be used to strengthen and enrich—if it is properly structured. 

Why are we so afraid of investors?

Why is it that we view investors so negatively? What has ever been developed without investments by others? How did the negativity focus on “investing” rather than on certain kinds of investing? Partly because we don’t know enough to make that distinction so we avoid the subject all together, but there is more force behind this negativity. Aside from recent experiences with the banks and venture capitalists, I think we are socialized to view investors and investing negatively by social media.

I felt I had hit a gold mine this morning reading The Chaos Machine by Max Fisher which got me up at 5:30 this morning to start writing. The subtitle is “The inside story of how social media rewired our minds and our world.” This topic is so relevant because social media is directly responsible for fundamental changes in human societies around the world. A big statement, but Fisher makes his case very clearly. He documents and explains how technology is used on social media platforms to facilitate mob action, encourage polarized thinking, spawn conspiracy theories, and validate misinformation. And how they make billions and billions of dollars doing just that. 

The scale of technology is mind-bending. “Mind-bending” literally since that is what Facebook, Twitter, Google, and other “free” services are using it for. Their algorithms control what we see, hear, and think next — a huge statement but read the book. Social media is precisely designed to bend minds toward the negative.

How? The short answer is that humans engage longer with topics they are against than with topics they are for and social media has developed ways to make money on that. A negative argument revs up the motors. People want more. So if you search “voting machines” on Facebook or Google, for example, you will be intentionally sent to sources that vilify voting machines, not to sources that explain how they work, why they are safe, and how they enable millions of people to vote effectively and fairly.

Informative, truthful sites are satisfying because they provide the info viewers need so viewers then move on. They don’t spend hours online looking for the newest wrinkle in a conspiracy theory. Positive sources are included in lists of related sources but negative sources will predominate and will appear first.

The excuse given for this is that the most visited sites simply rank higher. Fair, right? Unless you have manipulated the how clicks are produced. And if your goal is to make money from ads.

Negativity Makes Money

Advertizing income is based on how many times an ad is viewed. In 2016, 70% of Americans used Facebook-owned platforms for an average of 50 minutes a day. One screen view might easily load 2-5 ads. Each scroll or click to a new screen will show that many or more ads. Screen views are measured in seconds not even minutes. I can’t even guess how many ad views that would be in 4 hours or 6 hours. Or 12 hours. Shown to each viewer. Facebook had 2.96 billion monthly active users in the third quarter of 2022. Ads begin paying at 1,000 views. (If you take a shot at calculating this let me know what you come up with).

I once had a program that blocked tracking activity, not just ads. I discovered that every time I visited a public site my browser would connect with 12-20 or even more different services — advertising and marketing firms that count things and sell the numbers. There were so many connections that had to be blocked I finally deleted the app because it just took too long to load a Webpage.

In 2022, 97.6% of Facebook’s income was from selling ads. Without producing any physical products or providing any human services, Facebook’s market value is larger than that of Wells Fargo, General Electric, JPMorgan Chase, and ExxonMobile. In 2017, Facebook’s revenues exceeded $40 billion. Its share price has increased by 70% in the last 3 years, and these haven’t been positive years for Facebook’s reputation.

People who are against something spend many more hours online every day so the opportunity to get them hooked on negative topics does even more than produce ad income. It grooms more readers to favor negative viewpoints, true or not.

Who invests in social media?

Anyone with an investment account or pension fund is highly likely to be invested directly or indirectly in social media. And these funds have no interest in reducing income from social media so driving views to negative sites will continue for the foreseeable future.

Many of us, however, do have an interest in how our money is invested, but our income is also dependent on these investments. Those with the most money to invest are likely to be seniors. To invest in cohousing instead of technology, we would need safe income. People who are 70 or 80 can’t take the chance that they would suddenly have no income.

The question is how can we support person who is dependent on investment income — which includes everyone with a pension fund — to enable investing in cohousing instead? 

Investing in cohousing

What kind of investment opportunity would be safe enough to enable cohousing residents to support the growth of new cohousing communities. And what would protect the process from changing the spirit of cohousing. The commitment to self-management, equivalence, consent decision-making, etc.

Developing real estate is a very time-consuming endeavor. First community forming and then years of construction. That time is expensive because it requires paying interest on the money being used. Finding a way to speed up the development time would make cohousing more affordable. But at this point, so many cohousing professionals have worked on the process that community forming, design, and construction are now very efficient. Construction often has delays but that is the nature of construction. The next best way to shorten the development time—the length of time that a household has to pay for two households—would be to make money more available. Those who know cohousing would be more likely to make loans based on the cohousing market, not the traditional real estate market that banks use as a reference point.

After reading a lot of economic history in the last few years and particularly reading Owning Our Future, I’m more committed to the ownership model because it builds wealth and provides more security. Even if a community decides to build $100,000 units, there are many perfectly trustworthy and industrious people who don’t have the $20,000 for the downpayment. They live well and securely but they also live month to month.

There is a large, long-standing rental cohousing community in Japan in a building owned by the government. Their model works because the residents have full control over the rental process and the participation expectations of residents. Even if that rental model could be available in the United States, there would still be the need for upfront money so the same investment requirements are still there.

People have asked why the Cooperative Bank isn’t more active in supporting cohousing developments. The Cooperative Bank has and does give loans to communities but it requires that the individual members of the group personally guarantee the loans. If people are not able to deposit money on one home when they still have to pay for the home they are living in, it is unlikely that they would be able to guarantee loans. If only a few people guarantee the loans, they will have a larger investment in the project than others do. The risks will not be equal and that will influence decision-making. The initial inequity has worked often, but just as often it has created a dynamic that the community spent years overcoming or that contributed to its failure.

Other points of discussion:

  • Having funds to secure land, a relatively safe investment, would be very stabilizing for a community and a big plus in getting construction loans.
  • Several successful communities have had investors. We need to obtain and document this data in a format that is convincing to investors and banks.
  • One option would be for investors to be allowed to purchase a unit at a discount to rent or sell. Their return is then determined by their success in renting or selling.
  • Selling an abstraction to a buyer or to a bank is difficult but selling to an investor who knows cohousing means selling something that is known. There is enough historical data and experience to make it real for people who are able to evaluate it.

Some investors will be happy with an interest rate of 2-8%. Others consider 5% interest to be a charitable contribution. At least one community recently paid 15%. An investor will need a monthly interest payment as well as an improved final return. Perhaps 3% interest above the safe investment rate monthly and a +10% return when all the units are sold.

Final words: “If you are going to live, leave a legacy. Make a lasting mark on the world.”

The group will continue to meet and collect information.

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