A residential complex in Berlin, under the portfolio of housing cooperative Bremer Höhe
Co-operative housing associations are making a comeback. As the cost of homes becomes even more expensive, democratic, non-profit orientated housing is being put under the microscope.
For more than 100 years, housing co-operatives have providing affordable housing, which makes them more attractive than ever in times of rising construction costs and more stringent financing conditions.
‘Housing is becoming more and more expensive - housing co-operatives are a proven counter-model with their “lifetime” right to live and fair rents,’ said Dr. Iris Beuerle, director of the Vbw Association of real estate companies and Baden-Württemberg real estate.
So what constitutes a co-operative? Typically, three or more people are required to form a co-operative, who then agree on a social contract, such as the construction of affordable housing. The members then raise the required capital by buying one or more shares. By paying up, they acquire membership and the right to use the community's ‘support facilities’, including renting a co-operative apartment. The municipality then typically contributes a plot of land as a contribution in kind. However, vacant apartments are just as rare in co-operatives as they are in municipal housing associations. Those who join a co-operative by buying a share are allowed to stake their claim to an apartment - and are put on a waiting list.
In Germany alone, there are around 2,000 housing co-operatives. And the number is growing as more start-ups enter the market. It’s easy to see the appeal - famed for their lifelong rights and fair rents, which seems particularly attractive against the backdrop of rising rents and house prices in many parts of the country. Subsequently, more and more people and local authorities are founding co-operatives again in a bid to tackle the current shortage of living space.
Together, housing projects can be implemented in a co-operative that would be too large or too complex and expensive for individuals. To mark the 100th anniversary of their founding, new slogans are being bandied about, such as "Fairness has a tradition and a future with us," "Our favorite language is participation," and "This is where we live," an initiative that has even been advertised on Spotify to appeal to a younger audience.
Co-operatives undercut market rates
There are around 2.2 million cooperative apartments in Germany, equating to more than 5% of all apartments or more than 10% of all rental apartments, according to Dr. Torsten Bölting, Professor of Social Sciences, Housing and Spatial Sociology at the EBZ Business School and Managing Director of InWIS, a housing institute in the EBZ: ‘This means that the cooperatives are already an important group in the professional rental market,’ he said. ‘They also offer their apartments relatively cheaply – on average, they are almost 30 cents per square metre below the already comparatively low price that the housing industry achieves overall. At the same time, many co-operatives have invested in building new apartments in recent years. In just a few years, co-operatives in Germany have built almost 10,000 new apartments.’
Such projects tend to be small, even though there are some larger ones with more than 10,000 apartments. On average, they typically comprise around 1,200 apartments. By way of comparison, capital market companies have an average of more than 4,000 housing units and very large companies typically have more than 100,000 units. As a result, the co-operatives are often particularly close to the neighborhoods and the members who live there.
Co-operatives are big business and it is estimated that they spend around €4 billion a year on building new stock and refurbishing existing properties. New entities are also popping up, such as Diese eG in Berlin, which came under fire because the state reportedly gave it millions in subsidies to buy back real estate that was to be traded speculatively on the market. Nonetheless, it weathered the storm and new tenants are now moving in.
Still, when and whether an apartment becomes available is uncertain. Some co-operatives have tens of thousands of members yet just a few thousand apartments. Moreover, under the terms of the agreement, no member can be given notice, so apartments usually only become available when someone dies or chooses to leave.
New federal subsidy program designed to boost market
Despite some of the hurdles associated with getting a place in a co-operative, a new federal subsidy program launched in October 2022 is expected to make financing easier. Now, private individuals who buy co-operative shares for owner-occupied housing can take advantage of the KfW 134 loan up to the sum of €100,000. This gives them an interest rate reduction and a 15% repayment subsidy, which they do not have to repay.
‘The funding program for co-operative housing has been in very good demand since it was launched in October 2022,’ Federal Minister for Building Klara Geywitz, SPD, said last year. In the fourth quarter of 2022, KfW committed to 63 loans, a 70% increase on the same period last year. In January, the conditions were improved once again: to date, the interest rates were 1.5% below the average market level, now it is 2%, meaning that the savings over ten years can add up to around €35,000, according to Geywitz. More than half of the nationwide funding commitments so far have gone to Bavaria and Berlin, she added.
So who has the best chance of a place? Households with an official housing entitlement certificate have the best chance, according to Ulf Heitmann, member of the board of the co-operative Bremer Höhe. The prerequisite for this is a low income but not too low: ‘Many co-operatives require potential tenants to pay rent that does not consume more than 30% of their disposable income,’ he said. This means that anyone who wants to rent an apartment for €700 must have €2,100 net per month, which is out of reach for some people.
‘The co-operatives keep long waiting lists, and the fluctuation is significantly lower than in the rental housing market as a whole,’ said Anne Krins, a consultant at Mitbauzentrale in Munich, who notes that people typically have to wait for several years.
However, once you’re in, the upside is that rents can be very low. Take Saxony as an example, where they average €5.31 per sqm - with the range extending from €4.23 per sqm in the Vogtland district in southwestern Saxony to €5.98 per sqm in Dresden. According to The Association of Saxon Housing Cooperatives (VSWG) calculations, the co-operatives spend around 29% of rental income on maintaining their portfolios. Whereby, in view of the increased costs for craftsmen's services and building materials, that is cutting into their income: ‘This creates a dilemma,’ said Sven Winkler, business management officer at the VSWG. ’Theoretically, business spending would have to increase at least at the same rate as construction costs. With a 20% increase in 2022, this would mean additional investments of well over €100 million. However, these cannot be refinanced with the low rents and rising vacancy rates in many places,’ he warned.
However, there is a lot more to co-operatives than just housing. They can also be found in trade and commerce. With a total of around 23 million members and 780,000 employees, co-operatives are an important economic factor and a supporting pillar for society, as recognized by UNESCO which, in 2016, included co-operatives in its list of world cultural heritage, saying at the time: ‘A co-operative society is a voluntary association of people with the same interests that promotes individual commitment and self-awareness.’ As such, it promotes the social, cultural and environmental participation of members, as they become co-owners by acquiring shares in the co-operative.
The interest in co-operatives makes even more sense when taking into account that real estate prices are rising worldwide. In a recent study, the ifo Institute and the Institute for Swiss Economic Policy found that an average annual price hike of 9% can be expected over the next ten years. For Germany, that figure is put at 7%. If increased interest rates on loans are taken into account, buying a house or apartment becomes unaffordable for many Germans.
Government continues to miss its affordable homes target of 400,000 a year
According to a study by the Eduard Pestel Institute for Systems Research, Germany lacks more than 700,000 apartments, especially in the affordable segment. The German government continues to fail to meet its target of 400,000 new homes per year. In fact, just over half will be achieved this year, and in 2024 the target will be missed by an even greater margin, according to the Macroeconomic and Business Cycle Research Institute.
Subsequently, it is not surprising that research into co-operatives is becoming more popular. This year, the European Education Center (EBZ) launched its own institute for future issues relating to housing and the cooperative economy: eG21 aims to be a pioneer and driver in the sector and in the public sphere. At the same time, it aims to raise awareness of co-operatives as attractive employers among young people.
However, there are sizeable - and growing - challenges for housing co-operatives. The VSWG has been very vocal about the costs of maintenance and modernization possibly not being refinanceable in the future, due to high vacancy rates, increased construction costs and the requirements to achieve climate targets. Understandably, increased construction prices and interest rates, high energy costs and the need to operate the housing stock in a climate-neutral manner by 2045 are a major concern for some VSWG members.
Vacancy rates can vary hugely as well. While the Saxon housing co-operatives in Dresden and Leipzig have a low vacancy rate of less than 3%, eight of the 13 Saxon counties and independent cities have vacancy rates of over 10%. The frontrunner is the Zwickau district, where 3,445 (16%) of 20,691 co-operative apartments are vacant.
The average vacancy rate in 2022 among co-operatives in the region, which manage 21% of the rental housing stock, with just under 296,000 units, was 8.7% - a similar rate to in 2021. In fact, there were 288 fewer vacant apartments last year than in 2021. However, 326 were taken off the market in 2022, and around 1,200 units were rented to refugees from Ukraine. Without these "special effects”, the vacancy rate would have grown by 1,000 to 1,500 apartments, as in previous years, the VSWG estimates.
