This piece was originally published on November 23, 2020, and was updated on January 16, 2023.
When people think about co-op housing, the first thing that comes to mind might be those back-to-the-land hippie communes. Co-op housing has changed a lot since those days, though!
Co-ops are especially appealing for older homeowners. Financing can be a challenge, so if you’ve sold one property and you have enough cash on hand, a co-op offers a real financial advantage.
What is co-op housing?
A housing co-op is a corporation, usually a not-for-profit, that owns a block of units or townhouses. When you buy into a co-op, you become a shareholder in a corporation that owns the property. As a shareholder, you’re entitled to the exclusive use of one unit in that property.
A co-op is run by a board of directors elected by the members to keep the place well-managed and in good shape. In a condo, you own your unit and the rest of the development is common property. In a co-op, you own a share of everything but have no equity, which makes it harder to get a mortgage. Condos are classified as real property, which means that buyers own deeds to their dwellings that can be used as collateral against the loan.
Generally, a co-op building will never be sold or flipped, and co-op members aren’t asked to leave unless they break the co-op’s by-laws. Thus, members can feel secure that they can put down roots for a long time. If you move, the share is returned to the co-op to be offered to the next person who wants to be a member.
Co-ops can be more restrictive than other housing options when it comes to ownership requirements. Where co-ops are not subsidized, buyers may be required to have a specific net worth or debt-to-income ratio to demonstrate the ability to meet the ongoing financial obligations of maintenance and upkeep. Most units forbid subleasing.
More Canadians may soon have the opportunity to live in co-op housing, thanks to a federal initiative announced in the 2022 budget released last April called the Co-operative Housing Development Program. As part of this initiative, the federal government has earmarked $1.5 billion specifically for the development of the next generation of co-op housing, with a goal of addressing the ongoing housing crisis and providing Canadians with affordable housing options.
This video from Co-ops BC has some more information about what co-op housing is all about.
What kind of people live in co-op housing?
Most housing co-ops are home to a range of different types of people. Many co-ops pride themselves on their ethnic, socioeconomic, and demographic diversity.
There are some housing co-ops that are specially geared to a particular kind of resident, however. Some co-ops focus on artistic communities, others on elderly communities, while yet others are geared toward families.
How popular is co-op housing in Canada?
Across Canada, there are over a quarter of a million Canadians that are residents of co-op housing, with around 100,000 co-op units nation-wide.
According to the Co-operative Housing Federation of Toronto, there are more than 50,000 people living in over 175 housing co-operatives in Durham, Toronto and York Region. Many co-ops are multi-unit buildings, like medium-sized apartment buildings or townhouses.
Borrowing money to buy into a co-op
To purchase shares in a co-op, you can take out a share loan instead of a mortgage. Your share of the co-op, rather than the actual property, becomes the collateral. These loans operate similarly to a mortgage, but because of the legal nature of ownership in a co-op, it makes it harder for lenders to foreclose in the event of default. While share loans are harder to come by than conventional mortgages, they are available. Because of their own membership structures, credit unions are usually good sources of financing for co-op buyers.
Subsidized vs. market units
Most housing co-ops have two different types of units: Subsidized units and market units. Subsidized units are available for a lower buy-in price than market units, and are subsidized by either the co-op itself or by a subsidy partner. Market units are available at the market buy-in.
Who might a co-op be a good fit for?
What kind of buyer would best benefit from a co-op's unique structure? Let's take a look at some potential common scenarios:
Nancy and Jackie’s story
When their two children left the nest, Nancy and Jackie Young were looking for a somewhat smaller version of their well-appointed house on one of the nicest streets in the Summerhill neighbourhood of Toronto. They didn’t want to give up the good location and vibrant lifestyle of the area.
They took their time, enjoying three years of visiting open houses as well as checking out condos and townhouses. They felt the condos they visited were just an interim stop for some of the residents, and Nancy and Jackie didn’t want new neighbours every few years.
Then, they fell in love with the Arbour Glen, an older established co-op building with character and heritage overlooking Rosedale Valley Road. It was the first major apartment building designed and developed in 1956 by Isadore Sharp, who later founded Four Seasons Hotels and Resorts.
They were able to pay cash for the unit, but they wanted a two-week bridge loan to finance some renovations. At first, the bank, their long-time lender, agreed to advance the credit. When the bank discovered the loan was for a co-op, it backed out. When the banks wouldn’t help, the Youngs turned to a small credit union delighted to have their business.
“It is working out extremely well,” Jackie says. “I like to say that we live in a village.”
David Groskind’s real estate agent showed him a number of buildings in the affluent Forest Hill neighbourhood of Toronto. When she took him to a building at Avenue Road and St. Clair, the price was right, but it was a co-op. It had restrictions that condos didn’t typically have. He wasn’t allowed to rent out the unit, a right that makes some condos attractive to buyers. But that made no difference to Groskind, who intended to live there.
Luckily for him, he had sold his house and had more than enough money to pay in full for the unit. Groskind soon realized that it was almost impossible for him to get a conventional mortgage. He was only able to find one lender willing to provide credit for co-ops like his, but the company would finance just one-third of the value of the property.
Because only a limited number of people are prepared to pay cash on the spot, there wasn’t a bidding war. Groskind paid $480,000 for the same amount of space that would’ve cost more than $700,000 in a conventional condo in that neighbourhood.
Even if you can afford it, it’s not easy to get into his building. Potential buyers are scrutinized very closely to make sure they fit into the community and live a relatively sedate lifestyle.
“The people who built it expected Forest Hill people to want to live there and designed it for the standard of the neighbourhood,” Groskind says. “The building is filled with people of retirement age like me who sold their house and bought this place probably for the same reason I did—that it was relatively inexpensive.”
Like the co-ops Groskind and the Youngs inhabit, co-ops tend to be smaller buildings in prime locations with low turnover. While there’s more complexity in buying and owning a co-op, the value and stability can help compensate for the inconvenience.
The bottom line
Buying into co-op housing is as much a lifestyle decision as it is a financial decision. Co-ops have a tight-knit community that generally live together for a long period of time. However, this won’t suit everyone.
While the cost of buying into a co-op will generally be lower than a similarly priced condo or townhouse, they don’t have the same long-term investment opportunities offered by traditional property ownership. Of course, ownership also comes with an associated risk as well. It’s a decision that you’ll need to make for yourself, based on your finances and lifestyle.