A Study on factors for sluggish activation of Cooperative Publicly-funded Private Rental Housing

1) Social consensus on cooperative publicly-funded private rental housing

When asked about social perceptions on cooperative publicly-funded private rental housing, 72% of the experts answered negatively and 28% answered positively as shown in [Table 8]. The main criticism of cooperative publicly-funded housing is that local housing, reconstruction, and redevelopment associations are viewed negatively by the public, especially public officials and public institutions that see cooperatives (social cooperatives) as extremely negative. It might be due to a high level of social resentment toward local housing associations, reconstruction associations, and redevelopment associations. Also, it might stem from a general sense of socialism and anxiety engendered by the name, cooperative. Particularly, cooperative within the social economy entail poor social awareness because of antipathy toward socialism as a result of the name, special treatment for developers, and a perception about cooperative.

Meanwhile, a positive opinion is that strengthening the capacity of social economy, such as cooperatives, and creating ecosystems, revitalizing private rental housing through public support, and establishing a new housing supply model can be linked to addressing future social housing supply problems. Additionally, since it is difficult for the public to take responsibility for all housing supply problems, cooperative publicly-funded private rental housing is considered to be an appropriate housing model that can secure public interests and minimize private ones.

According to a survey for whether cooperative publicly-funded private rental housing is socially recognized, 100% of the expert groups stated that this housing model is unfamiliar to tenants and the housing market. In other words, few people are familiar with and understand cooperative housing.

2) Social necessity factors of cooperative publicly-funded private rental housing

Regarding the question of whether cooperative publicly-funded private rental housing is necessary, 82% of all experts replied that it is necessary because it provides a safe and affordable housing net for people who do not own homes, a group that is outside the reach of both the public and private sectors as shown in [Table 9].

Moreover, 72% of the expert group responded that cooperative publicly-funded private rental housing is necessary because it can improve the quality of housing despite low rents. If housing sites capable of providing housing are reduced in the future and the housing market enters a period of low growth, housing management and operations will become increasingly important. Thus, the survey participants believed that expanding cooperative publicly-funded private rental housing, with the function of village-style community housing management, is essential.

Moreover, 72% of the expert group said cooperative publicly-funded private rental housing is necessary because the basic purpose of this type of housing is not to use it for profit-seeking and real estate speculation. While most publicly-funded private rental housing in general benefits the private construction corporation in terms of profits, cooperative publicly-funded private rental housing is operated as a collaboration between social cooperatives, with most of the profits going to the residents. Our survey participants responded that Westay Byeollae is a necessary type of housing because, as a community in which residents live together, it not only gives residents roles but also realizes the purpose of cooperative publicly-funded private rental housing by rejecting the practice of using houses as a means and method of speculation or property growth.

1) Procedural problems of cooperative publicly-funded private rental housing

In October 2016, the Korea Land and Housing Corporation launched the cooperative Westay Byeollae as part of the New Stay private business contest for two districts, Namyangju Byeollae (A1-5BL) and Goyang Jichuk (B-7BL). Following the selection of the private company Deoham Consortium as the preferred bidder in December 2016, cooperative promoters and members (25%) were recruited from January to April 2017. With approval from the Ministry of Land, Infrastructure, and Transport, the cooperative was established following the founding general meeting (May 2017). Particularly, as the structure of participants in the project was confirmed, procedures for implementing the project were also developed. The MP review was completed in February 2017 and the architectural review was completed in April 2017. Construction began in March 2018 after the project plan was approved by Namyangju-si in October 2017, and the construction was completed and ready for occupancy in May 2020. Through the process of establishing a cooperative, Westay Byeollae confirmed the composition of the project participants and proceeded to implement the project in a two-track manner.

A survey of the expert group was conducted on the procedural aspects of cooperative publicly-funded private rental housing. The percentage of experts participating in the survey is shown in [Table 10].

According to 45% of the experts, one of the procedural problems in the unique project process of cooperative publicly-funded private rental housing is the exclusion of cooperative. About 55% of the respondents said the procedural issue was not as serious as the lack of exit strategies and guidelines characterizing the pilot project.

Of the expert group, 72% responded that the manual for the composition of cooperative, authorization, and administration of cooperative publicly-funded private rental housing was lacking. In particular, it was difficult to obtain various licenses for cooperative publicly-funded private rental housing because there were no clear legal standards for the housing type suitable for cooperative publicly-funded private rental housing, which is not a simple residential model but aims to build a community village with social benefits and sustainability. Accordingly, they stated that the law needs to be revised regarding cooperative publicly-funded private rental housing.

General publicly-funded private rental housing is a project overseen by the public sector and private companies, completed by converting the leases to sales after eight years. Cooperative publicly-funded private rental housing is a pilot project in which members share in the project stake, and there are no specific guidelines for project completion. All expert groups responded that the lack of specific guidelines after the expiration of the project is a procedural problem for cooperative publicly-funded private rental housing. Regulations and guidelines for continuing the lease or converting to sale after the end of the eight-year lease are needed since the procedure after the end of the lease is not legally prescribed. Specific guidelines for setting the sale price should also be outlined if conversion to sale occurs.

2) Issues that arise when cooperative P.F.P. rental housing project expires

For general publicly-funded private rental housing, there are no legal requirements for continuing rental or converting to sale after the project expires. As the loan period for project expenses expires, Korea Housing and Urban Guarantee Corporation (HUG) and general businesses, which are major project participants, tend to convert to sales to general sellers with sale prices at market level, whereas REITs proceed with liquidation. As such, it is designed to make it less likely for existing rental residents to be subject to purchase opportunities.

In contrast, cooperative publicly-funded private rental housing is a project in which cooperative members who are also tenants are major actors, and, unlike general publicly-funded private rental housing projects, the project expiration process becomes more complicated. It is a structure in which the cooperative holds 30% of the business stake and can voice its opinions regarding the procedure after the eight-year lease expires.

[Table 11] shows the answers given by respondents to the expert group questionnaire regarding the problems at the end of the project.

First, there is a clash between public institutions (such as HUG) and cooperative with stakes in the project. Representatives from a public institution, the largest shareholder of the cooperative project, said that it is essential to convert to sale owing to the term limitations of the existing financing. They stated that they plan to follow the same business procedures as general publicly-funded private rental housing projects in eight years’ time. The cooperative replied, however, that the cooperative’s finance committee is gathering members’ opinions regarding the process after the project’s expiration, and that it plans to acquire more REITs’ assets from the cooperative and continue the lease. The developer’s representative pointed out that cooperative-type housings are aimed at the village community, and social cooperative should continue to lease by acquiring 100% of REITs’ assets instead of converting to individual sales.

The second conflict is between the cooperative and its members. The social cooperatives have a stake in cooperative projects and run them through the investment of their members. Upon the expiration of the project eight years later, the cooperative plans to acquire a share of the Korea Housing and Urban Guarantee Corporation, establish itself as the largest shareholder, and continue the lease. However, within the cooperative, there are members who want to acquire their own homes through individual sales under the tenant-first sales method.

Cooperative publicly-funded private rental housing began with the intention of creating sustainable living rather than home ownership. Accordingly, Westay Byeollae announced, while recruiting residents, that residents would not have sale privileges. The cooperative continues to inform its members that individual sales will not be planned. However, the group of experts who participated in the project answered that owners of shares in the cooperative would insist on individual distribution primarily for tenants, which would lead to a conflict between the cooperative’s drive for continuation of the lease and members’ push for individual distribution.

Lastly, the experts identified the conflict involving the subjects of sale, sale price, and dividend profit. Social cooperative is legally structured such that dividend profits are not available to members. Even if the project is converted to sale at the expiration of the eight-year project term, dividends for sale profits do not accrue to the individual members. The representative of cooperative responded that they are attempting to eliminate factors that may result in conflict when the project expires by announcing that they are not planning on carrying out tenant-first sales, and by educating the members that even if sales do occur, the social cooperative, a not-for-profit organization, cannot allocate profits to the members. According to all the expert groups, a conflict would arise over the selection of sale targets, calculation of sale prices, and dividends in the stakeholder group owing to the lack of clarity in the law on procedures after the expiration of the project.

3) Peculiarity of establishing a cooperative

The Deoham Consortium was selected as the preferred bidder in Namyangju Byeollae Westay District in December 2016. After being selected as the business operator, it first set up social cooperative, which is a prerequisite for publicly-funded private rental housing project, and then went through the approval process with the Ministry of Land, Infrastructure and Transport. Out of 491 households, 123 (25%) agreed to join a “social mixed” community village, designed according to the cooperative model. Consenters for the establishment were recruited from groups acting between public and private sectors, who demonstrated high levels of social involvement and interest, including social enterprises, cooperatives, social contributions, and social economy. A questionnaire was administered to expert groups to obtain insight into the method and process of recruiting such groups, which included those with experience in social economy.

[Table 12] shows the percentage of questions in the expert group survey related to the establishment of cooperative.

Having the first cooperative apartment supply method in Korea, Westay Byeollae pursues alternative residential welfare and aims for an open community, not a closed group, through stable cooperative operation, contribution to the local community, and sharing resources with the community. Article 2 of Westay Byeollae social cooperative’s articles of association stipulate specifically that the purpose of its formation should be to create a residential community that is not intended to be a for-profit pursuit for individuals and groups through autonomy and self-regulation of cooperative members. Westay Byeollae requires that conditions such as experience in social economies, non-profit organizations, and public official status be present in the cooperative promoters to establish a systematic cooperative and to lead the cooperative in a reasonable direction. Approximately 72% of respondents to a survey conducted by an expert group said requiring promoters to have experience in social economy is necessary; however, they all disagreed with the question of whether the system of giving move-in benefits to a particular class in publicly-funded housing is fair.

Also, in a survey of Westay Byeollae’s process of recruiting cooperative promoters with social economy experience, 63% of the expert groups said it was difficult to help the candidates learn about cooperative housing and convince them to join.

In response to a question regarding alternatives when the process of hiring people experienced in social enterprises and non-profits does not work out, 73% of the expert groups could not suggest any. Among cooperative representatives, 27% indicated that a specific group should be in charge of carrying out the project in line with the purpose of cooperative-type community housing. However, if the recruitment of consenters for cooperative establishment is not easy, it should be carried out via community housing cases. According to a group of experts from public institutions, there is a lack of public interest and a need to limit consenters to those who have experience in the social economy, and when recruiting publicly, detailed guidelines should be established so responsibilities and authority can be clearly defined.

1) Conflict relating to roles among stakeholders in the project

[Table 13] shows the proportion of answers to questions on role conflicts between stakeholders. In a survey on the appropriateness of the roles of public institution, cooperative, and private developer in the project’s implementation, 27% of the expert group said there were problems, whereas 73% said it was appropriate. Specifically, all of the cooperative representatives felt that each project participant’s role was inappropriate. The early members of the cooperative established residents cooperative through initial investment, but the cooperative was excluded from participating to the Westay Byeollae project, which advocates a cooperative-type project, because of structural problems that prevent the cooperative from owning project shares until move-in. Amid their lack of access to information on the project progress, they reported anxiety over the project progress until the actual construction began after the purchase of the building site. A union representative suggested that cooperatives should take the lead in project participation from the onset, and that, in addition to community design participation, residents should take the lead in design intervention and village community formation. Practical content should be outsourced to expert groups, and cooperative’s roles should be enhanced so that they are capable of securing practical sovereignty over the cooperative housing project. Having considered the cooperative’s point of view, the developer and public institution groups have indicated that the project process should be led by a group with proven expertise and working-level personnel.

Representative of public institution said that Westay Byeollae is a pilot project for which public support should be provided until it can be established as a general housing type. He answered, however, that a generalization of cooperative publicly-funded private housing requires the business responsibility of cooperatives and private developers, the leading parties in the project, and that guidelines are necessary for such responsibilities.

The developer group and cooperative responded that there was plenty of room for authoritative interpretation because there were no licensing and cooperative establishment systems in place during the conduct of the pilot project, and that the consultation and decision-making processes with public institutions were difficult. Unlike general housing models, cooperative publicly-funded private rental housing fully reflects public interest. There is a great need for public support for land creation and financial support as well as taxes and insurance premiums (acquisition tax, transfer tax, property tax, real estate tax, security deposit for performance, etc.). Cooperative housing serves as a community organization that conducts various activities in the surrounding local community, builds a local community, and activates and stabilizes the function of creating a social network and safety net for the local community. For this reason, respondents to the survey answered that public institutions should establish procedures for cooperative housing types, establish public offering regulations suitable for community-centered housing supply, and prepare a continuous supply of cooperative housing sites.

2) Conflict factors between initial (25%) and general cooperative members (75%)

The residents of the cooperative publicly-funded private rental housing consist of 25% of the initial project promoters as well as 75% of the people who moved in through open recruitment. Since this is a pilot project, the new housing model aims to reduce the risk of project failure by selecting at least 25% of those with experience from the social economy. [Table 14] shows the responses to the questionnaire on whether there is a conflict between the initial members (25%) who have experience in social economy and the general members.

When asked whether there was a conflict between the initial (25%) and general cooperative members (75%) who moved in through the recruitment announcement, 100% of the expert group reported that there was no apparent or collective conflict. The respondents said it was because of the lower rent compared with the market price. Another reason was that there was no requirement for 491 households to be involved in community activities. According to representatives from the union and developer, around 30% of residents actively participate in community activities through the activities of the union secretariat and community center within the complex, whereas about 70% of other residents do not participate in community activities.

The expert group answered that conflict between residents is expected to arise when there is a conversion to sale after the end of the eight-year project term. Although the initial union member group (25%) hopes to maintain the village community without owning a house and continue the lease, 72% of the expert group responded that other union members will likely demand sales of individual units and distribution of profits. According to representatives from the union and developer, co-ownership of village community housing is the purpose and concept behind cooperative apartments; they continue to educate members about the fact that social cooperatives cannot legally pay dividends. As a preventive measure for complaints and conflict factors that might arise with the expiration of the project, clear regulations and guidelines should be developed by the public institution group.

1) Causes of low invigoration

[Table 15] shows the proportion of answers to questions on activation sluggish factors. The expert groups unanimously cited a lack of trust in cooperative as the cause. Their response was that a lack of understanding of social cooperative and the idea that unions only petition but bear no responsibility for projects impeded the development of cooperative housing. Also, the reasons that additional publicly-funded private rental housing projects could not be implemented are that there are limited private developers that can promote social cooperative housing, which is not a common housing type in Korea. Moreover, public institutions making public offers to limited private developers could generate controversy over preferential treatment.

Especially, in contrast to project structures associated with general rental housing, cooperative housing projects are more complex because tenants participate in the process. That is, recruiting of union members, obtaining approval, and holding the union’s founding general meeting are all incorporated in the process of the project; even after the project terminates, consultations with tenants must take place. Owing to such complexities, survey respondents indicated that no additional projects have been implemented. Additionally, according to the developer group, the government’s real estate policy is geared toward expanding the housing supply; cooperative housing projects focusing on quality of housing were not ordered.

2) Measures for activation

[Table 16] shows the proportion of answers to questions on activation plans. According to 72% of expert groups, the role and support of the Ministry of Land, Infrastructure and Transport and public institutions are crucial for revitalizing cooperative publicly-funded private rental housing. Support from the Ministry of Land, Infrastructure and Transport can include support for cooperative housing policies, eased urban planning, financial support, tax and insurance support, fostering of social economy housing operators, and public contests for publicly-funded private rental housing sites.

The public institution representative groups responded that the cooperative should cultivate its own operational and management capabilities first. Cooperatives must develop operational and management skills by developing educational programs, systems, and guidelines relating to cooperative housing. The development of the cooperative’s operational and management abilities is also crucial for preparing an independent financial support system and dealing with possible conflicts as the project progresses. Also discussed was the direction of enhancing the housing management system through public participation or public management of cooperative community housing.

Representatives of developer asserted that cooperative publicly-funded private rental housing, which builds a social safety net by improving housing quality and strengthening the community, has not been actively implemented because the government’s housing policy focuses on expanding supply. After forming the social consensus on the need for improved housing quality, public support and system improvements of cooperative publicly-funded private rental housing can be achieved.