Co-housing carries less risk

While total U.S. housing starts in January hit their lowest level since the Census Bureau began tracking housing starts in 1959, some lenders are viewing co-housing as a smart investment for the times.

Ilwaco-based ShoreBank Pacific, a lender that does not typically fund residential building projects, has made loans for numerous co-housing projects in the past year.

“Co-housing has both plusses and minuses in terms of funding,” says Bonnie Anderson, a ShoreBank real estate banker. “It’s a niche market. There is risk in that, but the benefit is that there is pent up demand for it.”

Anderson notes that co-housing projects frequently come with a substantial group of buyers that are invested in the project in terms of both time and money. To that end, when compared to typical condo projects, for which developers must rely on pre-sales to secure financing, co-housing projects carry less risk. Of course, like most homebuyers, co-housing buyers use the equity from existing homes to buy their new homes, and if you can’t sell your old home, you can’t buy a new one, says Craig Ragland, executive director of the Cohousing Association of the United States (Coho/US) “We're not seeing a big drop in interest, but the ability of some buyers to act is more challenged than ever,” Ragland says.

Washington and Oregon are among the top four states for co-housing projects per capita, according to Coho/US. ShoreBank has financed only one co-housing project in Portland so far–Columbia EcoVillage, which began construction in Summer 2008. As the name hints, Columbia EcoVillage employs green building practices – a must for any project that ShoreBank considers.

Co-housing comes with atypical value add-ons such as large gathering areas, shared green space and shared laundry facilities. Plus living expenses in co-housing projects are typically less than in an average American house because they are smaller and often designed to meet high energy and water efficiency standards. Residents often eat meals together and therefore cut back their food expenses.

While ShoreBank and other financers of co-housing projects recognize the value of such benefits, not many appraisers do, Anderson says. However, the fact that there are not as many co-housing projects as there is demand, creates a buffer for financers, many of which are regretting decisions to fund condo projects that were not 100 percent pre-sold.