Could Fonterra’s business model solve the housing crisis?

The cooperative as a business model has not always been well understood. It’s sometimes thought to be alternative; “some sort of socialistic, hippies living in communes,” as Cooperative Business New Zealand’s CEO Roz Henry puts it – rather than a viable business model.

It can come as a surprise, then, for some, to learn that cooperative businesses are responsible for around 18% of New Zealand’s GDP.

They range from the behemoth that is Fonterra through every sector including healthcare, retail, finance, agribusiness, construction, manufacturing, transport and more. New Zealand’s top 30 cooperatives employ more than 41,000 Kiwis and generate revenue of $42b annually.

What’s more, the cooperative model – that of a member-owned and controlled business, where the benefits are derived and distributed equitably – has an important role to play in the future of business as focus shifts more and more beyond a solely financial bottom line, and we look to solve some of our most intractable problems.

“The business model is very, very good in terms of improving the lives and livelihoods of people,” notes Henry.

“You can actually move someone from being on the breadline to having a sustainable income long term. When you look at New Zealand, there's actually a really big opportunity here to move people out of poverty situations, and to improve communities, at large.”

In its recent New Zealand Cooperative Economy Report, Cooperative Business NZ emphasises the opportunity the co-op model presents in assisting New Zealand to deliver against the United Nations Sustainable Development Goal (SDG) targets the country has signed up to.

“This business model will enable that – it’s really bred into the psychology of these businesses,” says Henry.

There are seven key principles that characterise cooperative businesses. Chief among them are member ownership and control, democracy and the sharing of wealth.

“But the other parts are around community and education; co-operation and collaboration are really fundamental to how they operate. And those will be the things that get us through to enabling meeting those SDG challenges,” Henry stresses.

“I think what we're going to see is a big upswell in terms of people looking to do things differently, especially the younger generation. But to do so, we need to understand this business model better across the board. There has been very little education on the co-operative model at tertiary level, even for accounting and legal professionals. It tends to be mentioned as an ‘alternative’ business model, Henry says, rather than being regarded as a serious option, with the outcome that even when start-ups are considering a co-op model, it’s difficult to get started.

 “Lawyers and accountants are having to learn about the co-operative model well after they’ve left formal education,” comments Henry.

 “This means, quite often, it's challenging to find individuals who understand the business model and how to best apply it to structure a company in order to deliver the outcome the members are trying to achieve.”

Cooperative Business NZ is working to change that, initiating programmes of education at universities around the country.

Co-op housing: the way of the future?

One of the people trying to do things differently is Imogen Schoots, founder of Forever Affordable Homes. She’s working to use a cooperative approach to help solve one of our biggest problems: affordable housing.

Forever Affordable Homes is a startup that grew out of a project exploring cooperative housing run by Panuku, Auckland Council’s development arm.

Cooperative housing, Schoots explains, is commonplace internationally.

“In some countries and cities, it’s the dominant, most common form of home ownership. For example, up to 80% of real estate in Manhattan is owned in a form of cooperative.”

Closer to home, Australia has around 5,500 housing cooperatives, providing homes to over a million people.

Schoots says community land trusts and cooperative business models could be brought together to bring to market housing solutions to what she terms the “missing middle”. This is the large - and growing – portion of the population that sits between being able to afford to buy or pay market rent, and being eligible for any income support.

“Not surprisingly, with covid-19 that is a hugely growing segment of people,” she notes.

“Research that was done for Auckland Council just before the pandemic hit found that 450,000 Aucklanders by 2028 would fall into that market segment.”

Many of these are essential workers; the people we all rely on. When – as is increasingly the case – they decide to move out of Auckland, they “take a housing unaffordability problem with them”, increasing demand on housing where they’re going and increasing infrastructure pressure as well.

“It’s in the nation’s interest to solve this problem,” Schoots says, “because, if we don’t, who knows what’s going to happen to the productivity of this country?”

New model

In Schoots’ “forever affordable” homes model, land is owned securely in a trust, which charges long-term ground rent to a cooperative, with pre-set rent rises in place.

The cooperative owns the buildings, just like a company. Residents pay a one-off fee to become part owners of the cooperative and buy a lifelong, inheritable licence to occupy a home.

Residents also pay a below-market rent and co-ordinate the running of the building, or development, themselves. They are able to scale up or down to different homes in the cooperative, and over time are paid a dividend on their investment.

The benefits to the owners are immense: security, stability and forever affordability among them.

 Schoots also points out these types of developments foster a sense of belonging and community. Overseas cooperative housing developments have even kick-started the regeneration of neighbourhoods, prompting redevelopment around them and encouraging other types of development.

This is all a long way from Kiwis’ longheld obsession with owning freehold property and capital gain as a retirement strategy. And the state of legislation and the banking environment currently reflects that.

Schoots says it’s difficult to get traditional bank funding for cooperative developments because they fall far outside the traditional structure. That needs to change for this type of housing to succeed.

“We need to restructure and reframe our banking industry,” Schoots says, “if we want to diversify our housing market to be able to actually provide housing for those who are in different situations, who will never be on the [traditional] housing ladder.”

Likewise, legislation needs to allow for cooperative housing ventures to easily be set up.

Co-op Business NZ’s Henry notes that, at the moment, to try to set up a cooperative business in the housing space would be “very, very difficult”. She believes it doesn’t have to be this way.

“Canada does a huge amount of co-op housing as does Europe and Australia. So we’ve actually got the opportunity to leverage. We don’t need to reinvent the wheel. We could leverage what they’ve done to simplify what we’ve got here,” Henry says.

Schoots says currently the Cooperatives Act doesn’t enable housing cooperatives. That means start-ups are often forced to spend large amounts of money on bespoke, special-purpose legal instruments to get up and running.

That might be set to change with the recent release of the Government Policy Statement on Housing and Urban Development (GPS-HUD). It recognises collective housing and the need for this form of housing in the affordable housing space, and proposes exploring ways to remove barriers to making it happen.

Schoots hopes this will allow Forever Affordable Homes to get a development up and running. She’s looking to create a partnership and is talking to organisations and potential investors to try and get a deal across the line as a pilot project.

It’s time we caught up with the rest of the world, she reckons.

“I don’t know of any other country that doesn’t have an ability to have housing cooperatives. We are decades behind.”