Housing Beyond and Within the Market, Part 2: Cooperative Conditions in Zurich
This article is co-published with Market Failure, ed. Eric Peterson. It is the second in a series of three articles. Follow the link to read Part 1.
Zurich, Switzerland, and its municipal government have a long history of nurturing nonprofit co-ops. As discussed in part one of this three-part series, one in five homes there is owned and operated by a nonprofit cooperative. In this article, I explore why this tenure format, which I believe should be adopted more widely in U.S. cities like Boston (the subject of the third and final article in this series), has been so successful, and prolific (Figure 1).
Figure 1. Entlisberg 2 is a 2017 redevelopment of a 1920s housing estate operated by one of Zurich’s oldest cooperatives, Allgemeine Baugenossenschaft Zürich (ABZ). The higher density buildings were designed by Meier Hug Architekten and Schmid Landschaftsarchitekten to privilege large, contiguous shared open spaces. Photograph by Andrea Helbling. Courtesy of ABZ.
At Cost—Thanks to a Century-old Understanding of Public-Benefit
The first point to understand about the Zurich model is the notion of “at cost.” At cost refers to cost rent: a way to calculate housing prices to cover investment costs (land, debt, and construction) and operational costs (management, maintenance, and repair) without generating a profit or requiring subsidies. Zurich’s municipal government put forth a precise formula in the early twentieth century to calculate the maximum allowable rents in co-ops and other forms of non-profit housing (subsumed under the German term gemeinnützig, meaning “of public-interest”). To this day the city government monitors the cost rent charged by non-profit housing companies regularly based on this formula. In the case of cooperatives, “at cost” applies to both the cost of shares (equity) and monthly rents (what in some places, like the U.S., are referred to as carrying charges or maintenance).
Because co-ops in Zurich are not subsidized, they do not carry the condition that is typically attached to subsidies: income restrictions. This means that Zurich’s cooperatives can be, and are, open to anyone regardless of income, and rents are not calculated relative to it but always by the at-cost formula. Critics point out that co-ops are thus a middle-class proposition. Indeed, only through additional rental subsidies (think: housing vouchers), either provided by the city of Zurich to particular low-income tenants, or through so-called solidarity funds operated by the cooperatives themselves (think: scholarships), do households of lower incomes live here.
Figure 2. Ottostrasse, designed by Otto Streicher and located in central Zurich, is one of ABZ’s first developments. It has undergone three major renovations since opening in 1927. Thanks to the cost rent model rents remain at around a third of market levels. Photograph by Reto Schlatter, 2018. Courtesy of ABZ.
Yet this critique is only true of new projects. Thanks to the cost rent model, as major investments and loans are paid off, costs decline, and thus the rent decreases (at least until renovations are necessary, when, if new loans have to be taken out, rents are adjusted upward.) In practice, the system is much more inclusive than it might at first appear. Today, a two-bedroom apartment in the centrally located Ottostrasse, a building opened in the 1920s but renovated three times since, rents for around USD650 per month, roughly 33 percent below going market rents (after a share purchase price of around USD3,000) (Figure 2).
In theory, nonprofit cooperatives, by virtue of a municipal ordinance (these laws are specific to the city of Zurich), can opt out of the cost-rent formula with a two-thirds vote by their members as well as approval by the city council. In practice, however, this is rare. The nonspeculative idea is “deeply written into the DNA” of the city’s cooperatives, as the CEO of one of them notes. Moreover, the broader framework of secure access to healthcare, education, and retirement in Switzerland minimizes pressure to monetize one’s housing. As a result, not a single cooperative has left the program since it was introduced more than a century ago, making it possible for generation after generation of working families to live securely, and at predictable costs, in housing whose governance they control (see Figure 3, post 1).
At Scale—Thanks to Favorable Rules Around Financing and, Occasionally, Favorable Access to Land
The second key characteristic of Zurich’s system of housing cooperatives is that the model has become, over time, a proposition at scale. This does not mean large-scale in the sense of top-down planning or large, contiguous estates. Decision-making is decentralized and resident-shareholders maintain a direct connection both to the governance of their homes, and to the planning of future expansions. Rather, it refers to aggregate numbers, realized across cooperatives diverse in size and focus. Today, according to the WBG, an umbrella organization of Swiss housing, cooperatives, over 141 cooperative organizations operate a total of more than 42,000 apartments.
Figure 3. Kalkbreite is a young cooperative, founded only in 2007. This graphic, taken from its 2019 Annual Report, shows that despite cooperatives’ non-speculative orientation, they are nonetheless attractive to creditors. The three main creditors of Kalkbreite are ZKB (Zürcher Kantonalbank), a bank backed by the canton of Zurich (CHF37 million); municipal, cantonal, and federal entities (CHF18.7 million); and institutional and individual private lenders (CHF29.1 million). Graphic design by Weicher Umbruch. Courtesy of Genossenschaft Kalkbreite.
Although not subsidized, this reach is possible only with the support of the municipality. To begin, Zurich allows cooperatives to take out much larger mortgages than other kinds of developments. While private lenders must to ask for-profit developers to have 20 percent equity, cooperatives need only 6 percent (hence the name limited-equity). The Kalkbreite cooperative, for instance, incorporated with only CHF6 million in equity but has been able to borrow CHF92 million (Figure 3). Kalkbreite is now building its second project in ten years (Figure 4).
“The broader framework of secure access to healthcare, education, and retirement in Switzerland minimizes pressure to monetize one’s housing.”
This special provision was made possible in 1924, when social-democratic and conservative members of the city council came together in support of nonprofit cooperatives as a way to address the city’s dire housing shortage. Simultaneously, they obliged a state-backed, private bank (Zürcher Kantonalbank [ZKB]) to lend, and enticed the municipal employees’ pension fund to invest. It also insured both kinds of loans against default.
Figure 4. The Zollhaus, located in central Zurich, was designed by Enzmann Fischer Partner AG, the second project developed by Kalkbreite. As this cross section indicates, it will provide a mix of commercial and residential spaces, with apartments serving households from one to eight people. It will also boast two “hall apartments” in which people will build out their living environment within an open floor plan. The project is scheduled for completion in mid-2021. Courtesy of Enzmann Fischer Partner AG.
A majority of co-ops have always purchased their sites on the open market. However, the city has also facilitated access to land for many. Between the 1920s and mid-1960s, this often meant making publicly owned land available for purchase or granting access to former agricultural areas on the periphery (whose conversion to urban use was strictly regulated). A growing scarcity of public land in the 1960s led the city to shift to a land-lease model, both relieving cooperative groups of a great upfront expense and allowing the city to maintain long-term control of the land. Since the mid-1990s, with land even more costly and hard to come by, the city has relied largely on requiring owners of formerly industrial areas, rezoned for mixed-use development, to allocate a portion of the resulting parcels to cooperative organizations.
While it's the system, not individual players, that operates at scale in Zurich, some groups have also grown quite large. Allgemeine Baugenossenschaft Zürich (ABZ), founded in 1916, today owns and manages five thousand apartments in fifty-eight complexes. While its assets are legally de-commodified, meaning that even in the case of defaulting on a loan, land and buildings would not technically be able to be sold at market-rates, ABZ has been able to use the land it owns as collateral for new financing in order to take on several large-scale redevelopment projects as at Entlisberg (see Figure 1).
At the Cutting Edge of Architectural Process—Thanks to a Belief in Transparency and the Value of Innovation
The third key aspect of Zurich’s cooperative model is the centrality of the design process. Today, most designs for nonprofit co-ops are selected through architectural competitions, sometimes by law, sometimes by custom. This system emerged in the mid-1980s, in part in response to pressure by activists for the city to facilitate new models of urban living. The program has, as a result, helped to advance innovation in the typology and program of new buildings, including provision of apartments for new or neglected household types. Through its transparency, this process has also built trust in how public land is allocated, while furthering public debate about design.
Figure 5. Zurich’s cooperatives are governed by their resident-members, while operations are generally managed by professional staff. This image shows the founding meeting of the resident association of Zwicky Süd, the third development realized by the cooperative Kraftwerk1. These resident-members will also be the ones to brainstorm ideas for and approve any further development projects undertaken by the cooperative organization. Photograph by Myrtha und Bernard Garon, 2016. Courtesy of Bau- und Wohngenossenschaft Kraftwerk1.
Forty years ago, Zurich was struggling with the departure of middle-income families, including those with children and who were elderly, in part due to a lack of affordable and attractive housing options. The city jump-started housing development for such groups through a series of related policies. First and foremost, it began requiring projects built on leased public land to hold architecture competitions. This requirement remains in place. Once a detailed program and series of goals has been defined by a cooperative (Figure 5) and a feasibility study undertaken, a competition is opened to architects, with submissions judged by professional juries on the basis of their design merit. This process is unlike the U.S., where the requests for proposals typical of housing built on public land tend to favor developer experience and solvency.
Figure 6. Zwicky Süd was completed in 2015, designed by Schneider Studer Primas, selected through an invited competition process. The project includes a single extra-large apartment. Its multiple entries, kitchens, bathrooms, and central patio allow like-minded individuals to share generous amenities while ensuring their privacy, as this floor plan shows. Courtesy of Bau- und Wohngenossenschaft Kraftwerk1.
The Zurich process has enabled young practices, without professional or familiar networks, to obtain significant commissions in Zurich. It has also led to new kinds of dwellings beyond the usual one-, two-, or three-bedroom apartments. Zurich cooperatives like Kraftwerk 1 have been pioneers in providing “clusters” of micro units for singles, “large apartments” for non-family-oriented living (Figure 6), accessory “joker rooms” for short-term lease, and a variety of live-work arrangements. Cooperatives have also prompted a reconsideration of the relationship of private and shared spaces. Many opt to build apartments that are smaller than average, instead prioritizing generous spaces to be used by all residents, from day-lit hallways and stairs to shared libraries and terraces (Figure 7).
It cannot be overstated that in Zurich, it was nonprofit cooperatives that took the lead in advocating for and testing these new forms of housing, which they saw as meeting the needs of their members. It is difficult to imagine such a degree of experimentation by private developers who build for an anonymous clientele and are thus averse to the risk of trying untested forms. Meanwhile, Zurich’s private developers have been quick to learn from the cooperatives’ processes and experiments, and in a happy outcome they, too, are not only building cluster housing and joker rooms, but have widely adopted the competition itself as a process to test what-if scenarios and promote debate.
Figure 7: Zwicky Süd, view of courtyard and galleries. Courtesy of Bau- und Wohngenossenschaft Kraftwerk1.
Working at cost, at scale, and at the cutting edge of architectural processes, all with support from the municipality, has allowed Zurich’s cooperatives to proliferate at once beyond and within the market with the goal of broader social equity. Of course, no model serves all. Due to demand, many cooperatives have closed their waitlists. And for many cooperatives, inclusion of residents from a range of ethnic and economic backgrounds has only recently become an explicit goal. And yet my basic conviction holds that this is a model worth pursuing today in the U.S. In the third and final post , I explore the possibilities for Zurich-style policies for Boston, a city rich with creative thinkers and problem solvers, as well as its own history of a strong grassroots, nonprofit housing sector. Yet Boston is struggling—like many cities in the United States—to address the dual challenge of securing affordable housing and addressing the racial wealth gap.
Author’s note: I would like to thank Ana Arenas and Hugh Ebdy, research assistants of the MIT workshop, who were instrumental in developing the framing of the class and of this article. Thanks are also due to the many experts on cooperative housing in Zurich and the Boston area who so generously shared their thoughts, knowledge, and contacts with the classes. Final thanks go to the institutions, MIT and ETH, as well as their students, who made this research possible.
