Originating in Denmark, co-housing communities range in size from a handful of units to more than 5 dozen; although typically they contain 20-40 units. They have a centralized design where the units are either attached or free-standing or both and surround a courtyard and/or common house. The design is to promote the old-fashioned neighborhood feeling where everyone knows each other and works together.
The common house is the center of the community and usually has a large dining room, kitchen, children’s play area, laundry room, recreational facilities and sometimes even a guest room. At least a couple of times per week, the community members serve group meals and take turns preparing the meals. Some communities provide child care services for working parents.
The community members work together to tend to the common elements. While they operate under set By-laws, generally the decisions are made by consensus and the rules are used as back-up for dispute resolution. Many of these communities have a waiting list of people who wish to move into them. Here is a write-up about one in Berkeley, CA.
You may be thinking: “How does FHA handle these communal-type communities?”
Many co-housing projects are legally-declared condominium projects and some have attempted to get approved with FHA. Some of them have been approved while others are not eligible. Here are some of the deciding factors:
1. Communal Kitchens. There are varying degrees as to the level of “community” between the co-housing projects. Some attempt to promote a sort of 60’s style commune where everyone works together as one big family. This can result in co-housing projects only having one communal kitchen and everyone cooks in the kitchen.
The issue that we encounter here is that the individual units do not meet the minimum appraisal standards for FHA which requires the units to have a working kitchen. Having a communal kitchen is OK provided that the individual units meet FHA’s minimum standards.
2. Screening buyers or renters. Because the community is so tight-knit, co-housing projects sometimes wish to interview and approve potential buyers or renters. If these newcomers are going to be in a closely-held community with children, this is not an unreasonable request.
According to 24CFR203.41, third party approval of buyers or renters is not allowed; this violates “free assumability”. Therefore, the CC&Rs cannot provide for a requirement that the Board or HOA have the power to approve or reject buyers and renters.
The only exception to this rule is that the HOA/Board can use the registered sex offender list to reject a potential buyer or renter.
3. Affordable Housing. This is a tricky topic on its own regarding FHA condo approvals. Affordable Housing is allowed by FHA provided that the language in the CC&Rs meets FHA’s standards. One of the main conditions that it looks for is that the Affordable Housing requirement terminates upon transfer of title of the unit to FHA either via foreclosure or deed-in-lieu. If the Affordable Housing language meets FHA’s requirements, this is not an impediment to project approval.
In conclusion, if the co-housing project has the look and feel of a typical condominium (typically-sized units, own kitchens, appropriate CC&Rs, etc), then the project has a good chance of getting approved. If the project appears to be more of a commune-style community, it may have more difficulty in obtaining a project approval.