The Failure of Housing Co-op Oversight

In Canada, housing co-operatives (co-ops) have been established as a solution to provide affordable housing. However, the oversight mechanisms intended to ensure their effective governance and management often fall short. This essay explores the challenges and shortcomings in the oversight of co-op housing, particularly focusing on the roles of various oversight bodies and the inherent governance issues within co-ops.

Co-op housing in Canada encompasses approximately 2200 housing co-operatives, accommodating around 250,000 people in 100,000 units. These co-ops fall under the social housing portfolio of the Canada Mortgage and Housing Corporation (CMHC), representing around 15 percent of the portfolio’s 600,000 social housing units nationwide.

Not everyone in a co-op receives a subsidy, but let’s assume that each unit receives on average a subsidy of $2,000; the CMHC’s annual subsidy budget for co-op housing would be around $2,000 x 100,000=$200,000,000, a significant sum!

Most co-ops are non-profit, zero equity, and self-governed under provincial legislation. Governance is typically handled by unpaid volunteer boards of directors, who often lack the necessary competencies and show little interest in training, leading to inadequate management structures.

The Vision for Co-op Housing

Housing co-operatives (co-ops) were established with the vision of providing affordable housing, primarily to low-income individuals, while promoting self-management and preventing property speculation. Originating in the 1970s, co-ops were designed to be community-based and non-profit, balancing between the private and public sectors. The creation of the first federal co-op housing funding program in 1973 marked a significant shift towards supporting community-based housing initiatives.

Core Principles of Housing Co-ops

Housing co-ops in Canada adhere to the principles established by the International Cooperative Alliance, which include:

1. Voluntary and Open Membership: Co-ops are open to all who can use their services and accept the responsibilities of membership.

2. Member Control: Members actively participate in policy-making and decision-making, with each member having one vote. Elected directors are accountable to the membership.

3. Economic Participation: Members contribute equally to the co-op’s capital. Surpluses are allocated to activities that benefit the co-op and its members, often placed into a reserve for further development.

4. Independence: Co-ops may enter agreements with external organizations, provided these do not compromise member control.

5. Education and Training: Education and training are provided to members, directors, managers, and staff to ensure effective development. The co-op also educates the public about co-ops and their benefits.

6. Co-operation Among Co-operatives: Co-ops collaborate locally, nationally, and internationally to strengthen the cooperative movement.

7. Concern for the Community: Co-ops work to strengthen local communities through member-supported policies.

Among these principles, perhaps 2, 3, and 5 are most important in maintaining housing co-op oversight. Unfortunately, despite the noble vision, many co-ops struggle to adhere to their core principles, leading to significant problems:

1. Member Control and Economic Participation: In practice, member control is often undermined by a lack of engagement and training, leading to poor governance and financial mismanagement. Surpluses are sometimes misallocated or insufficiently reserved for future needs.

2. Education and Training: The failure to prioritize education and training results in poorly equipped board members and staff, exacerbating governance and management issues. This neglect can lead to a lack of understanding of cooperative principles and ineffective operations.

3. Lack of Independent Oversight: Oversight from organizations like the Agency for Co-operative Housing diminishes once co-ops become mortgage-free, leaving gaps in ensuring proper management. This lack of independent oversight, combined with poor internal governance, leads to significant issues going unchecked.

These problems highlight the need for ongoing training, stronger member engagement, transparent governance, and effective independent oversight to maintain the cooperative spirit and ensure the success of housing co-ops.

Independent Oversight Provided by Government and Regional Associations

Housing co-ops in Canada are supported and overseen by a network of government bodies and regional associations, each playing a distinct role in their governance and operation. This section delves into the roles of these entities and the challenges they face in ensuring effective oversight.

Government Oversight

The Agency for Co-operative Housing, which took over responsibilities from the Canadian Mortgage and Housing Corporation (CMHC) in certain provinces, oversees compliance with federal standards and regulations. The Agency’s relationship is mainly with the boards of directors and staff managers, leaving individual members with limited recourse when they have complaints about governance or management. This system reinforces existing power dynamics within co-ops and limits the ability of members to address their concerns effectively.

Once a housing co-op becomes mortgage-free, the oversight from organizations like the Agency for Co-operative Housing diminishes significantly, leaving a significant gap in ensuring proper management post-mortgage.

CHASEO, the CHF, the Agency, and CMHC

The Co-operative Housing Association of Eastern Ontario (CHASEO) is a regional association that supports housing co-ops in Eastern Ontario. It aligns its initiatives with the Co-operative Housing Federation of Canada (CHF Canada), working on national advocacy while addressing regional concerns. Additionally, CHASEO collaborates with the Agency for Co-operative Housing to ensure compliance with federal standards and regulations set by CMHC.

Governance and Oversight of CHASEO

CHASEO has its own board of directors, elected by its member co-operatives. This board is responsible for governing the association, setting strategic direction, and ensuring that CHASEO meets its organizational goals. The board includes representatives from member co-ops, aiming to align CHASEO’s governance with the interests of the co-operative community.

Oversight of CHASEO is crucial to prevent conflicts of interest between their recommendations to co-ops and their associations with family and friends of the directors. The primary oversight comes from its members, who elect the board of directors. Additionally, CHASEO aligns its operations with CHF Canada’s standards and policies, providing a layer of oversight. However, these mechanisms can fail when boards of member co-ops lack the training to recognize conflicts of interest or believe that maintaining friendly supplier relationships is appropriate.

Summary of Oversight Challenges

The oversight of housing co-operatives in Canada involves a complex network of national and regional associations and government bodies. While these entities provide a framework for governance and support, significant gaps remain, particularly in addressing the concerns of individual members and ensuring ongoing effective management. Reforms are needed to enhance member training, strengthen governance structures, ensure transparency, and provide robust support and oversight to maintain the cooperative spirit and success of housing co-ops.

Failures Associated with FCHI-2 Program Oversight

Many co-op residents rely on subsidies and pay Rent Geared to Income (RGI), with a significant portion of their income coming from programs like the Ontario Disability Support Program (ODSP). The process for calculating and awarding subsidies can be complex and error-prone, leading to anxiety among residents when subsidies are threatened. Despite the Co-op Act requiring fair procedures, there is no clear means of appeal when subsidies are unfairly withheld, effectively giving the board significant control over tenancies.

The transition from CMHC subsidies to the FCHI-2 program rendered existing subsidy bylaws irrelevant. Instead of requiring co-ops to update these bylaws, the CMHC through the Agency for Co-operative Housing (the Agency) has accepted policies that allow co-op coordinators to handle subsidy decisions without member oversight. This centralization of power within housing co-op administration increases the risk of conflicts of interest and undermines transparency and fairness.

While the FCHI-2 program requires co-ops to maintain a fair subsidy management system, follow complex subsidization rules, and develop governance improvement plans, these measures are often honoured in the breach. Indeed, members receive no feedback on how much subsidy they are receiving; they just pay less rent, which creates an open loop situation waiting for fraud to happen. Co-ops must submit annual financial statements to confirm the co-op’s financial health, but the oversight provided under FCHI-2 is limited and does not adequately address governance issues or ensure effective management practices.

Legal Enforcement Issues

Enforcement of legislation within housing co-ops is both expensive for the government and practically unfeasible for low-income members, who often cannot afford to hold boards accountable for mismanagement. Even when they can pay, many lawyers hesitate to take on cases against co-op boards due to potential conflicts of interest, as boards are their primary clients.

Co-ops can take their members to the Landlord and Tenant Board (LTB), where adjudicators are trained by co-op housing professionals. However, as Kenn Hale from ACTO points out, co-op members suffering from disrepair, harassment, and interference with the enjoyment of their premises have limited recourse to address these issues at the LTB level.

Victims of abuse, harassment, and fraud within co-ops often find themselves without support, and because of a perverted sense of community, may even find themselves a target of mobbing by their fellow residents. The lack of accountability is compounded by poor governance practices, including cliques, abuses of power, favoritism, and a general lack of understanding of co-operative principles.

The Erosion of Democracy to a Landlord-Tenant Dynamic

A significant governance issue in housing co-ops is the erosion of democratic principles, leading to a landlord-tenant dynamic. Housing cooperatives are intended as democratic organizations where members collectively own and manage their housing, emphasizing empowerment, shared responsibilities, and community. However, over time, many co-ops tend to devolve into a landlord-tenant model, where the board of directors acts as a landlord and residents as mere tenants.

Several challenges and systemic issues contribute to this erosion:

• Erosion of Member Control: Although the democratic principle of “one member, one vote” should empower residents, those who voice concerns often face abuse from staff or neighbors, or even the threat of eviction. This undermines the democratic process and discourages active participation.
• Cultural Incompatibility: True democratic governance is rare in Canadian housing co-ops, which often reflect broader societal values of competition and individualism. These values conflict with cooperative principles, leading to governance issues.
• Power Imbalance: Residents frequently feel that the board of directors and property managers wield excessive power. Despite having a vote, members feel powerless to enact change, reinforcing the landlord-tenant dynamic.
• Targeting Dissidents: Members who raise concerns about governance or oversight issues often become targets. They may be marginalized, subjected to retaliatory actions, even mobbed or threatened with eviction. This discourages transparency and accountability, further entrenching the power dynamics.
• Internal Solutions: When residents attempt to hold their co-op accountable, they are often redirected by government agencies and regional associations to find internal solutions, which are ineffective. Complaints about favoritism or lack of oversight are rarely addressed adequately, perpetuating the status quo.
• Outsourcing of Management: The increasing trend of outsourcing management tasks distances the board from daily operations, reducing member involvement and the sense of ownership necessary for a thriving cooperative.
• Autocratic Leadership and Abuse of Power: Strong, autocratic leadership or control by a small clique can disenfranchise members, leading to disempowerment and demobilization. Autocratic leaders may abuse their power, making unilateral decisions without consulting the wider membership, further distancing members from the cooperative process and reinforcing the landlord-tenant dynamic.
• Impact of Electronic Communication: That the Co-op Act now (since 2013) allows for electronic communication during meetings has led to the erosion of traditional parliamentary procedures. Voting is now reduced to a faceless show of hands on a screen, and secret ballots become problematic. The chair now has stricter control, making it difficult for members to raise points of order or amendments. Online forums replacing board meetings has resulted in discussions degenerating into trolling and ghosting, as well as neglecting agendas and official minutes. Additionally, the use of a single official email address for member communication, filtered through the office coordinator, further increases the coordinator’s power and limits member interaction with directors.

The degeneration of housing co-ops into a landlord-tenant model is a multifaceted issue rooted in challenges to democratic governance. To maintain the cooperative spirit, it is crucial to reinforce democratic principles, ensure transparent governance, and provide effective oversight. By addressing these challenges, housing co-ops can fulfill their original vision of empowering residents and fostering community.

The Skills Erosion Challenge

Initially, housing co-ops benefit from expert support during their creation and early implementation phases, which helps establish robust management practices and governance structures. However, over time, these initial supports wane, and co-ops face the challenge of renewing the knowledge, skills, and management abilities essential for their proper functioning. This transition phase brings several problems, including the renewal of members, lack of training for new occupants, and the depletion of founding members who possess valuable experience.

A significant issue in housing co-ops is the training of new members and the erosion of cooperative principles over time. Founding members often undergo extensive experiences that equip them with the necessary skills to manage the cooperative effectively. However, as these members leave, new members who lack similar training and experience join the co-op. The challenge is to provide ongoing training and foster an environment where new members can gain the necessary knowledge and skills. Unfortunately, many co-ops fail to prioritize training, leading to poor management practices and financial difficulties.

Training Needs

• Financial Training: Members need training to understand financial statements, create budgets, and review budgets that have been submitted to the membership for approval.
• Governance Training: Boards of directors often lack experience in leadership and understanding due process, which can lead to governance issues such as eviction without adequate notice and opportunity to defend oneself, unfair subsidy allocation, lack of member input, and general abuse of power.

Impact of Short-Term Residents

Housing co-ops often attract individuals in need of low-cost housing, such as students and immigrants. These residents typically have short-term commitments and other constraints, such as language barriers or limited free time, which impede their interest in getting the training needed to actively participate in co-op governance. An effective application review committee will aim to strike the proper balance between short- and long-term residents; however, this committee has a tendency to degenerate into a welcoming committee without a mandate for maintaining an appropriate mixture of short- and long-term residents.

Compliance and Auditor Independence

While good internal controls can protect a co-op’s assets, these controls are often insufficient and inadequately monitored. Compliance monitoring is the responsibility of the external auditor; however, thorough audits are expensive; hence, not done in detail. In addition, many records that would document the co-op’s management (even including occupancy agreements and meeting minutes) are not maintained and not available.

A significant issue in the monitoring of controls in housing co-ops is the independence of the external auditor. Auditors are required to maintain independence under Canadian Auditing Standards (CAS) and International Standards on Auditing (ISA), but the current process does not facilitate this.

An effective, independent audit would require a process with the following features:

1. Formal Channels for Member Input: Create mechanisms such as town hall meetings or suggestion boxes to allow members to raise concerns before the audit, which would then allow members to ask pointed questions about how their concerns were treated when the audit was presented to the membership at a general meeting.
2. Enhanced Board-Member Communication: Ensure the board actively seeks and communicates member concerns to the auditor during the audit.
3. Rotation of the Auditor: Rotate auditors periodically to maintain independence and avoid conflicts of interest.

However, in practice, the co-op’s board of directors recommends and hires the auditor and is often the only party that provides information during the audit. Although members approve the choice of auditor at a general meeting and can ask questions after the audit is completed, this process does not adequately protect the independence of the auditor, provide an opportunity for co-op members to have their concerns addressed during the audit, or ensure transparency.

Conclusion

The oversight of housing co-operatives in Canada is fraught with challenges, from reduced oversight post-mortgage to ineffective governance structures. The roles of CHF Canada and regional associations, combined with the limited scope of the Agency for Co-operative Housing, contribute to a system where the concerns of individual members are often overlooked. To ensure transparency, accountability, and effective management, significant reforms are needed in the oversight mechanisms and governance practices of housing co-ops.

HEADER IMAGE: Centretown Citizens Ottawa Corporation co-0p housing building on Clarence Street in Ottawa. (OLM STAFF)