RSG Solutions

June 28, 2021

By Alejandra Martinez, Research Assistant

As California reopens, residents are eager to get back on track after more than a year of uncertainty. Small businesses, tenants, and landlords in particular are awaiting final state legislation proposals that may allow them to pick-up where they left off before March of 2020. Multiple rounds of small business grants in 2021 and the possibility of reimbursements for 100% of overdue rent offer a sense of relief for the millions whose financial futures were upended by the pandemic.

But as we regain our collective sense of normalcy, perhaps it is time that we in fact explore a new normal. While this past year has demonstrated the resiliency of communities, it has also put their existing vulnerabilities and threats into sharp relief. The relief packages that will help families and small businesses eliminate their debt will not offer long-term solutions for community stability. True resiliency in our local economies will instead depend on strategic forms of community economic development that embrace collective forms of ownership.

A return to normal for renters and many small business owners will still mean living and existing in a precarious situation. Property values continue to rise and the incentive to increase rents prevails. Thus, both groups are at risk of enduring greater cost burdens even as we return to normal. That is not to understate the positive impact of state relief programs that address these groups’ immediate financial concerns. Nevertheless, this reality demonstrates why it is worth exploring methods for increasing community control of assets that are crucial for community stability.

Shared equity housing models—also known as Community Land Trusts—offer an alternative form of property ownership that can prevent future displacement of residents. This model has already been readily embraced in parts of the US and abroad for decades. Through this model, a trust acquires land and maintains ownership of it permanently, while prospective homeowners enter a long-term, renewable, and affordable lease instead of a traditional sale. Since the trust owns the land under the home and does not increase lease rates due to accrued value from speculation, homeowners can expect stable lease rates into perpetuity. This model allows for families priced out of the housing market to buy homes at below market rate as the value of the land is not incorporated into the home’s cost. This model has also grown to include renters who occupy multi-family housing units, offering stable rents that can only be increased with tenant approval.

As the post-pandemic housing market booms and families attempt to pay off accrued debts from the past year, it will be all the more challenging for them to stay in pace with rising housing costs. Progress toward homeownership evidently stalled for many families throughout the past year, and renters will continue to face threats of eviction and rent-burden, destabilizing their long-term financial plans. Community Land Trusts would offer greater certainty for renters that have come to expect annual rent increases and who are at risk of evictions even if they diligently pay their rents. Similarly, those looking to own can find stable, affordable housing options that can even offer some equity. Given that a large part of community stability centers on residents’ ability to stay rooted, one can see how the certainty offered by this housing model would strengthen communities most at risk of displacement. An innovative relief package could facilitate this conversion process for rental units and homes either at risk for default or currently for sale and offer a long-term solution for housing cost relief.

In a similar vein, worker cooperatives offer a strategy for placing ownership in the hands of small business owners that are commercial tenants and their workers. Many small businesses have had access to small business grants released as part of the State and Federal Government’s COVID relief packages. However, a large portion of businesses have had to utilize these funds to cover the cost of their rent rather than to cover wages for staff and to adapt to COVID guidelines. As a result, these businesses have had to make the challenging decision to furlough workers and limit their services because their energy must be devoted to preventing eviction and greater debt. This is in contrast to the Worker Cooperative model, where a focus on democratic participation among workers—who are also the businesses owners—enables businesses to employ creative strategies for covering both staffing and property costs during challenging periods.

Worker cooperatives function through a membership model where members pool resources to own and operate a business, taking on the role of both an owner and an employee. Workers must reach a consensus on all decisions, ensuring that the needs of each worker are taken into account as cutbacks are made. In this model, furlough can be prevented through negotiations like lower flat salaries rather than hourly wage compensation. This provides a guaranteed income even if workers have fluctuating hours. Evidently, exploring this model would support the long-term survival of small businesses by helping them maintain their staff and distributing profits equitably. Through ownership, they can fix costs that would previously vary, ensuring that they can better plan for their financial future and weather downturns. Given the existing risks that small businesses already take on, the flexibility offered by this model can help small businesses build a legacy in their community and offer stability for the families they employ as well.

Clearly, it is worthwhile exploring what a new normal can look like for tenants ready to get back on their feet. The relief packages that have gone out throughout the past months have undoubtedly ensured the survival of the thousands of people at risk of losing their homes and businesses. But ensuring survival by the skin of one’s teeth is not sufficient for long-term stability. We must ensure growth and relief packages that allow communities to prosper into perpetuity. We must explore more meaningful ways of impacting vulnerable communities’ trajectories and creatively employ relief packages to do so.