In 1965, Esther and Ben Rubin moved into a new four-bedroom townhouse off Platt south of Packard. What would eventually be the 427-unit Colonial Square Cooperative was still being built, but as a blended family with four teenaged sons, the Rubins needed the space, and the price was right. Ben, a PhD student in biophysics at the U-M, was elected to the co-op’s board and helped to shepherd it through its initial years. Then, in 1974, he accepted a position at the University of Connecticut, and the family relocated to the Hartford suburb of Manchester.

After Ben’s death, Esther, a retired social worker, returned to Ann Arbor. In 2003, she decided to move back to Colonial Square, into a unit across the street from her son and his family. “Much had changed over the years,” recalls Rubin, eighty-six. “It was now such a beautiful place to live. When we first moved here there were no trees, and the roads weren’t even paved.”

One thing, though, hadn’t changed: by Ann Arbor standards, Colonial Square was still an incredible bargain. The rent on Rubin’s two-bedroom apartment in Traver Knoll had been nearly $1,000 a month; her Colonial Square townhouse is smaller with fewer amenities, but when she moved in, it cost less than $300 a month.

Soon after moving back, Rubin herself was elected to the co-op’s board of directors. There, she helped guide the community through the biggest decision since its founding: whether to let members buy and sell their units on the open market.

That prospect would have seemed remote in Colonial Square’s early years. The complex was financed by a forty-year mortgage guaranteed by the federal department of Housing and Urban Development (HUD), with rules designed to keep it affordable–most importantly by limiting residents’ ownership. People bought shares in the co-op when they moved in and sold shares when they left, but their only return on that investment was a small amount of interest.

In the summer of 2006, however, Colonial Square paid off its forty-year mortgage and, overnight, was no longer bound by those limits. For the first time, the co-op’s future structure was entirely up to its members.

The ensuing debate set neighbor against neighbor and drew in outside advocates worried about losing affordable housing–not only at Colonial Square, but soon also in the other four HUD co-ops in the city. Self-contained and independent, the five communities are often ignored in discussions of affordable housing. Yet with a total of more than 1,800 units, they’re the biggest single provider of housing for low- and moderate-income Ann Arborites.

Advocates worried that if co-op members could sell their units for whatever the market would bear, the rising prices would deepen the housing crisis already facing the city’s low-income residents. Colonial Square is only the first in line. This month, residents of Arrowwood Hills, on the north side off Pontiac Trail, will decide their complex’s future. University Townhouses on Ellsworth has already repaid its mortgage. Its neighbor, Forest Hills, pays off its mortgage in 2013. The choices their residents make will affect thousands of Ann Arborites for decades to come.

The HUD co-ops are such a big presence locally because they were invented here. Bob Gillett, executive director of Legal Services of South Central Michigan, explains that while the government had encouraged below-market-rate loans for rental complexes, “before Ann Arbor, HUD didn’t subsidize co-ops.”

The impetus for change came in the early 1960s from a group of Ann Arbor citizens led by attorney Peter Darrow: Ann Arbor Homes, Inc., which bought the site on Pontiac Trail that would eventually became Arrowwood Hills. Hoping to tap HUD-insured funds, Darrow contacted an old friend, then-U.S. senator Phil Hart. Hart entered an amendment that allowed HUD to guarantee loans for low- and moderate-income cooperatives. It passed, slashing the interest co-ops had to pay on construction loans and reducing mortgage rates to as little as 3 percent. In exchange, the co-ops agreed to restrict who could live there. Depending on the complex, new residents can earn no more than 50-90 percent of the area median income.

Those limits, however, applied only through the life of the mortgage–and as Colonial Square approached its payoff date in 2006, city officials began to pay attention. Then-Third Ward councilmember Jean Carlberg attended several meetings to express her concern about the loss of affordable housing if Colonial Square units were sold at market rate. “The co-ops are a real asset,” Carlberg explains now, “and any downsizing means a loss in affordable housing. They are low-cost, quality affordable housing, and they are real communities.”

For forty years, Colonial Square operated on a “limited-equity” model. New members paid a fee of several thousand dollars when they joined the co-op. When they left, they got the same amount back, plus $200 for every year they’d been there. In a straw poll, however, most residents wanted to change that: most supported either converting Colonial Square to a condominium, or going “market rate”–restructuring the co-op so that members could buy and sell their units.

Either option would benefit Colonial Square’s existing members, but make the complex more expensive for future residents–just what affordable housing advocates feared. While some members shared that concern, others saw affordable housing as the city’s problem, not theirs. “They’ve known for a long time that this day was coming and did nothing to prepare for it,” says Art Stauch, the co-op’s resident manager. “It’s not the responsibility of Colonial Square residents to solve a problem [the city] failed to address.”

Education, discussion, and debate continued for four years. “Everybody … needed to be informed,” says Stauch, “so we burned lots of trees printing and getting flyers out.” As the final vote neared, some neighbors on different sides of the issue even stopped speaking to each other. But when the co-op members finally crowded into Scarlett Middle School to vote on July 1, 2006, market rate carried the day.

One early sale made the Ann Arbor News. Dorothy Bloom, an elderly Ypsilanti native had joined the co-op six years earlier, paying a share price of $6,000. With the conversion, that share now translated into control of her own two-bedroom townhouse–a share that Bloom sold for $99,000. Members’ hopes for a real estate windfall–and advocates’ fears that the complex could be priced beyond the reach of low-income citizens–appeared to be realized.

Across town at Pinelake Village on South Maple, affordability isn’t an issue: Jennifer Hall at the Office of Community Development estimates that three-quarters of the co-op’s residents receive federal Section 8 housing subsidies. It also has an African American majority, giving it demographics that are closer to the city’s public housing projects than to the other co-ops.

The 129-unit complex is also unusually insular. When I showed up at Colonial Square, the staff talked to me freely and opened their archives. Huntington Management, which runs Pinelake, required me to submit my questions in writing–and then never replied.

In terms of the quality of its management, though, former board chair Shirley Sims calls Huntington “a life saver.” She says conditions at the co-op have improved greatly since the firm was hired about seven years ago–though she adds, “we still have a long way to go.” I couldn’t learn the status of Pinelake’s mortgage, but its dependence on Section 8 subsidies and outside management means it probably won’t follow Colonial Square’s lead anytime soon.

Arrowwood Hills also relies on contracted management and includes residents supported by Section 8 vouchers. But only fifty-six of 350 Arrowwood units are set aside for Section 8 residents, and not all of those are filled. That’s because, as a limited-equity co-op, Arrowwood returns members’ investments with interest when they leave. Over many years, accumulating interest has slowly but steadily raised the share price–it now costs as much as $9,000 to move into Arrowwood, a serious barrier to low-income Section 8 tenants.

Like Pinelake, Arrowwood has had management problems. In the early 1980s, it defaulted on its mortgage and was on the brink of foreclosure. Joining with Arrowwood members and community leaders, the Ann Arbor City Council helped rescue the co-op with a $120,000 loan. As part of the turnaround effort, Meadow Management, a Livonia-based company, took over operations and set about putting the co-op’s financial house in order. It also engineered a massive reconstruction project to bring the neglected buildings up to code.

Also like Pinelake, Arrowwood once had a black majority. In recent years, though, it’s seen an influx of whites and Asians, including many from the nearby U-M North Campus. As a resident since 2005, I’ve seen both the demographic turnover and the co-op’s sometimes awkward steps toward deciding its post-HUD future.

Because the 1980s renovation added to Arrowwood’s debt, the co-op still owed $2.8 million when its primary mortgage expired last June. But instead of refinancing with HUD, the board chose to borrow the balance due from a consortium of credit unions–a decision that left members free to change the co-op’s status if they choose.

The vote on what to do was originally scheduled for this past December. But according to former board member Jay Steichmann, when the time came, “no one felt the membership-at-large had sufficient information to come to a vote.” So the board turned the December vote into a straw poll, then stepped up efforts to communicate with the membership about their options in advance of a binding vote scheduled for March 26.

Some members are apprehensive about any change in the co-op’s status. “I love Arrowwood,” says Meena Carol, a single mother who moved from Detroit to join the co-op. “It makes me feel hopeful for my family.” But she worries that if Arrowwood follows the lead of Colonial Square and converts to market-rate status, her carrying charges might increase, and “I can’t afford to live anywhere else.”

Carrying charges didn’t increase at Colonial Square, and it’s unlikely they would at Arrowwood. Still, most people who took part in December’s straw poll favored maintaining the co-op’s current limited-equity structure. If that is confirmed in this month’s vote, little will change at Arrowwood.

David Thompson, a board member at University Townhouses, thinks that’s also likely to be the outcome at the 609-unit complex on Ellsworth. Though that co-op paid off its HUD mortgage early, its agreement with the agency prevents any changes until this July. At that point, Thompson says, members will have “several options,” but he doubts they’ll want to make any changes.

“We kept our fees very low, because we’re very much committed to affordable housing,” Thompson says. University Townhouses is a “fixed-equity” co-op, which means that departing residents sell their shares back to the co-op for the same price they paid when they moved in. As a result, it still costs just $2,000 to become a member, and monthly carrying charges run from $400 to $500.

“Some people have this fantasy that they’ll put in $2,000, and in [July] 2011, they’ll make all this money,” Thompson says. But a survey last year found that 162 members wanted to keep the current fixed-equity status; only ten preferred market rate, while three favored a limited-equity structure.

Forest Hills co-op is next door to University Townhouses–but as a limited-equity co-op its steep share price is closer to Arrowwood Hills’. New members moving into a three-bedroom Forest Hills townhouse will pay as much as $9,000.

In other respects, though, Forest Hills seems committed to remaining affordable. Rather than privatizing, it’s looking at ways to leverage its mortgage payoff into collective improvements. Members are being briefed on a proposed $3 million, thirty-year flex loan that would be used to put new furnaces, air conditioning, and appliances in all 306 units. In exchange, the co-op would extend its HUD use agreement, keeping its current limited-equity structure.

So Colonial Square, the city’s pioneer market-rate co-op, may end up being the city’s only one. But even there, subsequent events have dimmed residents’ hopes–and tempered housing advocates’ fears.

The $99,000 Dorothy Bloom got amid the froth of the real estate bubble remains the highest price paid for a Colonial Square townhouse. Lately, Art Stauch says, the average sale has been $40,000 to $50,000. In February, asking prices for townhouses listed on the co-op’s website ranged from $26,500 to $69,000.

Richard Stacy, a former board member who opposed the move to market rate, grudgingly acknowledges that by some measures, “we are still considered moderate-rate” housing. For longtime residents like Stacy, in fact, the Platt Road complex is as big a bargain as ever. But “people who come in here now pay $700 or $800 a month,” Stacy says, “when before they paid $300 or $400.” Depending on the price paid, the down payment on a townhouse could actually be less than the previous $6,000 share price–but thereafter, the buyer faces a monthly mortgage payment on top of the co-op’s carrying charge.

Still, even at market rates, Colonial Square remains a bargain by Ann Arbor standards. Near North, a much-touted “workforce” project under development on North Main, will rent for the same $800 a month Stacy finds so daunting–without a chance to build equity. And Colonial Square’s prices start well below those at the Village Townhomes condos, previously the cheapest owner-occupied housing in the city. In fact, as affordable owner-occupied housing, Colonial Square has only one rival: that other forgotten pillar of affordable housing, a mobile home.

This article has been edited since it appeared in the March 2011 Ann Arbor Observer. Ben Rubin’s academic status at the time his family moved to Colonial Square, and the school where co-op members voted, have been corrected.