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Shared-Equity Plans Preserve Affordable Homeownership
The Center for Housing Policy announced earlier this month that it has produced a new multi-media suite of resources on shared equity strategies that will enable communities to provide affordable homeownership opportunities on an ongoing basis.
Under the shared equity approach, a state or local government provides funding to help a family purchase a home, and in return for this investment the government entity shares in the benefits of any price appreciation when the home is sold.
The public’s share of the home’s appreciation can be returned to the government in the form of a cash payment that can be used to help another family, or it can stay with the home, reducing the sales prices for the next family.
“As many communities have learned the hard way, homes that they helped make affordable through an initial downpayment grant or other assistance often have become unaffordable when sold to the next family,” write Rick Jacobus, a partner in Burlington Associates in Community Development LLC, and Jeffrey Lubell, executive director of the Center for Housing Policy, in their new report, “Preservation of Affordable Homeownership: A Continuum of Strategies.”
“With the amount of subsidy needed to bring homeownership within reach of working families growing exponentially, communities have struggled with the question of how to ensure that the public’s investment in homeownership keeps pace with the market,” they write.
Their report provides an overview of the mechanisms that localities can use to ensure that housing funds in affordable homeownership are able to serve additional families in the future, largely through the resale restrictions used in shared equity.
As home prices have risen more rapidly than incomes over the past five to 10 years in the nation’s hot housing markets, they say, it has become increasingly expensive to help working families puchase homes.
“Providing a $5,000 downpayment assistance grant may be a small price to pay to help a family improve its economic position, but as the cost of the assistance rises — to $20,000, $50,000 or even $100,000 or more — the amount starts to seem like too much to give away to one family when there are so many others who will receive no help at all,” they write.
“As the amount of per-household subsidy rises,” they say, “programs become more concerned about preserving the value of public subsidies and turn from grants to loans and then to ‘shared equity’ approaches such as shared appreciation loans or resale price restrictions designed to preserve the buying power of the public investment.”
The authors note that these changes have been criticized because they don’t allow assisted home owners to gain as much home equity as market-rate home buyers. However, “there is enormous variety in local homeownership programs” and most attempt to strike a balance “by offering home owners real wealth-creation opportunities while still preserving the value of public funds so that they can serve other home buyers in the future.”
In addition to the report, resources developed to help communities learn more about shared equity strategies include: an online tutorial that takes just eight minutes; a report that takes an in-depth look at three different shared-equity approaches and how they can build wealth for one family after another without any long-term loss of affordability; and an interactive spreadsheet that shows how different strategies will work based on area home prices and other factors.
The materials were developed with the support of the Annie E. Casey Foundation.
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