HousingPolicy.org | Policy - Use Shared Equity Mechanisms to Preserve Homeownership Subsidies

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Goal: Increase the Availability of Affordable Homes
Role: Preserve and Recycle Resources
Policy: Use Shared Equity Mechanisms to Preserve Homeownership Subsidies

In many communities, rapidly increasing home prices threaten to undermine the substantial gains in affordability made possible by large downpayment assistance grants or loans or through inclusionary zoning policies that require or provide incentives for a certain percentage of newly built homes to be affordable. When home prices increase much faster than incomes, communities will need to continually increase the amount of subsidy provided to bring homeownership within reach of families at a steady target income range. Learn more about rising subsidy needs.

A growing number of states and localities have addressed this problem by adopting "shared equity" approaches that balance asset accumulation by home purchasers with ongoing affordability.

Under these approaches, families that benefit from large public subsidies to purchase a home agree to share any home price appreciation that occurs with the entity that provided the subsidy. Well-designed shared equity approaches allow working families to purchase a home and generate a healthy return on their investment.

At the same time, they ensure the public's investment keeps pace with the market, so there is no reduction in the number of families that can be assisted over time, and no large new amounts of subsidy needed to help the next family.

Key Resources

The Center for Housing Policy, working with Rick Jacobus of Burlington Associates, has compiled a suite of resources on shared equity homeownership. These materials include:

-- An Overview [PDF] outlining the continuum of homeownership subsidy programs

-- A Detailed Analysis [PDF] of the wealth building potential of different shared equity resale formulas

-- A Spreadsheet [Excel] that allows you to test different approaches to shared equity in your community

-- A Webpage on the application of shared equity homeownership in weak housing markets

New Resources Highlighting the Performance of Shared Equity Programs

A set of reports released over the last few years fill a gap that had existed in shared equity homeownership research for some time. These reports provide specific data on how these programs preserve affordability and public subsidy, provide residential stability, enable household mobility, and build wealth through homeownership. These reports include:

Balancing Affordability and Opportunity: An Evaluation of Affordable Homeownership Programs with Long-Term Affordability Controls. This report, released by The Urban Institute and supported by the Cornerstone Partnership, analyzes detailed data on the performance of seven shared equity homeownership programs across the country.

The Center hosted a webinar in January 2011 that highlighted findings from the Urban Institute report and also discussed how shared equity homeownership can effectively be used as a tool for individual asset building.

Homeownership Today and Tomorrow: Building assets while preserving affordability. Released by the National Housing Institute with support from the Cornerstone Partnership, this report distills some of main findings from the Urban Institute report and discusses them in the context of principles developed by Cornerstone for successful long-term affordable homeownership programs.

Lands in Trust, Homes that Last. Provides a detailed performance assessment of the Champlain Housing Trust, the largest community land trust in the U.S.

Listen to a podcast from July 2008 with Rick Jacobus, Partner at Burlington Associates, to give us a better understanding of how local governments can implement shared equity homeownership strategies to achieve permanent housing affordability, while still allowing for significant individual asset-building.

Special guest Connie Chavez, Executive Director of the Sawmill Community Land Trust in Albuquerque, NM, joins us to speak about Arbolera de Vida, a vibrant, mixed-use community with affordable housing built on a formerly vacant lot near downtown.

Click on the links below to learn more about shared equity homeownership:

Shared appreciation loans
Homebuyers that receive these "silent" second mortgages make no payments until sale of the home, at which time the full loan is repaid plus a share of the home price appreciation.

Subsidy retention strategies
Subsidy retention programs subsidize the unit, rather than the buyer, ensuring a specific home remains affordable over the long term.

Implementing shared equity approaches
Key issues related to designing a shared equity policy.

Resident acquisition of manufactured home parks
By facilitating the cooperative purchase by residents of manufactured home parks, communities can preserve affordable housing opportunities and help residents gain stability and build assets.

Click here to learn more about the use of shared equity homeownership in a weak housing market.

Click here to view other resources related to shared equity homeownership.