Do alternative forms of homeownership, such as shared equity models and rent-to-own programs, present viable alternatives for future homeownership? Can they be taken to scale in a way that can encourage stabilization of neighborhoods and housing markets?
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It depends. Both models have been tried through and around HUD (HOPE VI, FSS, Moving to Work, HOME, 5H) and in states and local programs for many years, especially in order to help public housing and other low-income populations have this choice (see National Housing Conference/Center for Housing Policy webpage regarding this, the Ford Foundation/NCB report, and the Fannie Mae report that differentiates Shared Equity from Shared Appreciation homeownership programs).
Some of the rhetoric is based on the assumption that homeownership is part of the American dream but this can lead to unintended consequences, or as some would remind us, foreseeable ones. Such debate has gone on for decades. I can remember the hearings involving Senators Charles Percy and Robert Kennedy and their ‘berating’ then-Secretary Robert C. Weaver for not more fully embracing homeownership over rental occupancy. Weaver’s cautionary words and those few who echo him today continue to provide the necessary brakes on what tipping points public policy needs to define on a continuing basis.
This should not prevent us from trying to use both shared equity and rent-to-own models as arrows in the quiver of homeownership outcomes, but the basic assumptions of risk, credit-worthiness (whatever that might mean), and sustainability need to be considered as part of that. To some extent, they are in the FSS (Family Self-Sufficiency) program.
Who gets the value capture depends on the investor – in the past, it has mainly been the government entity involved in the financing (subsidies, direct loan at a lower percentage, in-kind contribution). Will funding dry up, given the cut in government funding?
Now, the private sector has entered to take advantage of the under-water mortgage situation. Will that effort be sustained beyond the short-term and the end of a weak housing market? National Academy of Housing and Sustainable Communities members generally answer, probably not. In fact, even today, the lack of standards on mortgages for securitization and the looming ‘tsunami’ of second equity mortgage principal payoffs (see Gretchen Morgenson’s article in the July 14 New York Times) and the lack of write-downs in current bail-out programs (HAMP and 2MP) will hamper any short-term or sustained contribution on the private sector side.
More importantly than just discussing this subject in a vacuum, what overall strategic public policy interests do these programs serve and what major assumptions will the Bipartisan Policy Center adopt (rental vs. homeownership goals for the U.S.) for recommendations to Congress? Once the goals are agreed on, the resources and how to implement them in terms of programs and tools (housing block grant vs. individual grant/loan programs) would come next in the overall design. The housing sector (non-profits, public agencies, and for-profits) will work out the details, as they always do, whatever the parameters or constraints. Removing as many of those constraints as possible is the job of this bipartisan coalition, Congress, and the rest of the federalism system.
Kent Watkins is Chairman of the National Academy of Housing and Sustainable Development.
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