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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Today, our economy and housing markets are paying the price for efforts to drive increased levels of homeownership beyond what was truly affordable for many individuals and families. While the goal of homeownership is and should always remain an important part of the American dream, it is not one that should be micromanaged by any level of government. Indeed, as we have seen, such irrational exuberance for driving up the rate of homeownership has led to a very painful and costly economic correction.
There is still much to be learned about the use of alternative forms of homeownership, such as shared equity models, in the future. There are examples of long-term homeownership programs that have worked in higher cost areas in states such as Washington, Colorado, and California to preserve access to affordable homes (see Center for Housing Policy/Cornerstone Partnership). However, the much more pressing challenge now is to address continuing concerns about level of foreclosures and their impact on housing prices. There appears to be much more limited experience or success designing and applying alternative models that work for both owners and lenders when applied to already distressed conditions (see Filene Research Institute).
While viable alternatives are certainly worth exploring, the bigger issue is what is the federal government’s role incentivizing or otherwise promoting the use of such alternative models to stabilize neighborhoods and distressed housing markets. The design and “scale” of such alternative financing models should be left to states and local communities working in partnership with local nonprofits, developers, and investors. The federal government’s role in promoting alternative models for homeownership should be at best restricted to limited resources provided with maximum flexibility and accountability to communities to pilot models and disseminate best practices.
Even more importantly, the federal government must not focus predominantly on single family homeownership but also examine ways in which current policies and programs impede the ability of local communities and the private sector to respond to changing demands for housing. Millennials now appear more interested in rental housing. The aging population and retiring baby boomers will be a significant demographic force shaping housing demand that may include increased demand for multifamily and alternatives to single family owner occupied housing. Housing markets need to be open, dynamic and flexible, and programs like to rent to own could be a good option for some if well designed. If the elderly prefer to age in place and stay in their homes, the federal government should look at ways to break down the silos across federal programs, including Medicare and Medicaid, and give greater flexibility to states to coordinate funding streams and provide services in ways that may best serve the needs of an aging population with the potential to reduce federal entitlement and other program costs.
The best remedy for the stabilization of neighborhoods and housing markets will be a thriving economy with robust growth and job creation. While the housing market is a significant component of our economy, we already know that federal engineering of housing solutions will not drive a recovery. Housing markets will recover when our spending, tax and regulatory policies restore consumer confidence and business investment. The federal government urgently needs to remain focused now on restoring long-term fiscal sustainability. One way it can do so is by supporting greater coordination and flexibility in federal funding to states and communities to explore and apply alternative models to reduce costs and improve outcomes.
Angela Antonelli is a former Chief Financial Officer (CFO) for the U. S. Department of Housing and Urban Development (HUD)
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