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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The foreclosure crisis, economic recession and continued weakness of the U.S. housing market have demanded careful reconsideration of which homeownership tools and models can most effectively broaden access to responsible homeownership while also enhancing market stability. Shared equity/appreciation strategies have become increasingly important to Habitat for Humanity and other affordable homeownership providers as means to leverage first-time homeownership, to reduce the nation’s stock of vacant properties and to extend the long-term impact of public and private sector investment in affordable homeownership.
According to Harvard University’s Joint Center for Housing Studies, more than 20 million U.S. households were severely cost burdened in 2010, meaning that they spent more than half of their incomes on housing—leaving less for food, clothing, education and other basic needs. Housing costs soared even as household incomes continued to decline. Habitat and other affordable housing producers assemble resources from foundations, corporations, congregations, individuals and government programs to bridge this persistent affordability gap by providing subsidies that reduce the cost of homeownership to individual families.
The subsidies enable Habitat to create mortgages that are not to exceed 30 percent of a household’s monthly income. This limit on cost helps homeowners build a foundation for long-term financial stability. Financial literacy and homeownership education opportunities also help Habitat partner families remain successful and in their homes—even as the recession has left many of their neighbors struggling with foreclosure.
Shared equity/appreciation models enable Habitat affiliates or the communities in which they work to retain or recapture the benefits of public and private subsidies that support access to affordable homeownership. Through a variety of approaches, including subordinate (“silent second”) mortgages, deed restrictions and community land trusts, Habitat partner families set aside a portion of their home’s equity as subsidy for future low-income households, enabling the initial investment to serve more families over longer periods of time.
Habitat has traditionally viewed asset building for homeowners as a central feature of our mission. While this is still crucial in our efforts to support families, the state of the housing market and the broader economy demand that scarce public and private affordable housing resources be used in ways that create the greatest impact over the long term. Shared equity strategies serve both goals, allowing Habitat partner families to benefit from the growth of their largest asset while reserving a portion to maintain access to homeownership for future low-income families. Over time, such approaches will increase access to affordable homeownership, strengthen and support financial sustainability of affordable homeownership providers and create stronger, more resilient communities and housing markets.
Jonathan T.M. Reckford is Chief Executive Officer of Habitat for Humanity International.
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