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Housing Expert Forum: Do alternative forms of homeownership, such as shared equity models and rent-to-own programs, present viable alternatives for future homeownership?

Welcome to the BPC Housing Commission expert forum! This forum is intended to foster interactive and substantive discussion about pressing housing issues. Each month contributors from different parts of the housing sector will be invited to respond to a discussion topic.

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QUESTION: 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?

Federal Engineering of Housing Solutions Won’t Drive Recovery

By Angela Antonelli

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.

Read the full post here.

The Powerful Motivation Factor in Rent-to-Own Programs

By David A. Smith

Seven years after Hurricane Katrina, thousands of homes in New Orleans are still unoccupied, costing the government money and representing negative assets in their communities. Soon they will have to be demolished, if only to protect the city. With upwards of three million homes nationwide in some aspect of foreclosure, and unoccupied, we have a massive deadweight on our communities and on the economy. Yet we cannot simply fling people back into homeownership – both their credit scores and their psyches are scarred – so we need new forms of occupancy that don’t take capital outlays and don’t raise occupancy costs and yet do motivate the occupants to protect the property as if they were homeowners.

Read the full post here.

Experiment on a Level Playing Field

By Mark Calabria

One of the things regularly in short supply in Washington is modesty, and an acknowledgement of the limits of policymakers to forecast the future. A defining characteristic of U.S. housing policy has been the drive toward a single style of homeownership. A model that is increasingly driven by ever higher levels of leverage. One that has heavily rigged the scales in favor of a GSE-driven model.

We should first recognize that the optimal form and variety of modes of homeownership is simply unknowable ex ante. Accordingly the right approach is a level playing field, devoid of subsidies, that allows individuals and institutions to experiment. Ideas that are scaleable will grow without subsidy, if the regulatory barriers that might stand in their way are removed. For instance the ability of banks to invest in the equity of a homeowner would require a considerable change in both the regulatory environment, as well as the regulatory culture. For that reason, innovation may come instead from less regulated financial firms, such as private equity or hedge funds.

Read the full post here.

Housing Options Shouldn’t End With Rental and Ownership Models

By Jeffrey Lubell

The rental and ownership models have been around for a long time and proven to be very durable and attractive to large numbers of Americans. But it’s unrealistic to think that the full spectrum of Americans’ housing needs could be met with only two tenure types. There is a vast space between pure rental and ownership tenures that can and should be filled with different tenure options that meet a wider range of households’ needs. As an option that falls in this interim space, shared equity homeownership deserves significant policy attention and investment.

Read the full post here.

Attitudinal Change Needed to Move Housing Market Towards Normalcy

By Kevin Igoe

Adjustment is part of life. We adjust our education goals, our career plans, our relationship with family and friends and our lifestyle. Sometimes these adjustments are less of a voluntary nature and are made more out of necessity. That necessity is sometimes based on economic standing.

So too it is with homeownership. Our ideas on how to achieve it may need to be adjusted as income levels stagnate. With the homeownership rate continuing to fall, it is clear that single family neighborhoods across America require an attitudinal change by all involved. These neighborhoods and their existing homeowners value stability. Evictions, foreclosures, and empty houses that are slow to sell destroy that stability.

Read the full post here.

Communities Find Success With Nontraditional Forms of Homeownership

By Eileen Fitzgerald

NeighborWorks believes that community stabilization requires a comprehensive approach to housing opportunities, which employs strategies that support traditional and nontraditional forms of homeownership, as well as rental options. This approach includes providing affordable inventory and low-cost accessible mortgage financing.

We certainly support alternative forms of homeownership, like shared equity and rent-to-own, as part of the strategy. Alternative homeownership models benefit people and communities. For generations, families with the resources to do so have lent money so their children can buy homes prior to inheriting wealth. This is an informal shared equity model which can overcome the inheritance gap. Formalized shared equity models or lease-to-own programs provide a way for people with less privileged social networks to achieve homeownership, and provide for long-term affordability, benefiting future generations. Done correctly these models not only provide an affordable homeownership option, they come along with education and support to make sure they are a sustainable arrangement for residents.

Read the full post here.

Habitat for Humanity’s View of Shared Equity Strategies

By Jonathan T.M. Reckford

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.

Read the full post here.

Self-Help Housing: An Alternative for Affordable Homeownership

By Joe Belden

One homeownership alternative is self-help housing, a sweat equity model that enables low-income families to build their own modest houses. In “mutual self-help”, supported by the U.S. Department of Agriculture since the 1960s, a local nonprofit organizes rural low-income families who put hundreds of hours of labor into their own and their neighbors’ homes. Often helped by volunteers, the families work together in groups of eight to ten under the tutelage of a construction expert, who works alongside the families. No one moves in until all units are complete. Permanent fixed-rate mortgages come from USDA’s Section 502 single-family loan program, which is targeted to households below 80 percent of area median income (with 40 percent of loans targeted to below 50 percent of AMI). Participants need good credit to qualify.

Read the full post here.

Homeownership Underlies Neighborhood Stability

By William J. Gilmartin

The nation’s economy is inextricably related to the future of our housing markets and housing finance system. Similarly, stabilizing neighborhoods and restoring the strength of housing markets go hand-in-hand. It is hard to imagine achieving one without the other.

Read the full post here.

Alternative Programs Should Serve Strategic Public Policy Interests

By Kent Watkins

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 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.

Read the full post here.

Shared Equity Offers Greater Economic Opportunity for All

By Bill Kelly and Roger Lewis

Shared equity homeownership is a promising strategy for future homeownership. It has succeeded in both hot and cold markets as documented by Community Land Trusts (CLTs) over the most recent market decline. Despite the financial crisis, most shared equity homeowners have retained their equity gains. Shared equity homeownership can provide homebuyers with a successful homeownership experience, but there must be an adequate supply of homes to meet the demand.

Read the full post here.

Shared-Equity Housing: Scaling Alternative Housing Solutions in Order to Stabilize Families and Communities

By Rachel Reilly Carroll

Over the past decade, our nation’s housing pendulum has swung from an emphatic drive towards homeownership to an overwhelming demand for rental housing. The financial burdens associated with the single-family housing foreclosure crisis and the subsequent tightening of the rental housing market have signaled to the affordable housing industry that a healthy housing environment is one that is diverse and includes a spectrum of housing options tailored to meet different housing needs and markets.

Read the full post here.

Numerous Benefits, One Major Challenge Characterize Shared Equity Mortgages

By Conrad Egan

Shared Equity mortgages work very well at the point of origination and then, separately, at the point of modification.

At the front end, when the outside investor is a nonprofit or government stewarding entity like a land trust, shared equity mortgages are valuable tools to preserve the continuing affordability of homes and to maintain mixed income neighborhoods.

Read the full post here.

Allow American Families to Develop Equity

By Robert J. Cristiano

As the housing crisis in America enters its fifth year, there is no end in sight. Housing starts, the measure of the health of the housing industry, remain moribund. The bottom has not been reached and signs of a recovery are ephemeral. Zillow predicts a decline of “just 0.4%” in the next year as if a further erosion of value is a victory of sorts.

The new home industry has historically been 28% of our GDP. There cannot be a recovery until housing is fixed. This administration has not recognized this paradigm and therefore has done little to fix the housing crisis. There is much they can do without putting the burden on the taxpayer. The Joint Appreciation Mortgage is one such solution.

Read the full post here.

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