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 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.
Let’s say you are interested in a housing option that provides you with some ability to control your physical environment (i.e., to remodel the kitchen or add a screened-in porch) as well as the ability to stay as long as you like without worrying about being displaced, the ability to largely fix your housing costs at a single point in time (avoiding large increases each year) and the ability to have a portion of your housing payment each month go towards savings. Sounds like homeownership, right?
But what if you cannot afford to buy a decent-quality home in your community or are worried about the substantial risks of a highly leveraged purchase and putting all your asset eggs in one asset class? We can certainly say sorry, you can’t have those other things you want because you don’t have the money or the tolerance for risk. Or we could offer you a shared equity home, which has all of the attributes described in the prior paragraph, as well as a more affordable up-front home price and much lower risk (due to a below-market purchase price).
In exchange for these benefits, the shared equity buyer gives up the ability to gain a windfall if home prices go through the roof. They still have a substantial ability to build assets – as confirmed by an <a href=”http://www.urban.org/sharedequity/”>Urban Institute evaluation</a> – but not the ability to hit the jackpot if real estate prices spike faster than incomes.
This arrangement is not for everyone. But as the many successful shared equity programs demonstrate, there are many households who will agree to this deal and they ought to have that option.
Is scale a problem? Absolutely. Producing these units generally requires a direct subsidy or an indirect subsidy such as an inclusionary requirement or incentive. But precisely because public funds are limited, it is reasonable to ask the beneficiaries of any large homeownership subsidies (whether direct or implicit) to agree to a shared equity model where they share the benefits of home price appreciation with the program sponsor. Because of this equity sharing, the home stays affordable to one generation of homebuyer after another, substantially expanding the number of households who can be assisted with limited funds.
The shared equity model does not fit everywhere. But I do believe it ought to be the default choice for delivering homeownership assistance any time large public subsidies (or implicit subsidies such as inclusionary housing) are involved. (By default option, I mean that communities would have the option to adapt or drop shared equity requirements in markets where it would not be successful.) Promoting this model as the default choice for the expenditure of existing public funds would have little or no cost above what we are already expending and would allow us to help hundreds of thousands of additional families over the long-term at current funding levels.
Jeffrey Lubell is Executive Director of the Center for Housing Policy.
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