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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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.
Families provide 65 percent of the construction labor on their homes, spending long hours after work and on weekends to complete foundations, framing, windows, siding, roofing, painting, and landscaping. Contractors provide skilled electrical, plumbing and drywall. Family contributions often total 1,000 hours or more and may range up to 1,500 hours.
This is not a high volume program, but it could be. Total production from 1966 through 2011 is 46,870 self-help homes built, with total USDA mortgage financing of $2.974 billion. In 2011 there were 1,015 homes built with an average mortgage of $137,900. These loans are repaid to the federal government with interest. Delinquency and foreclosure rates have been much better than subprime mortgages, even in the current recession and with borrower incomes averaging about $27,000. With a larger self-help and USDA Sec. 502 single-family direct loan program — including urban and suburban versions — we might have had fewer subprime, predatory loans.
In addition to affordable homes, self-help housing also builds stronger neighborhoods, families, and assets. The program is not easy; giving up one’s free time to do physical labor is difficult. But the result is homeownership achieved, wealth created, and communities built. A Housing Assistance Council study supported by the Annie E. Casey Foundation found that self-help builders moved into their homes with an average of more than $26,000 in initial home equity. Self-help forms communities based on hard work, mutual support, and long-term stability. Self-help homebuilders also learn construction skills and know how to repair their houses. They know where the studs in the wall are because they put them there.
Mutual self-help has also been very successful in boosting minority homeownership in rural areas. Minorities are about 18 percent of the national rural population, but 58 percent of all USDA self-help residents.
USDA and the Obama White House have unfortunately proposed deep cuts in the small self-help program. Congress has rejected the cuts and expressed strong support for the program.
Joe Belden is Deputy Executive Director of the Housing Assistance Council
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