Rachel Reilly Carroll is writing in place of Michael Bodaken for this month’s forum.
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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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.
Affordable housing solutions are generally thought of as being either rental or homeownership. However, we do ourselves – and the families we serve – a disservice when we fail to recognize that there are viable housing options that lie somewhere in the middle of the housing spectrum. Shared-equity housing – community land trusts (CLTs), limited-equity cooperatives, and deed-restricted affordable housing – preserves affordability and represents a “third housing platform” that provides a middle ground between renting and owning.
Most forms of shared-equity homeownership opportunities are affordable because the cost of land is removed from the cost of housing. Often the cost of land acquisition significantly increases development costs, which ultimately impacts housing prices. Reducing the cost of development is key to ensuring affordability. Shared-equity homeowners purchase homes at a reduced, affordable rate because the final housing price only accounts for the improved asset – the home.
In addition to preserving affordability, shared-equity housing provides stability for families and communities. At the peak of the recent housing crisis, conventional market-rate homeowners were 10 times more likely to have gone through foreclosure proceedings compared to CLT homeowners. This strong performance can be attributed to the long-term vested interest of CLT organizations whose work cultivates successful homeowners through supportive actions (housing counseling, safe lending products, etc.). This stewardship promotes civic engagement, creates a sense of community for families, and brings stability to neighborhoods in both weak and strong housing markets.
Taking shared-equity housing to scale requires both public and private sector participation. For example, local governments can promote affordable, transit-oriented housing by structuring long-term ground leases for shared-equity housing on government-owned land proximate to public transit, and corporations entering into neighborhoods can donate land or subsidize purchase costs for shared-equity workforce housing that serves their employees.
For more than three decades, the Institute for Community Economics (ICE) has financed shared-equity housing through ICE’s revolving loan fund, which is capitalized by socially motivated investors. ICE recently helped to finance a new transit-oriented, shared-equity community that provides homeownership opportunities for working families in Portland, Oregon. Over the years, ICE has witnessed the positive impact of shared-equity housing from coast to coast, in good economic times and bad.
Shared-equity housing preserves affordable homeownership and allows current and future owners to benefit from a share of any appreciation in the home’s value. In a cost-constrained environment, shared-equity housing presents a long-term solution for affordable homeownership, providing generations of families access to affordable housing and opportunities to build household wealth.
Rachel Reilly Carroll heads Investor and Borrower Relations for the Institute for Community Economics, an affiliate of the National Housing Trust
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