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How have shared equity housing models created positive impacts on the supply of affordable housing?

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By David A. Smith

Like the possibly apocryphal patent clerk who in 1905 quit his job ‘because everything had already been invented,’ over the last three decades we who work in American affordable housing have largely stopped inventing tenure forms, ownership models, occupancy agreements, and physical configurations or layouts – this despite rapid fission of the nuclear family into many more acceptable household types.

Ownership of a home offers six conceptually distinctive elements of value:

  1. Physical safety for ourselves, our loved ones, and our possessions.
  2. Security of tenure so that we cannot be abruptly turned into the street.
  3. Controllable occupancy cost so that we can budget our expenditures and not be economically evicted.
  4. Improvability that allows us to maintenance, upgrade, expand or reconfigure the dwelling space.
  5. Equity buildup and appreciation as the home becomes more valuable in nominal currency terms.
  6. Liquidity, through either sale or refinancing, to let us deploy the forced savings of many years.

Not everybody needs all of these all the time; and many households would gladly give up some or all of one elements to get a better deal on others. Examples include:

  1. Post-foreclosure former homeowners, who would love to regain occupancy of the home they have lost, and could earn their way back to ownership through rent-to-own with a protected tenancy and a right to buy at a formula price.
  2. Empty nester elderly, whose children have moved away and who now have extra bedrooms and living rooms they would be pleased to have occupied by trustworthy bright young people who rent space cheaply in exchange for taking care of their elderly hostess’s activities of daily living.
  3. Self-help improvers who would be delighted to spend evenings and weekends working on a property if they knew they would gain ownership elements by doing so. (Though virtually no one is aware of it, this program has existed for many years as USDA’s Section 502 Mutual Self-Help Housing.)

Of course these new hybrid tenure and ownership models face barriers of our own making: local zoning ordinances or occupancy restrictions, building codes with mandatory egress for multiple ‘households’ living in one home, potential challenges of inter-household liability … but the massive emergence of ‘sharing economy’ business models shows that urbanites are prepared to be creative if it’s cost-effective.

The biggest barrier, though, is intellectual: we have to believe it’s possible, and then somebody has to really want to do it.

David A. Smith is the Chairman of Recap Real Estate Advisors.

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