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

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By Jeff Lubell

Shared equity models fill a vital place in the housing continuum between rental housing and traditional homeownership. Shared equity homeowners receive most of the benefits of traditional homeownership, including: security of tenure (no one can force you out so long as you pay your mortgage on time), ability to modify the home to fit your needs, increased affordability over time (due to fixed mortgage costs) and the ability to build wealth through the forced savings and high leverage of a 30-year fixed rate mortgage. At the same time, shared equity homebuyers exchange the ability to make a windfall if home prices go through the roof for a more affordable initial home price and a more modest (but also more predictable and reliable) opportunity to benefit from home price appreciation. This makes shared equity homeownership more affordable than traditional homeownership, but also different enough from traditional homeownership that it merits its own place on the continuum of tenure options.

The individual benefit of a more affordable path to ownership is matched by a societal benefit of creating an affordability resource that help one generation of homeowners after another. This is because shared equity models can, when effectively implemented by government or nonprofit programs, create affordable housing resources that remain affordable over the very long term (perhaps even permanently). By using the program’s share of affordability to maintain affordability to the next owner, shared equity programs create durable long-lasting affordability assets, even while providing owners with a sizable return on their investment.

Unfortunately, shared equity models have not yet been implemented at a large enough scale. This is due in part to a shortage of subsidy to create the initial affordability and in part to insufficient use of shared equity mechanisms by existing programs. Even without new funding, we could greatly expand the stock of shared equity homes if: (a) local affordable homeownership programs used shared equity models whenever they provided large per-household levels of assistance; and (b) inclusionary housing programs required affordability of for-sale units to be maintained over the long-term through shared equity models.

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Jeff Lubell represents Abt Associates.

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