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

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By Michael Bodaken & Andy Slettebak

Shared equity structures leverage three primary positive impacts: The preservation of affordability, the retention of government support and the building of household balance sheets.

Shared equity housing commonly falls into three categories:

  • Limited-equity cooperatives (LECs)
  • Community land trusts (CLTs), and
  • Deed-restricted housing (DRH).

These are categories of convenience and not absolutes – for example, an LEC/CLT hybrid structure puts cooperatively owned improvements on CLT owned land. Key to shared equity is that ownership is shared between resident and a community entity. (Davis, Encyclopedia of Housing, 2012)

Affordability is preserved as shared equity structures control resale pricing from buyer to buyer. CLTs use a land lease between land and improvement owner to set prices that are affordable for all subsequent households. LECs structure property ownership within a single corporation with resident households as share buyers. DRH embeds pricing controls in deed covenants. Typically, shared equity structures cap a seller’s appreciation by using appraised values or economic indices to guide resale pricing.

Controlled resale pricing means that the original government support is retained and future homeowners benefit. Regardless of source (e.g. public funds, donated land, inclusionary zoning), resale pricing formulas seek to balance the preservation of affordability with the ongoing retention of the original government funding. Without appreciation caps, homes inevitably become unaffordable and new funding from government sources must be found.

The potential of these linked impacts is significant. Research on seven shared-equity programs by the Urban Institute (Balancing Affordability and Opportunity, October 2010) demonstrated that affordability that ranged from 35% to 73% AMI at initial purchase was maintained for subsequent homebuyers, just as the need for additional subsidy was minimized. The Center for Housing Policy (Lubell, 2011) has shown that over a span of 30 years and with six to twelve years between sales, a shared equity program can serve two to three times as many families as the same subsidy investment in a conventional down payment program.

The third positive is improvement of the household balance sheet. Between 2006 and 2011 when real net household wealth fell by 57% (Joint Center of Housing Studies, Harvard University in “Evidence Matters”, HUD, 2012) there is evidence that shared equity structures boosted housing equity. The Urban Institute’s research found a median annualized rate of return from 7% to 60% on a shared equity homeowner’s investment for down-payment and closing costs. Delinquency and foreclosure rates remained well below national averages. After five years 91% remained homeowners, far more than the 50% national norm for first-time low-income homebuyers. Separate National CLT Network research conducted between 2008 to 2010 found members’ foreclosure rates were 10 times lower than those measured nationally for all homeowners (Thaden, 2011).

While shared equity models have proven themselves over time, the impact of shared equity is far from its actual potential. National estimates count 425,000 LEC units, 100,000 to 300,000 DRH, and 250 CLTs operating today across 46 states.

As the gulf between rental and ownership widens, shared equity housing offers policymakers a clear way to bridge the gap.

Michael Bodaken & Andy Slettebak represent National Housing Trust.

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