Shared equity initiatives for low income families who buy homes below market value deliver sustainable homeownership solutions, low delinquency and foreclosure rates, and families who sold shared equity homes were able to use sales proceeds to purchase market-rate homes, according to Urban Institute. Homebuyers earned competitive returns at the same time the homes remained affordable to lower income buyers over time. The group recently published a study of seven shared equity programs with a focus on preserving affordability, personal wealth creation, security of tenure, mobility.
The report presents outcomes for seven shared equity programs: the Champlain Housing Trust (CHT), located in Burlington, VT; Northern Communities Land Trust (NCLT) in Duluth, MN; Thistle Community Housing in Boulder, CO; the Dos Pinos Housing Cooperative in Davis, CA; Wildwood Park Towne Houses in Atlanta; A Regional Coalition for Housing (ARCH) in eastern King County, WA, and the San Francisco Citywide Inclusionary Affordable Housing Program.
Housing subsidy dollars are maximized when monies are applied to affordable housing initiatives, according to the report:
“By creating a stock of homes that resell for prices that remain within the reach of lower income households, shared equity programs can serve a larger number of families for the same amount of subsidy dollars, when compared to programs in which families are provided grants to purchase their homes and then allowed to pocket these public subsidies and a hundred percent of their property’s capital gains when they resell.”
Purchasers’ household income fell within a range of 35 – 73 percent of HUD-determined area median family income, with a high share of first-time homebuyers. Subsidized programs using shared equity models allowed homeowners to accumulate assets. At the same time, the programs created a pool of affordable housing units that will serve future needs of lower income homebuyers. Ninety-one percent were still homeowners after five years. Resale motivations and frequency mirror circumstances as other homeowners. Homebuyers move in response to family, lifestyle, and employment changes.
More than two thirds of the homeowners who sold shared equity properties moved into owner-occupied, market rate housing.
“In all seven programs the median rate of return realized by resellers ranged between a low of 6.5 percent at Dos Pinos to a high of 59.6 percent at ARCH. The median rate of return for resellers in all programs except for Dos Pinos was greater than the return that sellers would have realized if they had rented a unit and invested their down payment in either the stock market or purchased a 10-year Treasury bond at the time that they purchased their home. Had resellers invested their down payment amount in an S&P 500 index fund, they would have earned a median return ranging from a low of -0.1 percent in Thistle to a high of 10.6 percent in Dos Pinos. A comparable investment in 10-year Treasury bonds would have yielded a return, at the median, between 4.4 percent (in San Francisco) and 7.8 percent (in Dos Pinos).”
Despite homeowners’ low income levels, few loans are in delinquency or foreclosure. There are no delinquencies in the two cooperative programs. Delinquency rates in the other programs range from 0.4 to 2.7 percent. In every program but one, foreclosure rates fell below their surrounding areas in 2009. Both limited equity cooperatives are unscathed by foreclosure.
Increasingly, housing market analysts question the benefits of homeownership for low income families. Shared equity programs administered with an eye to affordability offer low-income families financial benefits of homeownership with reduced risk of foreclosure.
Read the full report here:
Balancing Affordability and Opportunity: An Evaluation of Affordable Homeownership Programs with Long-Term Affordability Controls
(Frances Flynn Thorsen is a regular contributor to Real Estate Economy Watch. This article is reprinted from REEW.)