Shared Equity Housing and the DC Region Brett Theodos January 17, 2018

The Need

No populous county in the United States has enough affordable rental units for its extremely low-income households With federal rental assistance Units per 100 extremely low-income renter households 20 40 60 80 100 Source: Poethig et al., Urban Institute

Rents are growing faster than incomes Median Rent vs. Household Income, 1988-2015 Nominal dollars, indexed to 100 260 240 220 200 180 160 140 120 100 Median Rent, SA and Indexed Median Household Income, Indexed 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 Sources: Goodman et al. (U.S. Census Bureau Housing Vacancy Survey, U.S. Census Bureau Current Population Survey (CPS), and Urban Institute calculations .)

Most Americans have little to no liquid wealth Housing challenges linked to trends in income & wealth: Most Americans have little to no liquid wealth Source: Hacker et al. 2011

Reasonable lending standards The credit box has remained tight after the crisis Default Risk Taken by the Mortgage Market, 1998Q1–2016Q3 Total default risk Percent 18.0 16.0 Reasonable lending standards 14.0 12.0 Product risk 10.0 8.0 6.0 Borrower risk 4.0 2.0 0.0 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Sources: Goodman et al. (eMBS, CoreLogic, HMDA, IMF, and the Urban Institute.)

Homeownership by race/ethnicity Source: Hendey 2017

An east-west racial divide White Black Hispanic Share of Population by Race or Ethnicity by Ward, 2010–14 Source: American Community Survey tabulated by NeighborhoodInfo DC Source: Tatian

Households by income Source: Tatian

Homebuyers of color have limited choice White Hispanic Black Share of Single-Family Homes and Condominiums Sales by Census Tract Affordable to First-Time Home Buyers at Average Household Income, 2010–14 Source: American Community Survey tabulated by NeighborhoodInfo DC and DC Office of Tax and Revenue Source: Tatian

Low-cost rental housing disappearing in DC Renter-occupied units (1,000s) 180 160 140 120 100 80 60 40 20 Monthly rent ($2012) $1,500 or more $1,000 to $1,499 $800 to $999 $700 to $799 $500 to $699 Under $500 2005 2006 2007 2008 2009 2010 2011 2012 Source: Tatian

Homeownership out of reach for many Home sales affordable to 1st time buyers in 2011 Software developer (f/t) inc=$110,000 / max price=$407,000 46% 99% Food service mgr (f/t) + office clerk (p/t) inc=$75,000 / max price=$278,000 19% 75% Preschool teacher (f/t) + son works (p/t) inc=$43,500 / max price=$161,000 3% 11% Washington, DC Wards 7 & 8 Building cleaner (f/t) + food service (p/t) inc=$38,900 / max price=$144,000 1% 4% Source: Tatian

Shared Equity Housing

An intro to shared equity housing Allows income-eligible families to purchase homes at below- market prices In return for subsidized purchase, the owner’s capital gains from resale are limited, creating a lasting stock of affordable owner-occupied units 3 programmatic models: Community land trusts Resale-restricted, owner-occupied houses or condominiums with affordability covenants (e.g. inclusionary zoning programs) Limited equity cooperatives

5 resale formula examples San Francisco: set with a formula that indexes sales price to the area median income King County: based on changes to the average of the Seattle metropolitan area’s median income and a local real estate index Atlanta (Wildwood): a fixed maximum annual increase in share price for each year Davis CA (Dos Pinos): share prices to increase annually by the prime rate at the beginning of the year Duluth (One Roof Community Housing): sellers retain 30 percent of the market appreciation of the property Source: Temkin, Theodos, Price 2013

Subsidy levels In a 9-site study (including DC), They received, on average, 39 percent of its value in subsidies Avg. unrestricted market value of purchased shared equity homes: $241,000 Avg. subsidy: $94,000 Avg. down payments: $11,000 Avg. amt. financed: $138,000 (57 percent of the unrestricted market value) Source: Theodos et al. 2017

Wealth creation $25,000 Median appreciation realized by seller Median total of principal paid on mortgages (not including downpayment) $20,000 $15,000 $10,000 $5,000 $0 Atlanta Boulder Burlington Davis Duluth San Francisco Source: Temkin, Theodos, Price 2013

Wealth creation (cont’d) 70% Program IRR 60% 10-year Treasury Bonds IRR S&P 500 Index Fund IRR 50% 40% 30% 20% 10% 0% King County Burlington San Francisco Davis Duluth Boulder Atlanta Source: Temkin, Theodos, Price 2013

Affordability preservation upon resale 100% Median income needed at 90% purchase Median income needed at resale 80% 70% 60% 50% 40% 30% 20% 10% 0% % AMI Boulder Burlington Davis Duluth King County San Francisco Atlanta Source: Temkin, Theodos, Price 2013

Security of tenure: seriously delinquent 9% % Currently seriously 8% delinquent 7% % Currently seriously delinquent in county 6% 5% 4% 3% 2% 1% 0% King County Burlington Davis Duluth Boulder Atlanta Source: Temkin, Theodos, Price 2013

Mobility 45% % moved % expected move 35% 30% 25% 20% 15% 10% 5% 0% King County Burlington Davis Duluth Boulder Atlanta Source: Temkin, Theodos, Price 2013

2017 study with comparison group Shared equity buyers had average incomes at baseline of 51% of the AMI, lower than many homeownership supports •Shared equity purchasers had lower mortgages and monthly payments than comparable buyers Shared equity purchasers performed largely the same as comparable buyers in terms of their other financial and neighborhood outcomes

Concluding thoughts Shared Equity homes largely retain affordability and create wealth, without limiting mobility or creating instability …But these programs must balance competing objectives of affordability preservation and wealth creation while taking into account local dynamics …And creating homeownership in an expensive market is expensive—big commitments are needed …But preserving affordability is cheaper than recreating it …Can work with rental, ownership, and commercial units

Resources Case studies and outcome assessments here: https://www.urban.org/policy-centers/metropolitan-housing- and-communities-policy-center/projects/shared-equity- research