An Alternative Vision for Affordable Housing: Mainstreaming a Third Tenure Option Prepared for Affordable Housing: What’s Next Nationally and in Nashville Vanderbilt University March 2008 George McCarthy The Ford Foundation

Starting points Traditional, bifurcated housing market (owner/renter) does not adequately house the population Traditional, bifurcated housing market (owner/renter) does not adequately house the population Viable alternatives are not part of unified approach to housing the population Viable alternatives are not part of unified approach to housing the population We have not been entrepreneurial in identifying and growing a “third option” We have not been entrepreneurial in identifying and growing a “third option”

Solution Shared Equity Homeownership (SEH): A sectoral approach to effective, permanently affordable housing Shared Equity Homeownership (SEH): A sectoral approach to effective, permanently affordable housing Ultimate goals: Ultimate goals: –A linked system of community-managed affordable & work force housing stocks –Establishing SEH as a superior alternative to fee-simple owning or renting

Tenure types of SEH Sector Deed restricted properties (DR) Deed restricted properties (DR) Community Land Trusts (CLTs) Community Land Trusts (CLTs) Cooperative ownership (COOPs) Cooperative ownership (COOPs) Hybrid models: e.g. MH communities; EAH Hybrid models: e.g. MH communities; EAH

Core Components of SEH Individual ownership and control of units Individual ownership and control of units Permanent affordability— maintained through resale restrictions Permanent affordability— maintained through resale restrictions Asset-building opportunities for owners: modest, but limited Asset-building opportunities for owners: modest, but limited Local stewardship of affordable housing Local stewardship of affordable housing

Scale: The ultimate goal Currently, less than 1% of nat’l housing stock is in SEH Currently, less than 1% of nat’l housing stock is in SEH Meanwhile: 69% H-O; 30% Rental Meanwhile: 69% H-O; 30% Rental Where are we currently seeing prospects for reaching scale in SEH? Where are we currently seeing prospects for reaching scale in SEH? –Irvine, CA (10,000 units in CLT) –Chicago (15,000 units in CLT) –DC (10,000 units in “CLT”) –NYC, DC, multifamily coops (~2-5%) –New Hampshire: ~20% of MH sector

What will it take to reach scale? 1500 CLTs with 10,000 units = 15MM units 1500 CLTs with 10,000 units = 15MM units Conversion of expiring tax credit and other multifamily to COOP or DR condos= 2.5+MM units Conversion of expiring tax credit and other multifamily to COOP or DR condos= 2.5+MM units Deed-restricted HO units = 5+MM units Deed-restricted HO units = 5+MM units Half of MH parks converted to ROCs = 2+MM units Half of MH parks converted to ROCs = 2+MM units

Obstacles to scaling up External: External: –Public acceptance –Market acceptance –Capacity of developers –Public sector support Internal: Internal: –Standardization –Scalable approaches –Limited vision of practitioners –Philosophical/psychological

What are we doing w/CLTs? Acquisition strategies: Acquisition strategies: –Subsidized –Debt financed –Cross-subsidized Broader clientele served: Broader clientele served: –Not just affordable housing –Not just residential Strong linkages b/t public sector and private market players Strong linkages b/t public sector and private market players Better business models Better business models

What are we doing w/DR? Conversion strategies: Conversion strategies: –Using PLR from IRS, three LIHTC projects being converted to DR condos New production: New production: –Multiple jurisdictions using DR strategies to preserve affordable units built under IZ Big challenges: Big challenges: –maintaining stock of DR units –stan

Success key: Making SEH superior Standardizing tools and processes that promote and grow SEH Standardizing tools and processes that promote and grow SEH –Financial tools –Legal tools –Marketing Leveraging opportunities provided by segmentation of market Leveraging opportunities provided by segmentation of market –Purchasing power –Political power Example: CCA Global Partners Example: CCA Global Partners

CCA Global Partners Started in 1984 as cooperative of 13 carpet retailers, grows to 200 w/sales of $800MM by 1990 Started in 1984 as cooperative of 13 carpet retailers, grows to 200 w/sales of $800MM by 1990 By 2004, support 3700 retailers, w/sales of $8.7BB in 15 different industries By 2004, support 3700 retailers, w/sales of $8.7BB in 15 different industries Key—centralized provision of services for members: Key—centralized provision of services for members: –Marketing, branding, warranty programs –Common operating systems –Access to health care, insurance, RE services –Training

Lessons from CCA-GP Success exhibited by growth, not survival Success exhibited by growth, not survival Success predicated on making partners more competitive w/in their context Success predicated on making partners more competitive w/in their context Distinguishes, and elevates, alternative approaches within market Distinguishes, and elevates, alternative approaches within market Manifests opportunities offered through growing collective enterprise Manifests opportunities offered through growing collective enterprise

Applying lessons to SEH How do we make SEH more desirable than both fee simple homeownership and rental? By providing services to SEH members that are not available to other tenure choices: How do we make SEH more desirable than both fee simple homeownership and rental? By providing services to SEH members that are not available to other tenure choices: –Discounted insurance –Bulk heating fuel purchases –Maintenance assistance –Reduction in transaction costs/facilitation of mobility w/in network

Exhibiting benefits of SEH –Benefits to individuals: Asset accumulation Asset accumulation Better housing, amenities Better housing, amenities –Social benefits: More effective use of subsidy More effective use of subsidy  More housing created  Permanent use of subsidy More successful families More successful families More stable neighborhoods More stable neighborhoods

How do we do it? Mainstream treatment of SEH at all levels—buyers, sellers, lenders, appraisers, secondary market; Demonstration of scalability of SEH without the need for more subsidy; Opportunistic action: a solution to foreclosure crisis.

Desired Outcomes SEH viewed as superior good, preferable to other housing types in performance; SEH viewed as superior good, preferable to other housing types in performance; Access to purchase and finance improved; Access to purchase and finance improved; Public, and public sector, view SEH as desirable addition to local housing stock; Public, and public sector, view SEH as desirable addition to local housing stock; Broad participation by private sector Broad participation by private sector

What SEH Sector is doing Leadership development: Leadership development: –NCB Capital Impact; CLT Network; Lincoln Land Institute; CFED; NHI Systems development: Systems development: –CoopMetrics; ROC USA Resource development: sustainable, long-term funding Resource development: sustainable, long-term funding Partnership development Partnership development Outcome and impact measures Outcome and impact measures

Summing Up We cannot rely on traditional methods of development to meet housing needs We cannot rely on traditional methods of development to meet housing needs We need to rethink the way we finance and subsidize affordable housing We need to rethink the way we finance and subsidize affordable housing A third tenure option, SEH, offers the best opportunity to: A third tenure option, SEH, offers the best opportunity to: –Provide high quality affordable and workforce housing in all markets –Make responsible use of public subsidy –Re-engage a broad coalition of public and private sector actors to address local and national housing needs