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Ensuring Long-Term Affordability
Primary Ensuring Long-Term Affordability Wayne Gerami VP of Client Services
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Primary Long-Term Affordability What’s the problem?
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2006-2017 Income vs. Housing Cost
Over these 10 years, income has gone up about 10% while housing costs have gone up over 50%! This has brought house prices from roughly 2x annual income to nearly 4x annual income. Home price data provided by Austin Board of Realtors
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Why is this a problem? Property taxes Austin = 2.3% tax
Primary Why is this a problem? Property taxes Austin = 2.3% tax 1996: $86,000 * 2.3% = $1,978/year = $165/mo 4.5% of income to taxes 2017: $383,000 * 2.3% = $8,809/year = $734/mo 10.8% of income to taxes The low end of the market has gone up even more rapidly… Reality is even worse: $45,000 house now worth $450,000!!!
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Primary Why is this a problem? Resubsidization
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Primary Why? This is “Blank” layout. A block of Body Large feature text could be used for non-bulleted content. A full-frame white background box has been added behind text to create a visual rest or emphasis. — Name of Quoted Person or Publication or other
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Primary Problems are easy… Give me some solutions!
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Title for non-textual content
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There Are Options! Recapture Resale/Retention
Primary There Are Options! Recapture Resale/Retention Traditional HFH model “Shared Appreciation and Repurchase Agreement” (SARA) Soft Second Mortgages NO IMPACT ON TAXES Will the recaptured funds put another family into a home? Hint: No. It won’t. Home must be sold to eligible family At what price? Preset/Restricted Re-subsidize to market YOUR VALUATION WILL BE HONORED BY CAD IF DONE RIGHT
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Long-Term Affordability
Primary Models Deed Restrictions Community Land Trusts (CLTs) Limited-Equity Cooperatives (Co-ops) All aim to achieve one major goal: Long-Term Affordability
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Deed Restrictions Pros Cons Legal precedent (HOAs, condos, etc.)
Primary Deed Restrictions Pros Cons Legal precedent (HOAs, condos, etc.) Straight-forward Easily understandable Favorable tax valuation Alienability of Property Term Limit? 45 years? Complexity for Unusual Developments (Condos) No tax exemptions
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Community Land Trusts Pros Cons Strong protections
Primary Community Land Trusts Pros Cons Strong protections Texas legal precedent Largely in ATX Tax exemption Permanent affordability TX Law is being refined- much better than it was! Some administrative complexity Unusual structure can be daunting for families May require some education of your CAD
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Limited Equity Co-ops Pros Cons Strong protections
Primary Limited Equity Co-ops Pros Cons Strong protections Likely favorable tax valuations Permanent affordability Strong sense of “Partnership” High degree of administrative complexity Unusual structure can be daunting for families Not as clear legislatively in TX May require strong on-the-ground champion families
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Primary Texas Tax Code Topical bullet item.
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Primary TX Tax Code Sec Defines a CLT and declares them eligible for exemptions if they meet the guidelines, which are in Section 373B. — Name of Quoted Person or Publication or other
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Primary Texas Tax Code THE LAW
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Primary CLTs in Code Sec 373B.002 CREATION OR DESIGNATION. The governing body of a municipality or county by ordinance or order may create or designate one or more community land trusts […] to operate in the municipality or county. — TX Tax Code
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CLTs in Code Sec 373B.006 Unit breakdown must be as follows:
Primary CLTs in Code Sec 373B.006 Unit breakdown must be as follows: At least 25% at/below 60% MFI No more than 20% at/below 120% MFI The rest at/below 80% MFI Basically, 25/55/20 for 60/80/120 — TX Tax Code
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Primary Valuations CLTs, Sec Sections (c),(d) deal with CLTs directly- the chief appraiser SHALL take into account restrictions that reduce the market value of the home. — TX Tax Code
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Primary Valuations Deed Restrictions, Sec 23.21(e) If the property was sold by a non-profit to an eligible family, then “the chief appraiser shall take into account the extent to which that use and limitation and any resale restrictions or conditions applicable to the property established by the organization reduce the market value of the property.” — TX Tax Code
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Primary Valuations Market Data Method, Sec (d) “Whether a property is comparable to the subject property shall be determined with regard to […] the existence of […] deed restrictions or other legal burdens affecting marketability.” If your Chief Appraiser says the Market Data indicates that a CLT/deed restricted property should be appraised closer to market, point here! — TX Tax Code
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Primary What does this mean? It’s not a tax exemption. It is a cap on taxable value. If the restricted resale price is $150,000, then the taxable value is $150,000, even if the house is otherwise worth $9,000,000.
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Primary Tax Exemptions Tax code allows for exemptions but they are handled on a local/municipal basis. Austin offers some, but even that varies. Usually only on the land, not the improvement.
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Calculating an Affordable Sales Price
Primary Calculating an Affordable Sales Price Indexed Fixed Appraisal Based Hybrid Always lower of the ASP or market, in case market drops! How should you set the price for the second buyer at the time of resale?
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Indexed & Fixed Indexed Fixed MFI/Inflation/etc. Simple to calculate
Primary Indexed & Fixed Indexed Fixed MFI/Inflation/etc. Simple to calculate Generally trends close to income- or it is income! May actually be greater than market. Index may not trend with target incomes Easiest to calculate, whenever Helpful with CAD Steady increase Good control Unrelated to any market factors Community investment carries no bearing
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Appraisal & Hybrid Appraisal Hybrid
Primary Appraisal & Hybrid Appraisal Hybrid If appraisal went up 50%, ASP goes up 40% Requires appraisal to calculate Generally greater return for family Still a recapture-based subsidy! “Lesser of” various indexes Capital improvements? Multiple indexes
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Primary Austin Deed Restriction -> Community Land Trust 1.5% Fixed Appreciation Capital Improvements IF pre-approved
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Why? Easiest to explain to Travis CAD and appraiser Simple to explain
Primary Why? Easiest to explain to Travis CAD and appraiser Simple to explain Simple to calculate Roughly trends with income over past 10 years in Austin 1.46% avg annual increase since 2007 Compliant with conventional financing restrictions
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Primary Additional Resources If you’re going to read one thing, start here: Preservation of Affordable Homeownership: A Continuum of Strategies by Rick Jacobus and Jeffrey Lubell Lots more at
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Primary Thank you! Wayne Gerami VP of Client Services
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