1. Asset Building and Shared Equity Homeownership
Jeffrey Lubell, Executive Director
Center for Housing Policy
April 14, 2010
Webinar

2. Homeownership at a crossroads
Subprime and foreclosure crisis
Downsides of traditional homeownership model
Community impacts
Opportunity for new thinking and new approach
What if a safer model for affordable homeownership could be found?
Lower risk of foreclosure / equity loss
Leverage private markets
Strong asset-building results

3. Shared equity homeownership
Basic model
Deep subsidy
Resale price restrictions
Monitoring
Applications
Community land trusts
Deed restrictions
Limited equity cooperatives

4. Equity sharing models Share of home price appreciation
e.g., resident retains 25% of appreciation
Area Median Income
Resale price rises at same rate as incomes
Affordable Housing Cost
Home always sold for price affordable to target buyer

5. Subsidy Retention Example
Initial Purchase
Market Value = $200,000
$50,000 subsidy brings price down to $150,000, affordable to family at target income range
Family contributes $10,000, with 30-year fixed mortgage for $140,000
Affordability at Resale
Home prices have increased 25% over a five-year period, so market value = $250,000
Incomes have gone up 15%, so target family can afford a home valued at $172,500
Asset Accumulation
Family sells for $172,500, with transaction costs of $5,000
Family gains $17,500 in home price appreciation plus approx. $10,000 in equity built up through principal paydown = $27,500 gain

6. Benefits of SEH Current and future affordability
Lower risk to homebuyer
Protection from market declines
Opportunity for individual to generate large return on initial investment
Community benefits from affordable housing in key locations
Buying power of subsidy preserved

7. The Asset Building Potential of Shared Equity Homeownership
Rick Jacobus, NCB Capital Impact

8. Ownership Gap

9. Wealth is the key barrier2%
have sufficient savings
But the wealth gap is both an effect and a cause of the homeownership gap. Wealth barriers (including high debt and lack of savings are by far the most significant barrier to homeownership for today’s renters.
While 72% of renters suffer from both lack of income and lack of wealth, only 2% have enough income but not enough wealth while 26% have enough income but lack savings.
Renters who can’t afford ownership
Source: Savage 2009

10. Overcoming barriers Strategy % of Renters who can afford to buy
Current mortgage requirements
7.6
3 percentage point interest rate subsidy
8.3
No down payment requirement
9.2
$10,000 purchase assistance
19.5
The census bureau studied the range of potential strategies to see which would make the most difference in the ability of lower income and minority renters to access homeownership. They found that reducing mortgage rates by as much as 3 percentage points had virtually no impact on the number of renter families that could afford ownership while removing all downpayment requirements would increase the number of renters who could qualify for ownership by only 2 percentage points. Providing purchase subsidies on the other hand had a more dramatic impact. A subsidy of $10,000 would increase the number of renters who could qualify for ownership by 12 percentage points - roughly 5 million families. This study found that purchase subsidies of $10,000 would make homeownership attainable for 768,000 additional African American families and 587,000 Hispanic families - which would cut the racial homeownership gap by about one third.
In light of this research, you might be surprised to learn that, while we spend billions of dollars annually on programs to expand homeownership only a very small fraction is currently invested in purchase subsidy programs. This is so even though purchase subsidies are currently the dominant strategy for supporting affordable rental housing.
The reason for this seems to be that purchase subsidies are more expensive – at least when they are structured as grants to homebuyers. We now routinely preserve the affordability of subsidized rental housing so it can serve one generation of tenants after another but, for the most part, we make very little effort to preserve our investment in homeownership.
Source: Savage 2009

11. Shared Equity Homeownership
Create Affordability: Invest significant public subsidy
Preserve Affordability: Share in price appreciation
(more than downpayment assistance)

12. Research Question
How does this form of ownership perform as an asset building strategy for homeowners?

13. Champlain Housing Trust
Developed 424 homes since 1984
Nearly all buyers <80% of AMI

14. Data 205 resales of CHT homes
Exit interviews, review of files and follow up interviews (as needed)
Ongoing affordability
Homeowner returns from sale
Subsequent housing tenure

15. Affordability 5.65% Affordable to (% AMI) Occupied by (% AMI)
Initial Sale
56.6%
68.6%
Resale
53.4%
67.1%
5.65%
Affordability Gain

16. Asset Building 5.4 Years Average tenure $2,300 Initial Investment
$7,889 Appreciation
25% Annual Rate of Return
$4,294 Debt Retirement
$1,348 Capital Improvement
$13,530 Total Equity at sale

17. Home Equity Percent of Asset Poverty Level
284%
At time of sale
This is impressive given that 70% of families in asset poverty remain in asset poverty 5 years later.
58%
At time of purchase
Asset Poverty Level

18. 7 year rate for HOME/ADDI Buyers in Northwest
Foreclosures
CHT
629
sales 9
Foreclosures
1.43%
Cumulative Rate
Comparison
1.4%
Freddie Mac 10 Year Rate
5.1%
Freddie Mac > 90% LTV
2.47%
7 year rate for HOME/ADDI Buyers in Northwest

19. Champlain Housing Trust
Retention
Precent of low income first time buyers that returned to renting within 5 years:
Reid (2005)
53%
Champlain Housing Trust
<10%

20. Subsequent Tenure

21. Owner Equity as a % of Unrestricted Market Value9%
At time of sale
50% of sellers could afford a comparable home with no increase in income
CHT Home prices grew at less than half the market rate but leverage allowed home equity to grow faster than the market - allowing low income families to catch up.
On average, CHT homeowners would need to increase their income by only 4.3 percentage points relative to the AMI in order for their CHT equity to be sufficient for them to afford to buy a comparable market-rate house without assistance. 2%
At time of purchase

22. $0 Additional public subsidy needed to offer this same opportunity to future buyers

23. Conclusions
We can preserve affordability and still offer life altering wealth building
Shared equity homeownership can offer a predictable path for asset building

24. Asset Building and Shared Equity Homeownership
CLT 101
Asset Building and Shared Equity Homeownership
April 14, 2010
Jeff Corey, Northern Communities Land Trust
Jeff Corey - Northern Communities Land Trust

25. CLT 101
Creating affordable homes and strengthening communities through the wise stewardship of land and resources
Jeff Corey - Northern Communities Land Trust

26. Who We Are Non-profit 501(c) 3 corporation,
CLT 101
Who We Are
Non-profit 501(c) 3 corporation,
governed by Membership and Board
of Directors
Founded in 1990
Real estate developer in neighborhood
revitalization initiatives
Provide affordable housing for low and moderate income households
Community Land Trust—work to provide affordable housing now and preserve the affordability of the housing for future generations
Jeff Corey - Northern Communities Land Trust

27. CLT 101
NCLT Homeownership
Qualified, income-eligible buyers can purchase high quality homes at affordable prices
In exchange, Land Trust homeowners agree to ‘pay it forward’ and pass the bargain price they received on to the next owner of the home
99 year, renewable lease formalizes the agreement
Resale price determined by a resale formula in the lease that ensures permanent affordability of the homes
Jeff Corey - Northern Communities Land Trust

28. Northern Communities Land Trust Affordability Statistics
CLT 101
Northern Communities Land Trust Affordability Statistics
There are 190 permanently affordable Land Trust homes in Duluth.
Average yearly income of a Land Trust homebuyer was $30,515 in 2009.
Average Land Trust buyer earns about 60% of median income.
Average purchase price for a Land Trust home is $88,530; average value is $131,777.
49 homes have resold to date, re-using over $2.3 million in state, private and federal subsidies.
Jeff Corey - Northern Communities Land Trust

29. Northern Communities Land Trust Resale Statistics
49 homes have resold to date
re-using over $2.3 million in state, private and federal subsidies.
All homes re-sold to income eligible households
80% of sellers have moved to market rate homeownership
Urban Institute study shows Land Trust is preserving affordability of homes and our homeowners are building assets.

30. Original Purchase Price
CLT 101
NCLT Resale Example
2010
1999
$64,000
Market Value
$112,000
Market Value
- $12,000
Community Investment
- $33,201
Community Investment
= $52,000
Original Purchase Price
= $78,799
Resale Purchase Price (includes new windows and furnace for 8,500 and realtor commission of $4,599)
Jeff Corey - Northern Communities Land Trust

31. First Homeowners Specifics
CLT 101
First Homeowners Specifics
1999: Michael and Charlotte, son Peter (age 4)
Michael worked as assistant manager in produce department of local food co-op. Char working on undergraduate degree in social work.
44% of area median income, $17,199/year
Received assistance of $12,000 subsidy to lower the purchase price of the home. $4,000 worth of rehab done to the home after closing—not as much as we would have liked to do, but what we had funds for at the time.
Jeff Corey - Northern Communities Land Trust

32. First Homeowners Resale Specifics
2010: Michael, Charlotte, Peter & Kylie (age 6)
Michael now manager of produce department, earning 2 X the salary as in Charlotte finished her undergraduate and masters degree in social work, now employed by St. Louis County as a social worker.
Stable, affordable housing for 11 years allowed them to more easily increase income and prepare for market rate homeownership once ready.
Net profit at resale of $23,600 ($13,800 share of appreciation + $10,800 payment on principal - $1,000 closing costs)

33. 2nd Homeowner 2010: Karen, single.
Karen is employed as an administrative assistant in a law firm.
$27,040/year which is 64% of area median income (50% of AMI for a household of 3 as were the Karsh’s)
Received $33,201 discount in purchase prices as well as new windows and furnace.

34. LAND TRUST RESALES: Preserving affordable homes for the future.
CLT 101
LAND TRUST RESALES: Preserving affordable homes for the future.
2006
2009
$81,000
Market Value
$92,000
Market Value
- $27,000
Community Investment
- $23,000
Community Investment
= $58,000
Original Purchase Price
= $65,000
Resale Purchase Price
Jeff Corey - Northern Communities Land Trust

35. First Homeowners Specifics
CLT 101
First Homeowners Specifics
2006: Rain and Kris, Miles (age 2)
Rain worked in grocery store. Kris worked as a health care worker.
57% of area median income, $28,794/year
Individual Development Account participant—down payment of $1,850
Received assistance of $23,000 subsidy to lower the purchase price of the home. $20,000 worth of rehab done to the home after closing.
Jeff Corey - Northern Communities Land Trust

36. First Homeowners Resale Specifics
2009: Rain and Kris, Miles (age 5), Josie (age 2)
Rain still works in grocery store. Kris works part time as a health care worker.
Stable, affordable housing for 3 years. During this time household income increased to $37,000. Household size also increased. These were the reasons for moving.
Net profit at resale of $2,831 (loan for closing costs of $4,000 at original purchase was paid off at resale)

37. 2nd Homeowner 2009: Kevin, single.
Kevin is employed by Garda—armored truck transport service ocmpany.
$23,000/year which is 55% of area median income
Received $27,000 discount in purchase price.

38. Questions?