Long-term affordable homeownership: Program design and research findings Brett Theodos February 12, 2015 URBAN INSTITUTE
AN INTRO TO LONG-TERM AFFORDABLE HOMEOWNERSHIP URBAN INSTITUTE
Shared Equity Homeownership: A Quick Intro • 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 URBAN INSTITUTE 3
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 URBAN INSTITUTE 4
AFFORDABILITY PRESERVATION VS. WEALTH CREATION URBAN INSTITUTE
Importance of wealth creation • Homeownership critical to wealth creation for low and moderate-income families • Home equity represents fully 60% of low-income households' wealth, dwarfing the value of retirement accounts and financial assets • The most important way that households gain equity is by paying down their mortgage • Appreciation also plays a role, but in most markets, in most time periods, it is secondary to paying down principal URBAN INSTITUTE 6
Importance of preserving affordability • Era of federal fiscal constraints: e.g. HUD's CDBG and HOME programs have been cut in real terms by 2/3 and 1/2, respectively, since their peak • Even for local programs like DC's Inclusionary Zoning program or public lands dispositions (which rely on "density bonuses" or discounted land prices in exchange for building low-income units), units produced are still a scarce resource • Many more families qualify for, and demand affordable ownership units than the city creates URBAN INSTITUTE 7
URBAN INSTITUTE 2010 SHARED EQUITY STUDY URBAN INSTITUTE
Urban Institute 2010 Study First cross-site shared equity completed by UI in 2010 A Regional Coalition for Housing King County, WA Champlain Housing Trust Burlington, VT Citywide Inclusionary Affordable Housing Program San Francisco, CA Northern Communities Land Trust Duluth, MN Thistle Community Housing Boulder, CO Dos Pinos Housing Cooperative Davis, CA Wildwood Park Towne Houses Atlanta, GA URBAN INSTITUTE 9
Findings: Initial Affordability $600,000 Median sales price paid by homeowner $500,000 Median appraised value of homes at sale $400,000 $300,000 $200,000 $100,000 $0 Boulder Burlington Duluth San Francisco Duluth URBAN INSTITUTE 10
Findings: Initial Affordability 100% 90% Median income needed at purchase 80% Median income needed at resale 70% % AMI 60% 50% 40% 30% 20% 10% 0% Boulder Burlington Davis Duluth King County San Francisco Atlanta URBAN INSTITUTE 11
Findings: Wealth Creation $25,000 Median appreciation realized by seller $20,000 Median total of principal paid on mortgages (not including downpayment) $15,000 $10,000 $5,000 $0 Atlanta Boulder Burlington Davis Duluth San Francisco URBAN INSTITUTE 12
Findings: Wealth Creation 70% Program IRR 60% 10-year Treasury Bonds IRR S&P 500 Index Fund IRR 50% 40% 30% 20% 10% 0% King Burlington San Davis Duluth Boulder Atlanta County Francisco URBAN INSTITUTE 13
Findings: Security of Tenure 16% % High cost loans 14% % High cost loans in surrounding area 12% 10% 8% 6% 4% 2% 0% Burlington San Francisco Duluth Boulder URBAN INSTITUTE 14
Findings: Security of Tenure 9% % Currently seriously 8% delinquent % Currently seriously 7% delinquent in county 6% 5% 4% 3% 2% 1% 0% King County Burlington Davis Duluth Boulder Atlanta URBAN INSTITUTE 15
Findings: Security of Tenure 6% % Currently in foreclosure 5% % Currently in foreclosure in county 4% 3% 2% 1% 0% King County Burlington Davis Duluth Boulder Atlanta URBAN INSTITUTE 16
Findings: Mobility 45% % moved 40% % expected move 35% 30% 25% 20% 15% 10% 5% 0% King County Burlington Davis Duluth Boulder Atlanta URBAN INSTITUTE 17
Findings: Mobility 90% % Moving to owner- occupied, market rate 80% housing 70% 60% 50% 40% 30% 20% 10% 0% Burlington Davis Duluth Boulder URBAN INSTITUTE 18
Key Implications • Shared Equity homes largely retain affordability and create wealth, without limiting mobility or creating instability • …But they must balance competing objectives of affordability preservation and wealth creation while taking into account local dynamics URBAN INSTITUTE 19
Publications • Urban Institute cross-site report and seven case-study reports: http://urban.org/sharedequity/ • Summary extract: San Fran Fed magazine: http://www.frbsf.org/community- development/files/CI_Temkin_et_al.pdf • Journal article: Housing Studies : http://www.tandfonline.com/doi/full/10.1080/ 02673037.2013.759541#.UmqlnVMYnKk URBAN INSTITUTE 20
WHAT ABOUT TRADITIONAL HOMEOWNERSHIP SUPPORT AND SUBSIDY RECAPTURE? URBAN INSTITUTE
Traditional Homeownership Support and Subsidy recapture • Traditional model is where an owner has no or minimal constraints on profiting, which maximizes wealth creation, but does so at the expense of affordability preservation, as typically all subsidies are lost after a short period (e.g. 5 or 10 years) • Subsidy recapture requires that owners repay the subsidies they received to buy the home, but allows them to capture all the home's appreciation URBAN INSTITUTE 22
How many units could $100M support under each model? • Imagine $100M for homeownership, e.g. from the Housing Production Trust Fund • Assume each home requires $100,000 • Assume it takes DC 10 years to deploy the $100M • Assuming a rate of moving of 6% (the national average for homeowners) • Assume a 5% growth in home prices (reasonable for the District) URBAN INSTITUTE 23
How many units could $100M support under each model? URBAN INSTITUTE 24
How much wealth would be created under each model? • Assume buyers put 5 percent down on a $200,000 home • Assume home prices rise by 5% annually • Assume median incomes increase by 3% annually – Annual rate of return for shared equity program would be 21 percent – Annual rate of return for subsidy recapture would be 29 percent – This calculation only measures return from appreciation, not savings gains through paying down a mortgage URBAN INSTITUTE 25
Recommend
More recommend
