Long-term affordable homeownership: Program design and research - - PowerPoint PPT Presentation

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Long-term affordable homeownership: Program design and research findings

Brett Theodos February 12, 2015

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AN INTRO TO LONG-TERM AFFORDABLE HOMEOWNERSHIP

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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

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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

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AFFORDABILITY PRESERVATION VS. WEALTH CREATION

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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

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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
• wnership units than the city creates

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URBAN INSTITUTE 2010 SHARED EQUITY STUDY

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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

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Findings: Initial Affordability

$0 $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 Boulder Burlington Duluth San Francisco Duluth Median sales price paid by homeowner Median appraised value of homes at sale

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Findings: Initial Affordability

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Boulder Burlington Davis Duluth King County San Francisco Atlanta Median income needed at purchase Median income needed at resale

% AMI

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Findings: Wealth Creation

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

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Findings: Wealth Creation

0% 10% 20% 30% 40% 50% 60% 70% King County Burlington San Francisco Davis Duluth Boulder Atlanta Program IRR 10-year Treasury Bonds IRR S&P 500 Index Fund IRR

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Findings: Security of Tenure

0% 2% 4% 6% 8% 10% 12% 14% 16% Burlington San Francisco Duluth Boulder % High cost loans % High cost loans in surrounding area

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Findings: Security of Tenure

0% 1% 2% 3% 4% 5% 6% 7% 8% 9% King County Burlington Davis Duluth Boulder Atlanta % Currently seriously delinquent % Currently seriously delinquent in county

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Findings: Security of Tenure

0% 1% 2% 3% 4% 5% 6% King County Burlington Davis Duluth Boulder Atlanta % Currently in foreclosure % Currently in foreclosure in county

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Findings: Mobility

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% King County Burlington Davis Duluth Boulder Atlanta % moved % expected move

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Findings: Mobility

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Burlington Davis Duluth Boulder % Moving to owner-

• ccupied, market rate

housing

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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

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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

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WHAT ABOUT TRADITIONAL HOMEOWNERSHIP SUPPORT AND SUBSIDY RECAPTURE?

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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

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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)

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How many units could $100M support under each model?

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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