Sustainable Ownership — Lasting Affordability

Shared equity homeownership is a housing choice that falls in between rental housing and traditional homeownership. Shared equity homeownership offers a safer and more sustainable approach to affordable homeownership that provides a meaningful alternative to the risky sub-prime financing that contributed to the foreclosure crisis. Learn more

Shared equity homeownership is a general approach to assisting homebuyers which can be implemented through a number of quite different legal or organizational structures including:

Shared equity homeownership has been growing in popularity because, compared with other approaches to affordable homeownership, these models do a better job of balancing a number of key community goals.

• Shared equity homeownership provides a way to preserve affordability of publically assisted homeownership opportunities so that they can serve one generation of homeowners after another.
• At the same time, shared equity homeowners are generally able to build meaningful wealth, making this form of ownership one of the most promising asset building strategies available to lower income households.
• By offering residents a real economic stake in housing but preserving affordability, shared equity homeownership offers a tool for revitalizing distressed neighborhoods without contributing to displacement.
• In fact, many cities and counties and several states are employing shared equity homeownership programs as part of their response to the foreclosure crisis. They are buying vacant properties and restoring them to use today while protecting affordability for the future when a market recovery will inevitably push prices once again out of reach.
• In other communities, shared equity homeownership is being used as a tool for maintaining mixed income communities as smart growth and transit oriented development policies  bring higher income residents and commercial development back to long neglected urban areas.

This site has been designed to provide an introduction to this new approach and an overview of how local communities are incorporating shared equity homeownership into their affordable housing strategies.  We have collected a select number of introductory resources with an emphasis on the needs of several key groups of housing professionals including:

Featured Resources

Homeowners in community land trusts (CLTs) across the country are much less likely to lose their homes to foreclosure than owners of market-rate homes, according to survey results released by the National CLT Network and the Lincoln Institute of Land Policy. The new data show 2008 closing with a slight 0.52 percent foreclosure rate among []

This article from Commercial Mortgage Insight explains how mortgage brokers and lenders can participate in the growing trend toward shared equity homeownership. The greatest benefit of shared-equity ownership is that it presents the opportunity to both generate substantial wealth for individuals and allow communities to create a stock of permanently affordable ownership housing. Historically, the only housing options available have been renting or traditional homeownership, where the buyer reaps all the rewards of ownership, but also bears all of the burdens. More often than not, those burdens are too great for low- to moderate-income individuals.

This article from Planning Magazine profiles a number of community land trusts and describes how local planners are turning to CLTs as a means for preserving long term affordability of homeownership units.

While there is plenty of blame to go around for this mess, the goal of expanding homeownership is still an important one and should not be sacrificed. It can be done responsibly and should remain a priority. In fact, one of the best examples of how it can be done is right here in the District.

Common Questions

What happens to shared equity homes when market housing prices fall?

There are several common approaches to setting resale prices in shared equity homeownership programs and they differ in important ways, but most provide owners with significant protection against falling home prices.  For example,  San Francisco imposes price restrictions tied to the change in the Area Median Income in its Below Market Rate (BMR) homeownership program.  BMR buyers purchase their homes for far less than their market value.  Declines in the market value of units have no direct impact on the maximum resale price.  As long as the market price remains well above the restricted price, BMR owners are likely to be able to realize limited appreciation even in a falling market.  However, the program does not guarantee that sellers wont lose money.  Recent dramatic drops in condo prices in San Francisco have resulted in market prices that are only slightly higher than the affordable prices in some buildings which makes it difficult to sell BMR units for their maximum formula price.  In this situation, owners may choose to wait for prices to recover or they may sell for less than their maximum price.

Similarly, for homeowners whose prices are limited to some percentage of the market appreciation, the public investment is generally at risk before the homeowners equity.  For example, Salina, CA uses a shared appreciation loan to protect affordability of homes created through its inclusionary housing ordinance.  In a rising market, sellers must repay the initial subsidy that they received plus 3% interest, as well as a share of the increase in market value of the home.  But when prices decline the city forgives all or a portion of its subsidy to allow owners to recover their full investment in the home whenever possible.  In this way, while shared equity owners are not guaranteed to get their investment back, they are significantly less likely to face a loss than most owners.

Not every shared equity program is structured this way and it is therefore important to closely study the details of each resale restriction.

Will Fannie Mae purchase loans made to buyers of shared equity homes?

Yes.  Fannie Mae has developed guidelines that allow buyers with resale price restrictions to take advantage of any of Fannie Maes community lending products.  The rules are designed to protect the lender and Fannie Maes ability to ensure repayment of the loan while allowing program sponsors to meet their public policy goals.  They allow for restrictions that survive a lenders foreclosure on the home under certain circumstances.  Deed restrictions must be reviewed and approved by Fannie Mae in advance but for Community Land Trust ground leases based on the Model Lease Fannie Mae has developed a standard lease rider that can be attached to ensure conformance with their guidelines.

Is it fair to homeowners to limit their appreciation?

Shared equity homeownership programs maintain affordability by limiting the extent to which homeowners can profit from rising home prices. This limitation strikes some people as unfair.  Why should low-income home buyers face such limits when others earn unlimited appreciation? Others feel that when the public invests scarce resources to help a family attain homeownership, letting that family retain all the profit from the public investment is unfair to all the other families who did not receive asistance. Shared equity homeownership programs offer a middle ground that allows buyers to earn real wealth and experience all of the other benefits of ownership but also allow todays public investment to serve one family after another.

For homebuyers without the ability to afford market rate home prices, the benefits of this approach outweigh the drawbacks. Such benefits are fixed and sustainable housing costs, mortgage interest deductions and, most important to many, a place to call home that allows homeowners freedom and control over living space. In terms of public subsidies, by limiting appreciation the public portion of the resale stays with the home allowing more low income families to benefit from homeownership.