Long-term affordable homeownership: Program design and research findings Brett Theodos February 12, 2015
AN INTRO TO LONG-TERM AFFORDABLE HOMEOWNERSHIP
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 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 4
AFFORDABILITY PRESERVATION VS. WEALTH CREATION
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 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 7
2010 SHARED EQUITY STUDY
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 9
Findings: Initial Affordability $600,000 $500,000 $400,000 Median sales price paid by homeowner Median appraised value of homes at sale $300,000 $200,000 $100,000 $0 Boulder Burlington Duluth San Francisco Duluth 10
% AMI Findings: Initial Affordability 100% 90% 80% 70% Median income needed at purchase Median income needed at resale 60% 50% 40% 30% 20% 10% 0% Boulder Burlington Davis Duluth King County San Francisco Atlanta 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 12
70% 60% 50% Findings: Wealth Creation Program IRR 10-year Treasury Bonds IRR S&P 500 Index Fund IRR 40% 30% 20% 10% 0% King County Burlington San Francisco Davis Duluth Boulder Atlanta 13
Findings: Security of Tenure 16% 14% 12% % High cost loans % High cost loans in surrounding area 10% 8% 6% 4% 2% 0% Burlington San Francisco Duluth Boulder 14
Findings: Security of Tenure 9% 8% 7% 6% % Currently seriously delinquent % Currently seriously delinquent in county 5% 4% 3% 2% 1% 0% King County Burlington Davis Duluth Boulder Atlanta 15
Findings: Security of Tenure 6% 5% 4% % Currently in foreclosure % Currently in foreclosure in county 3% 2% 1% 0% King County Burlington Davis Duluth Boulder Atlanta 16
Findings: Mobility 45% 40% 35% % moved % expected move 30% 25% 20% 15% 10% 5% 0% King County Burlington Davis Duluth Boulder Atlanta 17
Findings: Mobility 90% 80% 70% % Moving to owneroccupied, market rate housing 60% 50% 40% 30% 20% 10% 0% Burlington Davis Duluth Boulder 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 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/communitydevelopment/files/ci_temkin_et_al.pdf Journal article: Housing Studies: http://www.tandfonline.com/doi/full/10.1080/ 02673037.2013.759541#.UmqlnVMYnKk 20
WHAT ABOUT TRADITIONAL HOMEOWNERSHIP SUPPORT AND SUBSIDY RECAPTURE?
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 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) 23
How many units could $100M support under each model? 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 25