In many communities, rapidly increasing home prices threaten to undermine the affordability made possible by grants, loans and inclusionary housing programs. When home prices increase much faster than incomes, many affordable housing subsidies need to increase in order to keep pace and maintain affordability. A growing number of states and localities have addressed this problem by supporting forms of ownership that can balance asset building with subsidy retention and affordability. The models that make up the “shared equity” family of ownership are deed-restricted units, limited-equity cooperatives and community land trusts. Sometimes included are “resident-owned communities,” or ROCs. While they differ from each other in many ways, these models all allow low- and moderate-income families to both purchase a home and also receive a healthy return on their investment while preserving the original housing subsidy over time.
Shared equity homeownership programs are typically run by a state or local government or a nonprofit housing organization to provide financing to help low- and moderate-income families purchase a home. In return, the family shares the value of any home price appreciation that may occur while living there with the program (and, by extension, the community writ large). The program’s share of the home’s appreciation may be used in two ways: it can either be used to help another family buy the home of their choice, or it can stay with the respective home, reducing the cost for the next buyer.
Shared equity strategies have benefits for all parties involved. Households benefit from a lower home price and communities benefit by retaining vital workers who otherwise couldn’t afford to live where they work. Shared equity programs also allow governments to help successive generations of families with a single initial investment. The sponsoring entity – whether it is a local jurisdiction or a nonprofit – can recycle a one-time subsidy over successive homeowners, making shared equity programs very financially efficient.
Shared equity programs can also enhance the effectiveness of inclusionary housing programs by placing units created through inclusionary housing directly into shared equity programs to extend their period of affordability. Many inclusionary housing programs require the below-market homes to remain affordable for some defined period of time. Whenever the term of affordability expires, however, the homes will be sold for full market value, eliminating the homes from the affordable stock and providing a large windfall to the original beneficiary. Many shared equity ownership programs have very long-term or even permanent affordability terms. Community land trusts, for example, often use a renewable 99-year ground lease to implement resale restrictions, and limited-equity cooperatives have resale restrictions included in their corporate by-laws.
Shared equity strategies have occasionally been criticized for implementing restrictions on wealth building. It is true that the use of resale restrictions can be difficult to justify in communities that have historically been denied access to homeownership. Wealth building is often touted as one of the benefits of owning one’s home. Offering a form of ownership that could be seen as perpetuating the denial of opportunity might not be welcomed.
The counter to this argument is that these resale restrictions are only there as a mechanism for keeping homes accessible to other households in the future. There is a tradeoff between the potential for realizing enormous gains in wealth and the ability to purchase and enjoy a home that would otherwise be unaffordable. The sharing of equity in these programs happens between the households and the broader community. The resale restrictions are not about denying a household equity. Instead, they allow a community to keep itself accessible to lower-income households.
Burlington Associates in Community Development
Innovations in Manufactured Homes. Prosperity Now (formerly CFED).
Sharing the Wealth: Resident Ownership Mechanisms. 2001. By Heather McCulloch and Lisa Robinson. Oakland, CA: PolicyLink
“Mobile” Homes No More: Policy Innovations in Manufactured Housing. 2005. By David Buchholz. Housing Facts and Findings 7(4). Washington, DC: Fannie Mae Foundation.
Moving Home: Manufactured Housing in Rural America. 2005. Washington, DC: Housing Assistance Council.
Shared Equity Homeownership: The Changing Landscape of Resale-Restricted, Owner-Occupied Housing. 2006. By John Emmeus Davis. Montclair, NJ: National Housing Institute.
Shared Equity Mortgages, Housing Affordability, and Homeownership. 2007. By Andrew Caplin, James H. Carr, Frederick Pollock, Zhong Yi Tong, Kheng Mei Tan and Trivikraman Thampy. Washington, DC: Fannie Mae Foundation.
Building Wealth Through Ownership: Resident-Owned Manufactured Housing Communities in New Hampshire. April 2008. By Charlie French, Kelly Giraud and Sally Ward. Durham, New Hampshire: Journal of Extension.
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Community Land Trusts
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“CLTs: A Growing Trend in Affordable Home Ownership.” By Julie Farrell Curtin and Lance Bocarsly. Journal of Affordable Housing and Community Development Law 17, no. 4 (2008): 367–94.
The City-CLT Partnership: Municipal Support for Community Land Trusts. 2008. By John Emmeus Davis and Rick Jacobus. Cambridge, MA: The Lincoln Institute of Land Policy
The Asset Building Potential of Shared Equity Homeownership. 2010. By Rick Jacobus and John Emmeus Davis. Washington, DC: New America Foundation.
The Community Land Trust Reader. 2010. By John Emmeus Davis. Cambridge, MA: Lincoln Institute of Land Policy.
Outperforming the Market: Delinquencies and Foreclosure Rates in Community Land Trusts. 2010. By Emily Thaden and Greg Rosenberg. Cambridge, MA: Lincoln Institute of Land Policy, 2010.
Stable Home Ownership in a Turbulent Economy: Delinquencies and Foreclosures Remain Low in Community Land Trusts. 2011. By Emily Thaden. Cambridge, MA: Lincoln Institute of Land Policy.
“Community Land Trusts: Why Now Is the Time to Integrate This Housing Activists’ Tool Into Local Government Affordable Housing Policies.” 2013. By Stephen R. Miller. Zoning and Planning Law Report 36 (2013): 1–20.
Beyond Housing: Urban Agriculture and Commercial Development by Community Land Trusts. 2012. By Greg Rosenberg and Jeffrey Yuen. Cambridge, MA: Lincoln Institute of Land Policy.