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Asset Building and Shared Equity Homeownership

Asset Building and Shared Equity Homeownership . Jeffrey Lubell, Executive Director Center for Housing Policy. April 14, 2010 Webinar. Homeownership at a crossroads. Subprime and foreclosure crisis Downsides of traditional homeownership model Community impacts

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Asset Building and Shared Equity Homeownership

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  1. Asset Building and Shared Equity Homeownership Jeffrey Lubell, Executive Director Center for Housing Policy April 14, 2010 Webinar

  2. Homeownership at a crossroads • Subprime and foreclosure crisis • Downsides of traditional homeownership model • Community impacts • Opportunity for new thinking and new approach • What if a safer model for affordable homeownership could be found? • Lower risk of foreclosure / equity loss • Leverage private markets • Strong asset-building results

  3. Shared equity homeownership • Basic model • Deep subsidy • Resale price restrictions • Monitoring • Applications • Community land trusts • Deed restrictions • Limited equity cooperatives

  4. Equity sharing models • Share of home price appreciation • e.g., resident retains 25% of appreciation • Area Median Income • Resale price rises at same rate as incomes • Affordable Housing Cost • Home always sold for price affordable to target buyer

  5. Subsidy Retention Example • Initial Purchase • Market Value = $200,000 • $50,000 subsidy brings price down to $150,000, affordable to family at target income range • Family contributes $10,000, with 30-year fixed mortgage for $140,000 • Affordability at Resale • Home prices have increased 25% over a five-year period, so market value = $250,000 • Incomes have gone up 15%, so target family can afford a home valued at $172,500 • Asset Accumulation • Family sells for $172,500, with transaction costs of $5,000 • Family gains $17,500 in home price appreciation plus approx. $10,000 in equity built up through principal paydown = $27,500 gain

  6. Benefits of SEH • Current and future affordability • Lower risk to homebuyer • Protection from market declines • Opportunity for individual to generate large return on initial investment • Community benefits from affordable housing in key locations • Buying power of subsidy preserved

  7. The Asset Building Potential of Shared Equity Homeownership • Rick Jacobus, NCB Capital Impact

  8. Ownership Gap

  9. Wealth is the key barrier 2% have sufficient savings Renters who can’t afford ownership Source: Savage 2009

  10. Overcoming barriers Source: Savage 2009

  11. Shared Equity Homeownership • Create Affordability: Invest significant public subsidy • Preserve Affordability: Share in price appreciation

  12. Research Question • How does this form of ownership perform as an asset building strategy for homeowners?

  13. Champlain Housing Trust • Developed 424 homes since 1984 • Nearly all buyers <80% of AMI

  14. Data • 205 resales of CHT homes • Exit interviews, review of files and follow up interviews (as needed) • Ongoing affordability • Homeowner returns from sale • Subsequent housing tenure

  15. Affordability Affordability Gain

  16. Asset Building 5.4 Years Average tenure $7,889 Appreciation $2,300 Initial Investment 25% Annual Rate of Return $4,294 Debt Retirement $1,348 Capital Improvement $13,530 Total Equity at sale

  17. Asset Poverty 284% At time of sale 58% At time of purchase Asset Poverty Level

  18. Foreclosures 629 sales 1984 - 2008 CHT 9 Foreclosures 1.43% Cumulative Rate Comparison 1.4% Freddie Mac 10 Year Rate 5.1% Freddie Mac > 90% LTV 2.47% 7 year rate for HOME/ADDI Buyers in Northwest

  19. Retention Precent of low income first time buyers that returned to renting within 5 years:

  20. Subsequent Tenure

  21. Owner Equity as a % of Unrestricted Market Value 9% At time of sale 50%of sellers could afford a comparable home with no increase in income 2% At time of purchase

  22. $0Additional public subsidy needed to offer this same opportunity to future buyers

  23. Conclusions • We can preserve affordability and still offer life altering wealth building • Shared equity homeownership can offer a predictable path for asset building

  24. Asset Building and Shared Equity Homeownership April 14, 2010 Jeff Corey, Northern Communities Land Trust

  25. Creating affordable homes and strengthening communities through the wise stewardship of land and resources

  26. Who We Are • Non-profit 501(c) 3 corporation, governed by Membership and Board of Directors • Founded in 1990 • Real estate developer in neighborhood revitalization initiatives • Provide affordable housing for low and moderate income households • Community Land Trust—work to provide affordable housing now and preserve the affordability of the housing for future generations

  27. NCLT Homeownership • Qualified, income-eligible buyers can purchase high quality homes at affordable prices • In exchange, Land Trust homeowners agree to ‘pay it forward’ and pass the bargain price they received on to the next owner of the home • 99 year, renewable lease formalizes the agreement • Resale price determined by a resale formula in the lease that ensures permanent affordability of the homes

  28. Northern Communities Land Trust Affordability Statistics • There are 190permanently affordable Land Trust homes in Duluth. • Average yearly income of a Land Trust homebuyer was $30,515 in 2009. • Average Land Trust buyer earns about 60% of median income. • Average purchase price for a Land Trust home is $88,530; average value is $131,777. • 49 homes have resold to date, re-using over $2.3 million in state, private and federal subsidies.

  29. Northern Communities Land Trust Resale Statistics • 49 homes have resold to date • re-using over $2.3 million in state, private and federal subsidies. • All homes re-sold to income eligible households • 80% of sellers have moved to market rate homeownership • Urban Institute study shows Land Trust is preserving affordability of homes and our homeowners are building assets.

  30. NCLT Resale Example 2010 1999 $64,000 Market Value $112,000 Market Value - $12,000 Community Investment - $33,201 Community Investment = $52,000 Original Purchase Price = $78,799 Resale Purchase Price (includes new windows and furnace for 8,500 and realtor commission of $4,599)

  31. First Homeowners Specifics 1999: Michael and Charlotte, son Peter (age 4) • Michael worked as assistant manager in produce department of local food co-op. Char working on undergraduate degree in social work. • 44% of area median income, $17,199/year • Received assistance of $12,000 subsidy to lower the purchase price of the home. $4,000 worth of rehab done to the home after closing—not as much as we would have liked to do, but what we had funds for at the time.

  32. First Homeowners Resale Specifics 2010: Michael, Charlotte, Peter & Kylie (age 6) • Michael now manager of produce department, earning 2 X the salary as in 1999. Charlotte finished her undergraduate and masters degree in social work, now employed by St. Louis County as a social worker. • Stable, affordable housing for 11 years allowed them to more easily increase income and prepare for market rate homeownership once ready. • Net profit at resale of $23,600 ($13,800 share of appreciation + $10,800 payment on principal - $1,000 closing costs)

  33. 2nd Homeowner 2010: Karen, single. • Karen is employed as an administrative assistant in a law firm. • $27,040/year which is 64% of area median income (50% of AMI for a household of 3 as were the Karsh’s) • Received $33,201 discount in purchase prices as well as new windows and furnace.

  34. LAND TRUST RESALES: Preserving affordable homes for the future. 2006 2009 $81,000 Market Value $92,000 Market Value - $27,000 Community Investment - $23,000 Community Investment = $58,000 Original Purchase Price = $65,000 Resale Purchase Price

  35. First Homeowners Specifics 2006: Rain and Kris, Miles (age 2) • Rain worked in grocery store. Kris worked as a health care worker. • 57% of area median income, $28,794/year • Individual Development Account participant—down payment of $1,850 • Received assistance of $23,000 subsidy to lower the purchase price of the home. $20,000 worth of rehab done to the home after closing.

  36. First Homeowners Resale Specifics 2009: Rain and Kris, Miles (age 5), Josie (age 2) • Rain still works in grocery store. Kris works part time as a health care worker. • Stable, affordable housing for 3 years. During this time household income increased to $37,000. Household size also increased. These were the reasons for moving. • Net profit at resale of $2,831 (loan for closing costs of $4,000 at original purchase was paid off at resale)

  37. 2nd Homeowner 2009: Kevin, single. • Kevin is employed by Garda—armored truck transport service ocmpany. • $23,000/year which is 55% of area median income • Received $27,000 discount in purchase price.

  38. Questions?

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