Goal: Increase the Availability of Affordable Homes
Role: Preserve and Recycle Resources
Policy: Use Shared Equity Mechanisms to Preserve Homeownership Subsidies


What is shared equity homeownership?

Shared equity homeownership is a unique approach to affordable homeownership.Under this approach, an entity - usually a state or local government or a nonprofit housing organization - provides financing to help a family purchase a home. In return, the family shares with the supporting entity the value of any home price appreciation that may occur while living there. The entity'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.

By sharing potential gains in home price appreciation with the supporting entity, shared equity programs result in significant benefits now and for years to come. Homebuyers benefit from a substantially lower home price and the opportunity for home equity gains. Communities benefit by retaining vital workers who otherwise couldn't afford to live in the communities they serve. And, by ensuring that the public's investment keeps pace with the housing market, shared equity strategies allow governments to help generations of families achieve homeownership with a single initial investment. What problems do these policies solve? In addition to preserving affordability, shared equity homeownership helps to preserve the value of public or private homeownership subsidies in the face of rising home prices, particularly when home prices increase faster than incomes. In many cases, the initial subsidy cannot cover the affordability gap in the future. Homes that were initially made affordable through substantial investment may become unaffordable to the next purchaser, even if the subsidy is reinvested in the home upon resale. This problem is less acute when the public subsidy is small - say $2,000 or $5,000 - but becomes more serious as the subsidy increases. In some parts of the country, it is not uncommon for homeownership subsidies to exceed $25,000 per unit. In parts of California, for example, deep homeownership subsidies have exceeded $100,000. Shared equity homeownership can be used to preserve the affordability of units made available through inclusionary zoning or other programs that incentivize or mandate affordability. Many inclusionary zoning programs require the below-market homes to remain affordable for some defined period of time. Whenever the term of affordability expires, however, time-limited resale restrictions ultimately allow the homes to be sold for full market value, eliminating the homes from the affordable stock and providing a large windfall to the beneficiary. Finally, certain types of shared equity homeownership can help preserve or foster communities with a mix of incomes by ensuring that some number of homes in desirable neighborhoods always remain affordable. In light of rising energy prices, there is likely to be increased demand for housing near public transit stops and job centers, even when overall housing demand in the market is weak. Shared equity models, such as community land trusts, deed-restricted homeownership and limited-equity cooperatives can be particularly helpful in ensuring the preservation of affordable housing opportunities for low- and moderate-income families in these energy-efficient locations. Where are these policies most applicable?

Solutions in Action

City's Edge Condominiums, South Burlington VT -- photo courtesy of the Champlain Housing Trust City's Edge condominiums is a 60-unit building that includes 31 homeownership units made permanently affordable through use of a shared appreciation model. The building was developed by the Champlain Housing Trust (CHT) in Burlington, Vermont. Families that buy a home through CHT receive downpayment assistance to reduce the cost of purchasing a home. In return, the family agrees to sell the home for an affordable price to CHT or a qualifying buyer. The affordable price allows the original purchaser to recover their initial investment plus 25 percent of any home price appreciation. The remaining appreciation is used to keep the home affordable to the next buyer. An evaluation of this model found that CHT successfully preserves long-term affordability while providing home purchasers with net proceeds from resales averaging almost $12,000. Almost 70 percent of families that resold homes originally purchased through the Trust went on to purchase market-rate homes. [1]

Shared equity approaches are most effective in (a) markets in which home prices are rising faster than incomes, or are expected to do so; and (b) neighborhoods near public transit and job centers, or other areas likely to experience gentrification pressure, where the community seeks to preserve homeownership opportunities for families with a mix of incomes. The economic and housing downturn has limited the number of markets with rapid home price appreciation, but in many communities desirable neighborhoods near transit and jobs have seen property values hold and even escalate, making shared equity approaches viable in these neighborhoods. And while designed primarily to address the housing challenges posed by strong housing markets, shared equity homeownership also has application in weak housing markets. Click here to learn more about the use of shared equity homeownership in a weak housing market.

Learn more about shared equity strategies Go back to learn about other policies that help preserve and recycle resources for affordable homes

[1] Lands in Trust, Homes that Last: A Performance Evaluation of the Champlain Housing Trust. [PDF] 2009. By John Emmeus Davis and Alice Stokes. Burlington, VT: Champlain Housing Trust.

This section draws heavily on the experience and work produced by Rick Jacobus of Burlington Associates, including the paper Preservation of Affordable Homeownership, A Continuum of Strategies [PDF], co-authored with Jeffrey Lubell, Center for Housing Policy.

Goal: Increase the Availability of Affordable Homes
Role: Preserve and Recycle Resources
Policy: Use Shared Equity Mechanisms to Preserve Homeownership Subsidies

More Examples

Scroll down to view examples of shared equity programs being implemented in communities across the country, or browse by approach:

• Limited equity cooperative
• Community land trust
• Index-based resale formula

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Limited equity cooperative *

The Hermitage Manor Cooperative in Chicago, Illinois maintains 108 affordable townhouses in a gentrifying neighborhood. To purchase shares in the co-op, buyers must earn less than 95 percent of the area median income (AMI) and must also have a monthly income of at least four times the monthly cost of the unit. Residents whose incomes increase above the 95 percent threshold must pay a 10 percent surcharge each month.


Since 1984, ROC-NH, formerly called the New Hampshire Community Loan Funds Manufactured Housing Park Program has helped convert 72 parks containing 3,500 manufactured homes into "Resident Owned Communities." In these parks, the land and infrastructure are owned and maintained by a cooperative housing corporation whose shares are held by park residents. This structure protects residents from investors and developers intending to convert the land for more profitable purposes. Affordability is strictly maintained: when an owner moves out of the park, the co-op repurchases that member's share for the same price the resident originally paid.


Continue learning about limited equity cooperatives.

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Community land trust

In Chaska, Minnesota, the Chaska Community Land Trust (CCLT), a non-profit founded in 2002, retains land rights to the homes it sells to new homeowners. CCLT is based on a unique public-private partnership with the City of Chaska. As part of its comprehensive plan, the City decided to provide density bonuses to developers who agree (1) to make 25 percent of units affordable to low- and moderate-income homebuyers, and (2) to donate land for an additional 5 percent of units to the CCLT. In order to qualify for Land Trust homes, households must earn no more than 80 percent of AMI. The CCLT splits any appreciation in the appraised value of the property 75/25 between the land and the home.

The Northern California Land Trust (NCLT) has developed 165 units of affordable housing since its creation in 1973, with over 35 more units currently in the works. NCLT reduces the cost of homeownership by retaining control over the land underneath homes, while selling the homes themselves to program participants. NCLT offers different kinds of homes - including single-family houses and condominiums - to different income groups. The exact specifications for the program differ depending on the type of home being purchased: for instance, some properties are available for households earning 80 percent of Area Median Income (AMI) and others to those earning 60 percent of AMI. As long as a home is occupied for at least three years, its occupant may resell the house at the original purchase plus an amount tied to the increase in the AMI during the term of homeownership. The value of approved improvements to the home is also factored into the resale price.

Continue learning about community land trusts.

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Index-based resale formula

A Regional Coalition for Housing (ARCH) in Eastern King County, Washington, is a multi-jurisdictional agency whose members include county and city governments. Created in 1992, it uses a modified AMI Index to maintain 30-year affordability for homes created through its housing trust fund as well as through inclusionary zoning, density bonuses, and other municipal programs. The increase in price upon resale is limited to an average of the percentage increase in AMI and the percentage increase in home resale prices. This approach has the potential to sustain affordability indefinitely, but the contracts are written to lapse after 30 years. On the first sale after the affordability contract lapses, the seller must return any proceeds beyond what they would have earned under the AMI index approach back into the Housing Trust Fund, increasing funding for new affordable housing construction.


Continue learning about index-based resale formulas.

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Go to the Shared Equity main page.



* Examples taken from Shared Equity Homeownership: The Changing Landscape of Resale-restricted, Owner Occupied Housing. [PDF] 2006. By John Emmeus Davis. Newark, NJ: National Housing Institute.

Goal: Increase the Availability of Affordable Homes
Role: Preserve and Recycle Resources
Policy: Use Shared Equity Mechanisms to Preserve Homeownership Subsidies

Rising Subsidy Needs


The following example illustrates how, as home prices increase at a faster pace than income levels, the subsidy amount needed to keep a home affordable to a family at a target income level grows larger.

Assume that a family at the target income range can afford to pay $200,000 for a home in a market where starter homes cost $250,000. This family will require a subsidy of $50,000 to afford the home.

Further assume that over the next 7 years, interest rates remain stable and home prices rise by 6 percent annually while incomes rise by only 3 percent annually. At the end of this 7-year period, the family is able to sell the home for $375,000, generating significant individual wealth.

However, a family at the same target income level can now afford to pay only $245,000 while starter homes now cost $375,000. The amount of subsidy needed to bring homeownership within reach of this family is now $130,000 ($375,000 minus $245,000).

Even if the original subsidy had been provided in the form of a loan and the first family repaid the initial $50,000, there would still be a large gap between the recaptured funds and the funds needed to help another family buy a similar home.


Click here to continue learning about shared equity homeownership.

Goal: Increase the Availability of Affordable Homes
Role: Preserve and Recycle Resources
Policy: Use Shared Equity Mechanisms to Preserve Homeownership Subsidies

Applying Shared Equity in a Weak Housing Market
Shared equity homeownership tools were developed principally to address the problems caused by hot housing markets. When housing prices rise rapidly, the costs of helping working families to achieve homeownership also rise, reducing the number of families that communities can serve with a set amount of subsidy. Shared equity homeownership solves this problem by ensuring that communities benefit from a portion of the home price appreciation - either through lower resale prices for the next buyer or through the return of appreciation to the community to facilitate larger loans to the next buyer - while still allowing a robust build-up of assets by the assisted family.

Now that housing markets are declining in most areas, does shared equity homeownership still make sense?
The short answer is yes, but it does require some additional analysis to determine where and when to apply it. Here are some factors to consider:

Is the decline in prices likely to be temporary or permanent?
While it is impossible to predict how long the decline will last or when the market will recover, over the long-run, housing prices in most high-cost communities will rebound and resume their inexorable rise. This is particularly true in the metropolitan areas surrounding cities with robust economies, which include most of the areas with strong housing markets during the first half of the 2000s. This is because many of these areas are already built-out and little new land is available for development close to the urban center. As the economies grow, new jobs will be generated, attracting additional residents, which will drive up demand. Demand for housing will also increase with the projected continuation of the longstanding decline in household size. With demand up and supply relatively fixed, housing prices are bound to rise over time.

Even if housing prices decline further or stay flat for a period of years, implementing a shared equity homeownership policy now will protect the buying power of the community's subsidy once home price increases resume.

Is there a need to preserve the affordability of homes near public transit and job centers?
With energy prices rising, the demand for housing close to public transit stops and job centers is likely to rise significantly. This will increase housing prices in these desirable locations, even if the market as a whole is flat or declining. It also will likely increase the demand for more compact development in these areas, which could create opportunities to include affordable and workforce housing within this new development.

Studies show that working families pay a larger share of their income for transportation costs than other families, making them particularly vulnerable to increases in energy prices. Shared equity homeownership can be a critical tool for helping to create and preserve affordable housing opportunities in these areas that facilitate a reduction in household transportation costs.

One way to take advantage of this opportunity is to increase the allowable density of areas near existing and planned public transit stops and job centers and create an inclusionary zoning mandate or incentive to reserve a certain percentage of this new development for affordable and/or workforce housing. By putting all of the affordable and workforce homeownership units into a shared equity homeownership program and imposing covenants requiring all affordable rental units to be rented at affordable levels indefinitely, communities can preserve the affordability of these units over time. Because it is essential in this instance to preserve the affordability of these specific units - rather than improve affordability over all in the broader market - a subsidy retention approach to shared equity is preferable. Common subsidy retention approaches include: community land trusts, limited-equity cooperatives, and deed-restricted homeownership.

Other approaches for creating these affordable units include using publicly-owned land as an implicit subsidy or tax-increment financing.

Click here for an overview of other housing policies that can help communities address the implications of increasing energy costs.

Are there other specific locations where shared equity is important?
Yes. Neighborhoods experiencing or likely to experience gentrification [link to glossary] pressures are excellent candidates for shared equity homeownership to help preserve affordable housing opportunities as homes prices rise.

Are there other housing policies that should also be considered when shared equity homeownership is applied to retain affordability in specific neighborhoods?
As noted above, inclusionary zoning [link to glossary] requirements or incentives work well in areas of new or expanded development to create affordable housing opportunities that can be preserved through shared equity homeownership. Allowing a local housing authority to purchase a percentage of the affordable units, as the inclusionary zoning policies do in Montgomery County, MD and Fairfax County, VA, can help make some of these units affordable to very poor families.

In addition, strategies to preserve the affordability of existing and newly created rental housing are likely to be important in the same areas where shared equity homeownership makes sense: near public transit and job centers and other areas experiencing gentrification pressures.

Are there circumstances in which shared equity homeownership does not make sense?
Yes, although even in these circumstances, shared equity homeownership often can be applied constructively if a community is willing to incur the additional expense of a large subsidy now in order to secure ongoing affordability down the road.

Even in housing markets or neighborhoods where housing demand is strong or expected to rebound, families may not agree to a shared equity homeownership arrangement when the subsidy amount is relatively small or where they can purchase unrestricted homes for a similar amount in nearby communities. Communities where prices have declined may choose to reduce the amount of subsidy provided to each household to a level where homebuyers will not be willing to agree to a resale price restriction. This will save the community dollars in the short-run - which may be important given declining property taxes - at the expense of preserving affordable homeownership opportunities over the long-run.

In these cases, the choice is often about priorities: a community may be able to achieve its immediate goals of promoting homeownership for working families at a lower initial cost if it forgoes equity sharing restrictions. But it loses the opportunity to preserve affordability over the long-term.

In other cases, shared equity restrictions may actually conflict, or appear to conflict, with other community housing goals. For example, neighborhoods struggling to attract higher-income residents to reduce concentrations of poverty and achieve greater stability may have greater trouble accomplishing this goal if restrictions on equity accumulation deter higher-income purchasers. Similarly, neighborhoods at risk of de-stabilization due to high numbers of foreclosures may be unable to attract sufficient buyers quickly enough with shared equity restrictions - unless the units come with substantial additional subsidy to make them move quickly.

In both cases, spending priorities again come into play. While foreclosed homes may not sell quickly at market prices when resale restrictions are attached, they may well sell quickly if the restrictions come with a significant subsidy to make the homes affordable to working families. Indeed, many communities are considering acquiring foreclosed properties to start or add to a community land trust to expand the long-term availability of affordable homeownership opportunities.

Similarly, while higher-income purchasers in a struggling market may be deterred by permanent resale-price restrictions, moderate-income families - whose incomes may still be above the neighborhood average - may well accept the restrictions if subsidies help bring the homes within reach. A combination of deeply subsidized homes targeted to moderate-income families with shared-equity restrictions and homes with shallow subsidies with no restrictions or only a modest restriction (such as a five-year forgivable loan to prevent flipping) may be a good solution for many communities.

Even in circumstances where shared equity homeownership may not be the best solution today, it is important to continually monitor housing conditions and be ready to institute a shared equity policy should circumstances change. Many of the neighborhoods that have gone through gentrification were struggling at one time. To keep public costs down, it is essential to get ahead of housing market trends rather than try to play catch-up.

What are the implications of home price declines for residents of existing shared equity homes?
It depends a lot on the precise subsidy levels and shared equity arrangement, but here are some general observations:

• In some cases - particularly when subsidy levels are high - residents of shared equity homeownership may be protected from equity loss due to declining home prices. For example, assume a home valued at $600,000 was sold to a shared equity purchaser for $400,000. When the family sells the home, market prices have declined by 10%, but incomes have gone up by 20 percent. If the resale price of the home is tied to increases in the area median income, the maximum sales price will be $480,000, while the market value of the home will be $540,000. In this example, the shared equity buyer may well realize the full maximum asset-building potential, whereas a market-rate purchaser would have lost $60,000.

• In other cases, residents of shared equity homeownership may lose less than owners of market-rate homes. When subsidy levels are lower or market price declines greater, shared equity residents may lose money, but often much less than market-rate buyers. Assume, for example, a home valued for $300,000 was sold to a shared equity purchaser for $200,000. Home prices decline by 20 percent, while incomes go up 20 percent. Here, the market value of the home ($240,000) is the same as a maximum resale price tied to changes in income, but buyers are unlikely to agree to pay full market-value for a home with shared equity restrictions. If the family sells for $200,000 -- $40,000 below market -- they lose only the sales commission and other transaction costs. By contrast, the purchaser of a comparable home without shared equity would have lost $60,000 plus the sales commission and transaction costs.

• In some cases, shared equity homes may no longer be attractive financial propositions at their maximum resale price. This is not necessarily a problem, since there will presumably be some price at which the shared equity homes are still attractive. As illustrated in the prior bullet, while owners of the shared equity homes will not realize their full hoped-for asset accumulation, they will generally lose less than they would have if they had purchased the home through a standard market-rate transaction.

Goal: Increase the Availability of Affordable Homes
Role: Preserve and Recycle Resources
Policy: Use Shared Equity Mechanisms to Preserve Homeownership Subsidies

Shared Appreciation Loans

Shared appreciation loans are structured as second mortgages, but are considered "silent" in that borrowers make no payments until they sell the home (or, in some cases, refinance the first mortgage). At the time of sale or refinance, the family is required to repay the full amount of the loan plus a portion of the home price appreciation. In this way, the amount returned to the subsidizing entity is based on increases in home prices, which helps to preserve the "buying power" of public subsidies. One common approach to designing shared appreciation loan programs is to base the share of appreciation payable upon sale of the home on the share of the original purchase price that was subsidized. For example, if a family received a $50,000 subsidy to buy a $250,000 home, the family would be required to give the community 20 percent ($50,000 divided by $250,000) of any home price appreciation at the time of sale, in addition to repaying the initial $50,000.

Photo credit: Mark Ballogg, Ballogg Photography, Inc., courtesy of Landon Bone Baker

The repayment of subsidy plus a share of appreciation helps the community fill the gap for the next family, but it still may not be enough to help a similarly situated family buy a similar home if housing prices rise faster than incomes. Some communities may decide that they are willing to provide additional subsidy to the next buyer to enable greater asset accumulation by the original beneficiary. But communities that wish to ensure the subsidy fully keeps pace with the market may wish to select a different resale formula. Learn more about resale formulas.

Other shared appreciation programs establish the percentage of appreciation that is retained by the homeowner in other ways. For example, some programs offer all sellers a given percentage of appreciation, say, 40 percent, regardless of their contribution to the purchase price or the amount of subsidy they originally received.

When units are created through inclusionary zoning -- programs that mandate or incentivize the inclusion of a modest share of affordable homes within new developments and sold initially at below market prices -- jurisdictions sometimes impose shared appreciation requirements tied to the homeowner's purchase price as a percentage of appraised value. So, for example, a homeowner who purchased his or her home with a 25 percent discount due to an inclusionary housing program could owe the jurisdiction 25 percent of any future appreciation upon sale, in addition to repayment of the subsidy implicit in the discounted price.

Solutions in Action

Santa Cruz, California, a city with one of the least affordable housing markets in the country, offers loans to homebuyers that must be paid back in full upon resale. Instead of interest, borrowers pay the city one percentage point of the home price appreciation for every percentage point of the purchase price funded by the city's second mortgage program. For example, down payment assistance equal to 20 percent of the home purchase price would, upon sale of the home, require repayment of the principal balance plus 20 percent of home price appreciation. Emeryville, California provides silent second mortgages of up to 15 percent of the purchase price to buyers with incomes below 120 percent of area median. After sale of the property, participating borrowers must repay the principal of the loan in addition to either a low-rate interest payment or a share of the appreciated value of the home, whichever is greater. The interest figure is equivalent to 75 percent of the interest on a first mortgage up to a maximum of 5 percent. The share of the appreciated value of the home owed to the City is equal to the percentage of the total value of the home that was loaned less the value of any capital improvements made since purchase of the home.

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You are currently reading: Shared appreciation loans Homebuyers that receive these "silent" second mortgages make no payments until sale of the home, at which time the full loan is repaid plus a share of the home price appreciation. Also in this section: Subsidy retention strategies Subsidy retention programs subsidize the unit, rather than the buyer, ensuring a specific home remains affordable over the long term. Implementing shared equity approaches Key issues related to designing a shared equity policy. Resident acquisition of manufactured home parks By facilitating the cooperative purchase by residents of manufactured home parks, communities can preserve affordable housing opportunities and help residents gain stability and build assets. Click here to view other resources related to shared equity homeownership.

Goal: Increase the Availability of Affordable Homes
Role: Preserve and Recycle Resources
Policy: Use Shared Equity Mechanisms to Preserve Homeownership Subsidies

Subsidy Retention Strategies

Rather than subsidizing the buyer, subsidy retention programs subsidize the unit, ensuring that the specific home remains affordable to an assisted family at the target income range over the long term. These programs achieve permanent affordability by placing limits on the price at which the assisted home can be sold to the next purchaser. At the same time, well-designed resale restrictions also permit buyers to accumulate some equity in their homes.

By limiting the price at which homeowners can sell their homes, a single investment in a homeownership unit can serve one family after another over time without any new investment of public funds. Subsidy retention programs preserve the buying power of public subsidies, ensuring that rises in home prices will not diminish the number of families who may be served.

Subsidy Retention versus Shared Appreciation Loans Assume that a family can afford to pay only $200,000 for a home in a market where starter homes cost $250,000. In the shared appreciation loan model, the family would buy the home for $250,000 and receive a loan for the $50,000 subsidy. In a subsidy retention program, by contrast, the subsidy would be invested once to buy down the price of the home to $200,000 - the level that a working family could afford. This family would typically purchase the home at that price without any second loan, but with an agreement specifying the price at which the home may be sold. Based on this agreement, when the family is ready to move, the home would be sold for an affordable price according to the resale formula, rather than the market price. For example, rather than selling for $375,000 and requiring a $130,000 second loan to maintain affordability, the house might resell for only $245,000 - a price that would be affordable to working families without any new subsidy. Some resale formulas tie the resale price to changes in the market value of a home, while others base the resale price on how much families of a target income level can afford, regardless of what has happened in the homeownership market. Click here to learn more about the different types of resale formulas used in subsidy retention programs.

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Photo credit: Greig Cranna, courtesy of MassHousing

Click on the links below to learn more about subsidy retention strategies: Common approaches to enforcing subsidy retention, including deed-restricted homeownership, limited equity cooperatives, and land trusts Resale formulas used in subsidy retention programs, which may include tying the resale price to changes in market value or the price affordable to targeted families

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You are currently reading: Subsidy retention strategies Subsidy retention programs subsidize the unit, rather than the buyer, ensuring a specific home remains affordable over the long term. Also in this section: Shared appreciation loans Homebuyers that receive these "silent" second mortgages make no payments until sale of the home, at which time the full loan is repaid plus a share of the home price appreciation. Implementing shared equity approaches Key issues related to designing a shared equity policy. Resident acquisition of manufactured home parks By facilitating the cooperative purchase by residents of manufactured home parks, communities can preserve affordable housing opportunities and help residents gain stability and build assets. Click here to view other resources related to shared equity homeownership.

Goal: Increase the Availability of Affordable Homes
Role: Preserve and Recycle Resources
Policy: Use Shared Equity Mechanisms to Preserve Homeownership Subsidies

Common Approaches to Enforcing Subsidy Retention


There is great variety in how resale formulas are implemented and enforced, but the three main approaches in the United States include deed-restricted homeownership, limited equity cooperatives, and community land trusts.

Click on the links below to learn more about three relatively common approaches:
Photo courtesy of District of Columbia Housing Authority	Deed-restricted homeownership -- guidelines specify the future sales price and qualifications of families eligible to purchase a home Limited equity cooperative -- members purchase a share in the development Community land trust -- separates ownership of a home from ownership of the land on which it is built

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You are currently reading: Common approaches to enforcing subsidy retention, including deed-restricted homeownership, limited equity cooperatives and community land trusts Other pages in this section: Resale formulas used in subsidy retention programs, which may include tying the resale price to changes in market value or the price affordable to targeted families Jump to: Shared appreciation loans Homebuyers that receive these "silent" second mortgages make no payments until sale of the home, at which time the full loan is repaid plus a share of the home price appreciation. Implementing shared equity approaches Key issues related to designing a shared equity policy. Resident acquisition of manufactured home parks By facilitating the cooperative purchase by residents of manufactured home parks, communities can preserve affordable housing opportunities and help residents gain stability and build assets. Click here to view other resources related to shared equity homeownership.

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Deed-restricted homeownership

Under this approach, a subsidy is applied to reduce the purchase price of a new or existing home to a level affordable to homeowners at the target income level. Then, restrictions are put into place requiring that the units be sold to buyers meeting certain qualifications - for example, incomes below 80 percent of the area median - at an affordable price as defined according to a formula set in the deed restriction or covenant. While these agreements are sometimes assumed to be self-enforcing, experience suggests they need to be actively monitored by an entity with an interest in maintaining ongoing affordability.

Solutions in Action

In Springfield, Massachusetts, the Homes for Good program operated by the Massachusetts Nonprofit Housing Association uses deed covenants to maintain the affordability of more than 3,000 owner-occupied homes. These homes, originally made affordable through either down payment assistance loans or inclusionary zoning provisions, must be sold to first-time buyers earning less than 80 percent of the area median income. To ensure that the homes remain affordable to buyers at this income level, The Massachusetts Department of Housing and Community Development (DHCD) calculates the allowable resale amount using a formula indexed to changes in area median income. DHCD maintains the right to purchase these homes at resale and select income-eligible buyers. [1]

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Limited equity cooperative

Under this approach, families purchase a "share" in the cooperative, rather than a standard property interest in the home. Limited equity cooperatives are typically, but not exclusively, applied in the context of an apartment or other multifamily development. Each member of the cooperative receives a right to occupy one unit, as well as a vote on matters of common interest. Cooperative members share responsibility for maintaining common areas and admitting new members. Share prices are set by a formula contained in the co-op's bylaws, subscription agreement and stock certificates.

One of the principal distinctions of this model is the concept of common ownership and shared decision making. Proponents of cooperatives also point to financial advantages stemming from economies of scale and the fact that the mortgage is held by the collaborative, rather than by individuals, reducing the need for families to qualify for a mortgage. There are roughly 400,000 to 500,000 limited or no-equity cooperative units in the country. [2]

In California, legal considerations have apparently led nonprofits interested in developing limited equity multifamily buildings to structure them as limited equity condominiums instead. These are similar to ordinary condominiums except the units have resale restrictions. Mixed-income condominiums -- with some units resale-restricted and others not -- have been developed in a number of locations. For example, in Washington, DC, the Beecher Cooperative operates 63 owner-occupied units. The maximum price for which residents may resell their shares is calculated based on increases in the Consumer Price Index. Because most low-income families could not afford to buy shares in the co-op even with these price controls, the Beecher Cooperative also includes 18 units with project-based subsidies for families earning less than 60 percent of area median income. [3] Click here to view more examples of limited-equity cooperatives.


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Community land trust

Under this approach, land is owned by a community land trust (CLT) and then leased to families who purchase the homes that sit on CLT land. Because the family needs to purchase only the building and not the land, a CLT home is more affordable than a conventional home. The ground lease establishes the conditions under which ongoing affordability is maintained, with the CLT always having the right to repurchase the property at a price established by a resale formula built into the ground lease.

One common approach to governing CLTs is to establish a board of directors consisting of an equal number of representatives of the following three groups: existing owners of homes on land leased from the CLT, residents from the surrounding community, and public officials or other supporters of the CLT. There are approximately 200 Community Land Trusts active throughout the United States -- click here to view more examples.

Solutions in Action

Troy Gardens is mixed-income, 30-unit homeownership development located near downtown Madison, WI, developed by the Madison Area Community Land Trust (MACLT). Twenty of the homes at Troy Gardens are designated as permanently affordable to low to moderate income first-time homebuyers earning 65 percent of the county’s area median income. MACLT maintains ownership of the land, reducing purchasing price of the home substantially. When homeowners of Troy Gardens sell their home, 75 percent of the appreciated value stays with the house, ensuring affordability for the next buyer while still offering homeowners a significant return on their initial investment. In 2001, MACLT purchased a 31-acre property from the State of Wisconsin and reserved five acres to develop the homes, leasing the remaining 26 acres of land to a local conservation organization to protect as open space with walking trails and community gardens. The homes were built in accordance with the Wisconsin Green Built Home Program standards to reduce utility and long-term operating costs. They were also designed to provide universal access to residents with physical disabilities. A bus stop outside of Troy Gardens provides convenient access to downtown utilizing public transportation, and is well-connected to Madison’s bike lane network. Click here to learn more about Troy Gardens.

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[1] Shared Equity Homeownership: The Changing Landscape of Resale-restricted, Owner Occupied Housing [PDF]. 2006. By John Emmeus Davis. Newark, NJ: National Housing Institute.

[2] Shared Equity Homeownership: The Changing Landscape of Resale-restricted, Owner Occupied Housing [PDF]. 2006. By John Emmeus Davis. Newark, NJ: National Housing Institute.

[3] Shared Equity Homeownership: The Changing Landscape of Resale-restricted, Owner Occupied Housing [PDF]. 2006. By John Emmeus Davis. Newark, NJ: National Housing Institute.

Goal: Increase the Availability of Affordable Homes
Role: Preserve and Recycle Resources
Policy: Use Shared Equity Mechanisms to Preserve Homeownership Subsidies

Key Resources


The following is a list of key resources on topics related to shared equity homeownership and resident acquisition of manufactured home parks. If you're aware of other resources that should be added, please contact us.

• Shared equity homeownership
• Resident acquisition of manufactured home parks
• From the Forum
  

Resources on shared equity homeownership

Websites

The National Association of Housing Cooperatives is a national nonprofit organization representing a membership of housing cooperatives and other resident-controlled communities. It provides general information on cooperative housing and includes targeted resources for a variety of readers, from co-op boards to those interested in starting new co-ops.

The National Community Land Trust Network is a membership organization of community land trusts (CLTs) that works to build awareness of the CLT model, increase investment in CLTs, and advocate for policies that promote development of CLTs. It includes a best practices library and a CLT Academy that offers training to practitioners.

The Cornerstone Partnership is a peer network of organizations working together towards a shared goal of preserving long-term affordability. It is funded by NCB Capital Impact and includes a diverse group of partner organizations. It has supported the work of shared equity organizations through its Cornerstone Homeownership Innovation Program (CHIP) grants.

Reports

The Center for Housing Policy has compiled a suite of resources on shared equity homeownership. These materials include:

• An Overview [PDF] outlining the continuum of homeownership subsidy programs.

• A Detailed Comparison [PDF] of shared equity resale formulas.

• A Spreadsheet [Excel] that allows you to test different approaches to shared equity in your community.

• A Webpage on the application of shared equity homeownership in weak housing markets.
  

The Role of Community Land Trusts in Fostering Equitable Transit-Oriented Development [PDF] 2013. By Robert Hickey. Cambridge, MA: Lincoln Institute of Land Policy.
This paper examines the potential role of community land trusts (CLTs) to help address these concerns and ensure that transit-oriented development (TOD) is affordable to lower income households over the long term. Using case studies of CLTs engaged in TOD efforts in Atlanta, Denver, and the Twin Cities, this paper explores the opportunities, challenges, and supports that exist for CLTs eyeing future TOD endeavors.

Stable Homeownership in a Turbulent Economy: Delinquencies and Foreclosures Remain Low in Community Land Trusts [PDF]. By Emily Thaden. Cambridge, MA: Lincoln Institute of Land Policy.
This study builds off of results of the report published in 2010. It examines mortgage delinquency and foreclosure rates among the owner-occupants of resale-restricted houses and condominiums in community land trusts (CLTs) across the United States. These rates are then compared to the delinquency and foreclosure rates among the owner-occupants of conventional market-rate housing as reported by the Mortgage Bankers Association’s National Delinquency Survey (MBA). The study also explores practices and policies of CLTs that may help to explain their better performance.

The Community Land Trust Reader 2010. By John Emmeus Davis. Cambridge, MA: Lincoln Institute of Land Policy.
This reader brings together for the first time the seminal texts that inspired and defined the CLT. Selections trace the intellectual origins of an eclectic model of tenure that was shaped by the social theories of Henry George, Ebenezer Howard, Ralph Borsodi, and Arthur Morgan and by social experiments like the Garden Cities of England and the Gramdan villages of India. The Reader does not look only to the past, however. Many of its 46 essays and excerpts examine contemporary applications of the CLT in promoting homeownership, spurring community development, protecting public investment, and capturing land gains for the common good. The Reader also looks ahead to challenges and opportunities likely to affect the future development of CLTs, here and abroad.

Outperforming the Market: Delinquency and Foreclosure Rates in Community Land Trusts [PDF] 2010. By Emily Thaden. Cambridge, MA: Lincoln Institute of Land Policy.
This study examines the rates of delinquencies and foreclosure filings in mortgages that were held by households who owned homes in Community Land Trusts (CLTs) during 2009. A survey was administered to U.S. CLTs, yielding a sample of 42 CLTs that represented 2,173 owner-occupied, resale-restricted mortgages. Results indicated that CLT loans outperformed MBA loans on all comparable delinquency and foreclosure measures. While findings suggest CLTs are effective in preventing delinquencies and foreclosures, results also found that a minority of CLTs received external funding to expand or support their work.

What's In a Name? Clarifying the Different Forms and Policy Objectives of 'Shared Equity' and 'Shared Appreciation' Homeownership Programs. [PDF] 2009. By Ryan Sherriff and Jeffrey Lubell. Washington, DC: Center for Housing Policy.
There are various homeownership programs and mortgages that have similar names. This paper clearly defines the various types of 'shared equity' and 'shared appreciation' programs, and describes the differences and similarities between them.

The City-CLT Partnership: Municipal Support for Community Land Trusts. [PDF] 2008. By Rick Jacobus and John Emmeus Davis. Cambridge, MA: Lincoln Institue of Land Policy.
This report provides a comprehensive overview of the community land trust (CLT) model and the range of opportunities for local governments to support their local CLT. The report covers municipal oversight and regulation of CLT activities to preserve long-term housing affordability, describes current trends around the nation, and cites best practices of several existing municipal-CLT partnerships.

Long-Term Affordable Housing Strategies in Hot Housing Markets. [PDF] 2008. By Jesse Mintz-Roth. Washington, DC: NeighborWorks America and Cambridge, MA: Harvard Joint Center for Housing Studies.
This paper reviews housing policies that can be used to create and maintain long-term affordability in "hot" markets. Specific tools discussed include shared equity and limited equity cooperatives, housing trust funds, and inclusionary zoning. The author also evaluates the trade-offs associated with each of these policies related to longevity, affordability, and equity-generation.

Community Land Trust Online Handbook. E. F. Schumacher Society.
This online compendium of materials contains by-laws, articles of incorporation, lease agreements, and associated document to assist in the start-up for new Land Trust organizations.

Shared Equity Homeownership: The Changing Landscape of Resale-restricted, Owner Occupied Housing. [PDF] 2006. By John Emmeus Davis. Montclair, NJ: National Housing Institute.
This detailed guide to shared equity homeownership describes the history of shared equity models in the U.S., common shared equity structures (deed restrictions, community land trusts, and limited equity cooperatives), and contractual controls over use and resale of homes in a shared equity approach. It also covers the roles state and local governments can play in promoting shared equity homeownership. A discussion of the claims and criticisms of shared equity homeownership concludes the report.

Limited Equity Co-ops as Bulwarks Against Gentrification 2006. By Susan Saegert, Efrat Eizenberg, Melissa Extein, Tsai-shiou Hsieh, Lymari Benitez, Chung Chang. New York: CUNY Graduate Center.
This study examines the contribution of Limited Equity Cooperatives (LECs) to sustaining high quality, affordable housing for lower income and minority residents of a rapidly gentrifying neighborhood (Clinton, aka Hell's Kitchen, in Manhattan). The authors documented lower housing costs, better physical conditions, and a more diverse population in LECs compared to the area. An analysis of survey data shows that effective leadership, inclusive participation, and trust and cooperation among shareholders predicted physical quality, financial and social stability, and continued affordability, suggesting that the LECs act as a bulwark against displacement. Measures to assure the ongoing success of LECs and their continued affordability to lower income residents are discussed, as well as the broader political implications of LECs.

Limited Equity Housing Cooperatives: Defining a Niche in the Low-Income Housing Market 2005. By Susan Saegert and Lymari Benitez. Journal of Planning Literature 19(4): 427-439.
This article examines the concept of limited equity housing cooperatives (LECs) and their potential niche in the housing stock of the United States. The authors discuss problems related to the success of housing cooperatives, as well as policy implications and opportunities for development of LECs. The research evidence that exists shows that LECs have a strong record of providing high-quality, safe, affordable housing for low- and moderate-income populations. The authors conclude that LECs constitute a valuable, if underused, form of housing ownership with the potential to improve the quality of life for certain low- and moderate-income households and to contribute to the physical and social quality of the larger community.

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.
This report describes shared equity mortgage (SEM) mechanisms and argues that consumers would prefer these types of loans to other affordable mortgage products. The authors estimate that introducing SEMs would increase the U.S. homeownership rate by 1-1.5%, but reform of mortgage industry regulations would be required.

Sharing the Wealth: Resident Ownership Mechanisms. 2001. By Heather McCulloch and Lisa Robinson. Oakland, CA: PolicyLink.
This report discusses the importance of asset building and identifies strategies to involve low-income households in their community's economic development. Community land trusts and limited equity cooperatives are highlighted as equity building opportunities.

Taking Shared Equity to Scale -- Reports prepared for the December 12, 2007 Symposium on this topic co-sponsored by NeighborWorks America and NCB Capital Impact.
This collection of reports includes a synopsis and papers from the NeighborWorks America and NCB Capital Impact symposium on shared equity. Shared equity approaches discussed include inclusionary housing, land trusts, deed restrictions, co-ops, and shared equity mortgages.

Multimedia

Shared Equity Housing: A Forum on Financing and Capitalization [PDFs] 2012. Federal Reserve Bank of Richmond.
In June of 2012, the Federal Reserve Bank of Richmond hosted a forum to discuss ideas and recommendations for brining shared equity to scale. Discussions included information on borrower financing, capitalization and secondary market options. Presenters were from the Ford Foundation, The National CLT Network, and the Urban Institute. A summary of the forum can be found here.

A New Way Home: Sharing Equity to Build Wealth. 2007.
This video produced by NCB Capital Impact and NeighborWorks America highlights local shared equity homeownership programs across the country that are providing wealth building homeownership opportunities while preserving affordability for future generations.

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Resources on resident acquisition of manufactured home parks

Websites

I'M HOME - Innovations in Manufactured Homes
I'M HOME, a national initiative headed by CFED, supports programs across the country that are helping families who choose manufactured homes receive fair treatment and build durable assets. To be good investments for these families, I'M HOME argues that manufactured homes should be well-built and installed on a proper foundation once they reach their destination. Financing should be fair and affordable. Homeowners should own, or have long term control over, the land underneath the homes. And, finally, when it's time to move, the homeowners should be able to sell the homes at a fair value.

Manufactured Home Owners Association of America
A national organization dedicated to the protection of the rights of all people living in manufactured housing in the United States.

State Manufactured Housing Landlord-Tenant and Sale of Park Statutes
This list, compiled by the National Conference of State Legislatures, catalogs state legislation passed prior to April 2007 that protects tenants in manufactured homes and supports resident owned communities.

ROC USA
ROC USA is a social enterprise that offers training, networking, and financing to help homeowners gain security through community ownership. Through two subsidiaries, ROC USA Network and ROC USA Capital, they train and certify Technical Assistance Providers to provide pre- and post-purchase training services to homeowner group and provide loans to help homeowner groups purchase their manufactured home communities.

Articles & Reports

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.
This study examines whether manufactured homes in New Hampshire outperform investor-owned manufactured housing parks from a social and economic standpoint. The research findings suggest that resident-owned manufactured housing parks indeed provide a more affordable housing option for low-income families, as well as an enhanced sense of ownership and an opportunity to build equity.

"Mobile" Homes No More: Policy Innovations in Manufactured Housing. [PDF]. 2005. By David Buchholz. Housing Facts and Findings 7(4). Washington, DC: Fannie Mae Foundation.
This article provides an overview of recent policy changes related to manufactured homes, particularly with regard to financing, land ownership and zoning. A list of web sites and articles provides links to further information.

Moving Home: Manufactured Housing in Rural America [PDF]. 2005. Washington, DC: Housing Assistance Council.
This HAC report includes a data analysis regarding manufactured housing in rural America. It includes information on manufactured home land ownership, renter-occupied manufactured homes, and manufactured home communities.

Click here to view other resources on Modular and Factory Built Homes

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From the Forum The following resources are drawn from posts to the Shared Equity Homeownership Discussion Group on the HousingPolicy.org Forum, an interactive section of this site that allows members to ask questions, offer advice, and share their experience. Any document attached to a Forum post will be added to this list. If you have a resource that should be included, simply reply to a related thread on the Forum - or create a new thread - and attach the file to your post. Click here for instructions on how to add an attachment to your reply. A suite of resources on shared equity homeownership -- released by the Center for Housing Policy in April 2007, provides basic and detailed information on how to design and implement a shared equity homeownership program. Posted in: Basics of Shared Equity Balancing Durable Affordability and Wealth Creation: Responding to Concerns about Shared Equity Homeownership [PDF] -- Prepared by the Center for Housing Policy, this report explores the potential of shared equity models to balance long-term affordability and asset-building objectives. Posted in: Live at the Forum with Rick Jacobus of Burlington Associates and Barbara Lightsy of the City of Lakes CLT CFHomes Program Detail [DOC]: Workforce Housing and Foreclosure Response -- memo describes a City First Enterprises project to create 100 workforce homes in mixed-income developments citywide. Posted in: Community Land Trust begins in Oakland, California Fannie Mae guidelines for price restricted buyers -- one of the handouts for a May 8, 2009 webinar. Posted in: Webinar: Mortgage financing for price restricted homebuyers FHA guidelines for price restricted buyers -- one of the handouts for a May 8, 2009 webinar. Posted in: Webinar: Mortgage financing for price restricted homebuyers Mortgage Financing for Price Restricted Homebuyers [PDF] -- PowerPoint presentation from May 2009 Lincoln Institute for Land Policy webinar. Posted in: Webinar: Mortgage financing for price restricted homebuyers Reserve Fee Analysis spreadsheet [XLS] -- prepared by the Center for Housing Policy for the HousingPolicy.org Forum, provides balance projections for a hypothetical reserve fund based on 3 scenarios. Posted in: Reserves and Property Maintenance Rural Development guidelines for price restricted buyers -- one of the handouts for a May 8, 2009 webinar. Posted in: Webinar: Mortgage financing for price restricted homebuyers Shared Equity Homeownership [DOC] -- Handout prepared by NCB Capital Impact that describes shared equity homeownership programs and their benefits. Posted in: Great Shared Equity Discussion Opportunities in Chicago in Late June Taking Shared Equity Homeownership to Scale [PDF] -- Proposal for a federal demonstration to expand the visibility and reach of shared equity homeownership programs. Posted in: Great Shared Equity Discussion Opportunities in Chicago in Late June Thistle lender letter [PDF] -- Example of of a sample letter sent by Thistle Communities to potential new lenders or homebuyers. Posted in: Webinar: Mortgage financing for price restricted homebuyers

Return to the Shared Equity main page.

Goal: Increase the Availability of Affordable Homes
Role: Preserve and Recycle Resources
Policy: Use Shared Equity Mechanisms to Preserve Homeownership Subsidies

Resale Formulas Used in Subsidy Retention Programs


There are numerous formulas that could be used to set the maximum resale price in subsidy retention programs.

Click on the links below to learn more about three relatively common approaches:
Photo courtesy of District of Columbia Housing Authority	Appraisal-based resale formula -- links resale price to the appraised value of the home Index-based resale formula -- calculates the resale price based on a separate index Affordable housing cost approach-- uses the amount a working family can afford to determine the resale price

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You are currently reading: Resale formulas used in subsidy retention programs, which may include tying the resale price to changes in market value or the price affordable to targeted families Other pages in this section: Common approaches to enforcing subsidy retention, including deed-restricted homeownership, limited equity cooperatives, and land trusts Jump to: Shared appreciation loans Homebuyers that receive these "silent" second mortgages make no payments until sale of the home, at which time the full loan is repaid plus a share of the home price appreciation. Implementing shared equity approaches Key issues related to designing a shared equity policy. Resident acquisition of manufactured home parks By facilitating the cooperative purchase by residents of manufactured home parks, communities can preserve affordable housing opportunities and help residents gain stability and build assets. Click here to view other resources related to shared equity homeownership.

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An appraisal-based resale formula ties the "affordable" resale price to any changes in the market value of the property. For example, a homeowner might be permitted to sell for a price equal to the original purchase price plus 25 percent of any increase in the appraised value of the home. Appraisal-based formulas exhibit characteristics of shared appreciation loans, but require homeowners to sell the home at a below-market price, rather than selling at a market price and returning a share of the appreciation. Under an appraisal-based resale formula approach to subsidy retention, the homeowner is able to take his or her share of home price appreciation, but the public share remains invested in the home, allowing re-sale to the next buyer at an affordable price. Both the ongoing affordability and the level of wealth creation under an appraisal-based approach will depend greatly on the equity-sharing percentage used and the performance of the housing market. As with shared appreciation loans, however, when home prices rise rapidly, even a conservative approach to shared appreciation may allow prices to rise beyond the level at which they are affordable to future buyers without additional subsidy. A slow housing market would limit wealth creation, but would likely maintain affordability.

Solutions in Action

In Albuquerque, New Mexico, the Sawmill Community Land Trust supports 56 homeownership units and 60 rental units. Located near Albuquerque's business and historic districts, Sawmill is at special risk for rapid home price increases. In order to preserve affordability, the Sawmill Trust limits resale prices to the amount sellers originally paid plus 25 percent of any increase in the home's appraised value. While income restrictions vary by unit, the general goal of the Trust is to preserve affordable homeownership for families earning less than 80 percent of the area median income.

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Index-based resale formula

Another popular approach to resale pricing is to tie the price to an index, such as the consumer price index (CPI) or the area median income (AMI). A formula based on an AMI index, for example, specifies that the resale price shall be no more than the initial (affordable) purchase price plus an adjustment based on the annual change in the AMI published by HUD. Each year, as the AMI rises, the maximum resale price rises at exactly the same rate. Because increases in the permissible sales price of the home are tied to increases in income (rather than the price of market-rate homes), a new buyer with the same income profile should be able to purchase the home without any need for additional public subsidy.

For example, Boulder, Colorado uses an index-based resale formula to maintain affordability on homeownership units created through its inclusionary zoning program. The covenant-established resale price is equivalent to the seller's purchase price plus any expected costs related to the sale of the home and a portion of equity earned (determined by multiplying the seller's purchase price by either the change in AMI or the change in the CPI, whichever is less, with an annual cap of 3.5 percent).

Click here to view more examples of index-based resale formulas.


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Affordable housing cost approach

Some programs impose resale price restrictions that are based on what a target family can afford, taking into account interest rates and property tax and insurance rates at the time of resale. These programs use what is called an affordable housing cost formula (or mortgage-based formula), which specifies an income range (i.e., 80 - 100 percent of AMI) and a definition of affordability (i.e., 33 percent of monthly income for housing costs including mortgage, taxes and insurance). At the time of sale, the maximum resale price is calculated by working backwards from how much a family at the target income range can afford, for example: If the target income range is 80% of the AMI and below, and the AMI is $100,000, then the upper level of the target income is $80,000. An affordable percentage of total income that can be spent on housing monthly is determined for this income level. For this example, let's say 33% of the $80,000 salary, or $2,200 per month. Then, an estimate of the monthly amount spent on taxes, insurance and repairs is determined and subtracted from estimated total monthly housing expense. For this example, let's say that this monthly expense is $200; which is deducted from $2,200 leaving $2,000 per month that our target family can affordably spend every month on principal and interest payments. Next, using current interest rates, an estimate is made as to what a $2,000 principal and interest payment translates to in home value. For this example let's assume a 7% interest rate that would roughly correspond to a $300,000 mortgage. Finally, taking the $300,000 mortgage amount, we can back in to a down payment of 5% down payment, bringing the total maximum resale price for our example to roughly $315,000. This approach guarantees that assisted homes will always remain affordable to the target income group, without the need for additional subsidy. Affordable housing cost formulas achieve this perfect affordability, however, by imposing the risk of interest-rate changes on the assisted homeowner. When interest rates are falling, the permissible sales price will rise, offering homeowners greater-than-market-rate appreciation upon sale of the home. But when interest rates rise, the maximum permissible sales price will decline, which could lead homeowners to earn no equity or even face a loss when they sell - even if market prices are going up!

Solutions in Action

In California, homeownership programs funded by redevelopment agencies must use an Affordable Housing Cost (AHC) formula to maintain affordability. The maximum sales price for a subsidized home is calculated as the price that results in monthly payments that a family of a given income level can afford - 30 percent of income for those earning less than 70 percent of AMI, and 35 percent of income for those earning between 70 and 110 percent of AMI. This approach differs from an index-based AMI formula in that it includes a number of costs such as mortgage interest rates, utilities and repairs in determining the price for which an assisted unit may be purchased or resold. Under these affordability standards, the cost of financing has the biggest influence on the amount buyers can afford to pay for a home. For a low-income family, for example, an interest rate increase from 6 to 7 percent will reduce the affordable purchase price by 10 percent. The formula thus carries a risk that affordable resale prices may be lower than the amount some homeowners paid for their unit. It is even possible for the formula to establish an affordable resale price below the current owner's debt on the property. Source: CLT Financing in California. By Gerald L. Rioux and Rick Jacobus. Working Paper #2, California Redevelopment Law. Springfield, MA: Institute for Community Economics.

Because small changes in interest rates can lead to large changes in the amount a family can afford to borrow, this risk can be considerable. Subsidy retention programs that use affordable housing cost formulas protect affordability in the face of rising interest rates, but sometimes at the expense of wealth creation. Homeowners, even in a rising housing market, may not receive any equity when they sell their assisted homes.


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Goal: Increase the Availability of Affordable Homes
Role: Preserve and Recycle Resources
Policy: Use Shared Equity Mechanisms to Preserve Homeownership Subsidies

Implementing Shared Equity Approaches

The following are some of the key issues that need to be addressed when developing a shared equity policy:

• Converting existing subsidy programs to a shared equity approach
  
• Using inclusionary zoning and other indirect funding sources
  
• Ensuring ongoing stewardship

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Converting existing subsidy programs to a shared equity approach: By their nature, shared equity approaches require a significant up-front subsidy - both to make homeownership affordable to the target population and to allow the home to be sold for a price that is sufficiently below market to ensure there is demand for the home despite the restrictions on equity build-up. In the long run, however, this approach may be less expensive than other approaches that cost less initially but do not preserve affordability or the value of subsidies over time. Converting existing homeownership programs to shared equity homeownership is a common starting point for jurisdictions interested in shared equity homeownership. Such conversions often stem from a desire to preserve the value of government investment as per-household subsidy amounts rise to keep up with increasing housing costs.


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Using inclusionary zoning and other indirect funding sources: The up-front subsidy for a shared equity approach to affordable homeownership may be funded directly, through such sources as the federal HOME or Community Development Block Grant program, or indirectly, through contributions of city-owned land or incentives or requirements that lead developers to include a modest share of affordable units within a market-rate development. Such policies - commonly known as inclusionary zoning or inclusionary housing - often provide developers with a density bonus that allows them to build more units than otherwise permitted or other offsets to cover the costs associated with the below-market units. When designed well, such policies can be used to create an inventory of below-market homes that could be fed into a shared equity system. As with direct subsidies, it is important to preserve the value of implicit subsidies over time by requiring long-term or permanent affordability. Some inclusionary zoning policies require that affordable units stay affordable for a minimum length of time - say 10, 20 or even 30 years - but then allow the units to be sold at market rates. While such policies are effective in helping the individual beneficiaries build assets, they ultimately do not add to the stock of homes that remain affordable over the long-term. By making the affordability covenants permanent, putting the units into a community land trust or attaching to the home a shared appreciation mortgage requiring the implicit subsidy to be repaid along with a share of home price appreciation upon resale, communities can successfully add to the stock of shared equity homeownership opportunities at minimal cost to the jurisdiction.	Solutions in Action
	Since 1992, the San Francisco Inclusionary Affordable Housing Program requires developers to sell 15 to 20 percent of the units in a project as “Below Market Rate” (BMR) units affordable to low- or moderate-income households. The program places a resale restriction on each BMR home, keeping it affordable to future low- and moderate-income buyers. Currently, the resale restriction formula allows BMR home prices to change at the same rate as the area median income in the San Francisco metropolitan area, helping to keep housing costs in line with incomes. By using this formula, the program creates permanently affordable homes for working families in the Bay Area, one of the most expensive housing markets in the U.S. Click here to leave this website and learn more about the San Francisco Inclusionary Affordable Housing Program.

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Ensuring ongoing stewardship
While well structured shared equity approaches help to preserve the value of public homeownership investments in the face of rising home prices, they are not entirely cost-free after the initial investment. Someone needs to enforce the resale restrictions in a subsidy retention model or the repayment clauses in a shared appreciation mortgage. In addition, grants or reduced rate loans for home improvement needs must be available to help maintain the permanently affordable housing stock.

In some cases, properties may need to be acquired and renovated if they have not been kept up adequately, or perhaps sold if they are no longer located in a desirable area. The costs required for a selected entity to execute these functions should be anticipated and budgeted for as part of the shared equity calculus to ensure the portfolio remains intact and an enduring asset for the community. The possibility of declining home values and how to structure sales during a down market should also be considered when thinking about long term and ongoing stewardship.

Click here [PDF] to leave this site and access materials on ongoing stewardship prepared for the December 12, 2007 Symposium on Taking Shared Equity Homeownership to Scale, co-sponsored by NeighborWorks America and NCB Capital Impact.

Solutions in Action

Between 2006 and 2008, the city of Minneapolis allocated $10 million in funds raised through tax increment financing, to city neighborhoods for affordable housing production. City neighborhood councils, such as the Fulton Neighborhood Association (FNA), had the discretion to use the funds as they saw toward this purpose. The City of Lakes Community Land Trust (CLCLT), a provider of permanently affordable homeownership in the Minneapolis-St. Paul area, reached out to the FNA because of the Fulton neighborhood's affluent population and lack of affordable housing, to inform them about the community land trust model as a way to promote greater housing affordability. Initially, the FNA expressed concerns about whether low- and moderate-income families would be able to afford and maintain homeownership, whether CLCLT homeowners would be good neighbors, and the costs of supporting this type of affordable homeownership. The group was also reluctant to release the $150,000 allocated to them by the city for low- and moderate-income families to purchase permanently-affordable homes through the CLCLT. In response to this, CLCLT developed a comprehensive outreach strategy to work with the FNA and gain members' support and trust. As part of their strategy, the CLCLT invited current land trust homeowners speak directly to the neighborhood association about their experiences working with and purchasing a home through the CLCLT. The strategy worked, with the FNA eventually releasing the full $150,000 to support three families in purchasing community land trust homes. The strategy proved so effective, in fact, that CLCLT hired one of their own land trust homeowner as a full-time Outreach Coordinator. The Outreach coordinator serves as a spokesperson for the CLCLT, establishing and maintaining relationships with CLCLT homeowners and related community groups. Click here to leave this site and learn more about the City of Lakes Community Land Trust

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You are currently reading: Implementing shared equity approaches Key issues related to designing a shared equity policy. Also in this section: Shared appreciation loans Homebuyersthat receive these "silent" second mortgages make no payments untilsale of the home, at which time the full loan is repaid plus a share ofthe home price appreciation. Subsidy retention strategies Subsidy retention programs subsidize the unit, rather than the buyer, ensuring a specific home remains affordable over the long term. Resident acquisition of manufactured home parks By facilitating the cooperative purchase by residents of manufactured home parks, communities can preserve affordable housing opportunities and help residents gain stability and build assets. Click here to view other resources related to shared equity homeownership.