shared equity: overview » introduction » subsidy retention

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.

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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Subsidy retention strategies
Subsidy retention programs subsidize the unit, rather than the buyer, ensuring a specific home remains affordable over the long term.

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