Use Shared Equity Mechanisms to Preserve Homeownership Subsidies

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:

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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Common approaches to enforcing subsidy retention, including deed-restricted homeownership, limited equity cooperatives and community land trusts

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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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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.

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.

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