Recently, I stumbled across a 2013 paper entitled Filling the Void Between Homeownership and Rental Housing: A Case for Expanding the Use of Shared Equity Homeownership. The author, Jeffrey Lubell, is a leading authority on housing policy and currently serves as the director of Housing and Community Initiatives at Abt Associates.
In this paper, Lubell makes the case for shared equity homeownership (“SEH”), which he defines as follows:
“Shared equity homeownership provides the benefits of homeownership at a lower price point, facilitating access to homeownership by low and moderate-income households. Under SEH, home price appreciation is shared between the homebuyer and the program sponsor to achieve a balance between the individual’s interest in building wealth and the community’s interest in ensuring long-term affordability.”
Note: Landed is one type of shared equity homeownership where home price appreciation is shared between the homebuyer and community investors (other common forms include Community Land Trusts, where all the gains from land appreciation are kept within the Community Trust).
Lubell’s paper is worth a read in full to delve into the benefits of SEH, which include a “superior risk/reward profile to traditional homeownership” and an ability to scale far beyond traditional grants. In the interim, I had the opportunity to chat with Lubell about housing trends and the evolution of shared equity homeownership.
There’s been a lot of talk about how millennials don’t want to buy homes. Do you still believe in homeownership?
We’ve seen a long period of time in which young people have deferred buying a home. The aftermath of the housing crisis of the late 2000s left a whole generation wondering if housing is a good investment. However, recent Fannie Mae surveys have indicated that there continues to be strong interest in homeownership. My guess? The desire to buy is there. But the means to buy? For a lot of people in high-cost markets, the answer is no, unless we can find a way to make homeownership more affordable.
Speaking of affordability, when did you first start studying and championing shared equity homeownership (SEH)?
I first focused on SEH during the housing boom of mid-2000s when housing prices were increasing by leaps and bounds. Prior to the boom, many local governments had programs to give people a grant or forgivable loan (essentially a grant) of $5,000 or less to help with a down payment or with closing costs. At the time, it wasn’t cost effective to worry about recovering these relatively small sums of money.
What happened in 2000s was that the amount needed for households grew and grew. In California, local jurisdictions might supply up to $70K in down payment support just to help a single homebuyer. As a result, it became absolutely imperative to find a way to recycle funds to sustain these assistance programs over time.
Along with Rick Jacobus, one of the leading SEH experts, I spent a lot of time looking at different models. SEH is a tool that allows governments to preserve or recycle investments in affordable homeownership to help multiple generations of homebuyers, while ensuring that the buying power of those investments keeps pace with the appreciation in home sales prices.
Where does it make sense to implement to SEH? Also, who is this model a good fit for?
I think this is something that can work in any market, though the nature of the product can vary. In coastal markets and other high-cost cities, a large share of people cannot afford to buy a home and creating a pathway to homeownership through SEH can be helpful, so long as (and I want to be very clear about this) the market has the ability to respond to increased demand with new construction. If you don’t simultaneously increase supply, a program to increase the ability of people to buy homes could lead to higher home prices. You need to act on both fronts.
In cities with a mix of high- and low-cost neighborhoods, a shared equity approach can help people access specific neighborhoods where they might otherwise be priced out. And in other markets, shared appreciation mortgages can help people overcome the barrier of a lack of savings for a down payment.
As for who, I think this is a great tool for someone who wants to buy a home and has good credit, but is unable to save enough for a down payment to buy in their desired neighborhood.
In your study, you talk about some of the barriers to scaling a SEH program: capital and lenders. Do you think there’s an opportunity for the impact investor community to step up?
It’s an intriguing question, I could certainly see philanthropic capital stepping into this space, particularly if they care about a particular place and want to ensure that homes are and remain affordable over time. Governments are sometimes limited in their ability to do this because it can be more difficult for them to focus on a particular neighborhood.
What do you think needs to happen to get more lenders on board?
It is important for lenders and the secondary market to ensure that homebuyers who are buying a home with a shared appreciation mortgage or through a SEH program like a community land trust are able to readily obtain a first mortgage for the amount they will be supporting with their own income.
Who else is paving the way for SEH?
As a starting point, I’d recommend the work of John Davis, Rick Jacobus, and Andrew Caplin. Here are links to some of their work:
- Shared Equity Homeownership: the Changing Landscape of Resale-Restricted, Owner-Occupied Housing, by John Davis
- The Asset Building Potential of Shared Equity Homeownership by Rick Jacobus
- Facilitating Shared Appreciation Mortgages to Prevent Housing Crashes and Affordability Crises by Andrew Caplin
It’s interesting to see the private sector jumping into this space. With any shared appreciation product, and particularly with products offered by the private sector, it is important to ensure that the deal offered to consumers is a fair one and that communications and expectations are clear.
I will look forward to following your initiative and learning about its outcomes.
Jeffrey Lubell (left) at the 2017 Urban Land Institute Fall Meeting in Los Angeles. Photo courtesy of the Urban Land Institute.
Jeffrey Lubell is a leading authority on housing policy. As the current Director of Housing and Community Initiatives at Abt Associates and former executive director of the nonprofit Center for Housing Policy, Lubell has dedicated his career to providing policy, program and research expertise to assist policymakers in solving the nation’s pressing challenges in the areas of affordable housing, economic inclusion and asset-building, and community development.