Sen. Patrick Leahy (D-VT) urged that we not abandon homeownership’s “rightful place” as part of the “American dream” and declared support for expanding a shared equity approach to home ownership for working families at a Center for American Progress event last Wednesday. Leahy’s opening remarks concerned the potential for new strategies to create stable and sustainable homeownership for minority families and others excluded from the market.
Following Leahy’s remarks, CAP’s Executive Vice President Sarah Rosen Wartell introduced a panel of homeownership experts including John Barros, executive director of the Dudley Street Neighborhood Initiative; Rick Jacobus of NCB Capital Impact; George McCarthy of the Ford Foundation; and Brenda Torpy of the Champlain Housing Trust. David Abromowitz, Senior Fellow at CAP, moderated the panel.
The speakers focused on shared equity homeownership, where the government invests funds to provide lower-income buyers with down payment assistance in exchange for a share in the appreciation when the home gets sold. Typically the homeowner builds wealth as home values rise over time but does not walk away with a windfall that prevents the next workforce buyer from acquiring the home. Unlike homebuying credits, the public investment stays with the home and creates an affordable place to live for several families over 30 years or longer.
These funds are also viewed as an investment in the community rather than an individual grant. When someone has a vested interest in their home through even a fraction of ownership, they are more likely to take better care of it, thereby improving the surrounding neighborhood and overcoming individual asset inequality.
Abromowitz explained that the goal of shared equity homeownership is “to balance the expectation of individual families” for short-term returns with the public’s expectation for long-term returns on the homeownership investment. He added that it’s a “fair deal [for] a huge swath” of the U.S. workforce, particularly the “squeezed middle” who are bearing the brunt of the crisis.
In a CAP report released at the event, Abromowitz and Jacobus highlight hundreds of local and state agencies and community groups that have already provided shared equity homeownership programs to buyers who would otherwise be unable to afford housing. Shared equity protects people from overinvestment and the predatory loan market, which caused may homeowners to default on loans during this most recent crisis, Jacobus added.
Shared equity programs have a “solid track record” of very low default and foreclosure rates, said Wartell. These programs provide a “sustainable path” to homeownership, and government agencies must “transcend partisanship” to turn away from promoting homeownership at any cost and apply these types of sound methods to create permanent affordable housing, she explained.
Jacobus said that American homeownership has been historically unfair and unequal. As the government created programs to encourage “widespread homeownership” they also promoted clear racial discrimination until the 1960s that has had lasting effects. Today, 72 percent of white families own their own homes, while only 47 percent of black and Hispanic families own theirs.
Jacobus noted that among white families, first-time buyers receive family down payment assistance roughly 30 percent of the time, while for minority families only 8 percent get family help in buying. The U.S. “housing policy has driven a cycle of inequality” and wealth is both a cause and outcome of this “vicious cycle,” he lamented. Owning a home creates wealth, but you can only own a home if you already have established wealth.
On the other hand, homeownership at any cost for low-income families hurt the housing market because government programs ushered buyers into homes they were unable to afford. We now have to “contain the crazy” nature of the housing market, McCarthy explained. We are still in a crisis seeing “massive problems” in rental and ownership markets, and we need “safe asset building” to move out of the crisis.
McCarthy argued that “Homeownership done right…can help people build wealth,” and this will prevent “decay and decline” through a homeowner’s ability to become a long-term “steward” for the home and the community, he added.
Shared equity homeownership is ultimately self-subsidizing because it creates a “stewardship pool,” Torpy said. These types of programs make people “part of something” they want to see succeed. The Champlain Housing Trust, for example, has a 90 percent success rate and received a U.N. World Habitat Award in the summer of 2008 for being a model of sustainable housing.
Still, housing costs in relation to wages are a huge barrier to many families, so federal funds to expand homeownership, create and retain community and personal wealth, and enable household mobility turn homes into “community asset[s],” Torpy added.
These programs teach smarter investment and prevent families from “hedging their child’s bedroom,” Barros said. “Community wealth creation” improves quality of life and gives the public incentive for individuals to succeed and avoid “risky” financial actions, he said. When families don’t have to spend 73 percent of their income on housing, it stabilizes communities in terms of crime, promotes civil action, and creates “development without displacement.”
There is a “perception that it’s hard enough to develop affordable housing… so that anything else that makes it more difficult to move… you can’t afford,” said Abromowitz. But that negative perception is merely a “mental barrier” to trying different strategies, he suggested.