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Asset Building and Shared Equity Homeownership Jeffrey Lubell, Executive Director Center for Housing Policy April 14, 2010 Webinar.

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Presentation on theme: "Asset Building and Shared Equity Homeownership Jeffrey Lubell, Executive Director Center for Housing Policy April 14, 2010 Webinar."— Presentation transcript:

1 Asset Building and Shared Equity Homeownership Jeffrey Lubell, Executive Director Center for Housing Policy April 14, 2010 Webinar

2 Homeownership at a crossroads Subprime and foreclosure crisis –Downsides of traditional homeownership model –Community impacts –Opportunity for new thinking and new approach What if a safer model for affordable homeownership could be found? –Lower risk of foreclosure / equity loss –Leverage private markets –Strong asset-building results

3 Shared equity homeownership Basic model –Deep subsidy –Resale price restrictions –Monitoring Applications –Community land trusts –Deed restrictions –Limited equity cooperatives

4 Equity sharing models Share of home price appreciation –e.g., resident retains 25% of appreciation Area Median Income –Resale price rises at same rate as incomes Affordable Housing Cost –Home always sold for price affordable to target buyer

5 Subsidy Retention Example Initial Purchase –Market Value = $200,000 –$50,000 subsidy brings price down to $150,000, affordable to family at target income range –Family contributes $10,000, with 30-year fixed mortgage for $140,000 Affordability at Resale –Home prices have increased 25% over a five-year period, so market value = $250,000 –Incomes have gone up 15%, so target family can afford a home valued at $172,500 Asset Accumulation –Family sells for $172,500, with transaction costs of $5,000 –Family gains $17,500 in home price appreciation plus approx. $10,000 in equity built up through principal paydown = $27,500 gain

6 Benefits of SEH Current and future affordability Lower risk to homebuyer Protection from market declines Opportunity for individual to generate large return on initial investment Community benefits from affordable housing in key locations Buying power of subsidy preserved

7 The Asset Building Potential of Shared Equity Homeownership Rick Jacobus, NCB Capital Impact

8 Ownership Gap

9 Wealth is the key barrier 2% have sufficient savings Source: Savage 2009 Renters who cant afford ownership

10 Overcoming barriers Source: Savage 2009 Strategy% of Renters who can afford to buy Current mortgage requirements percentage point interest rate subsidy 8.3 No down payment requirement 9.2 $10,000 purchase assistance 19.5

11 Shared Equity Homeownership Create Affordability: Invest significant public subsidy Preserve Affordability: Share in price appreciation

12 Research Question How does this form of ownership perform as an asset building strategy for homeowners?

13 Champlain Housing Trust Developed 424 homes since 1984 Nearly all buyers <80% of AMI

14 Data 205 resales of CHT homes Exit interviews, review of files and follow up interviews (as needed) Ongoing affordability Homeowner returns from sale Subsequent housing tenure

15 Affordability Affordable to (% AMI) Occupied by (% AMI) Initial Sale56.6%68.6% Resale53.4%67.1% 5.65% Affordability Gain

16 $7,889 Appreciation 5.4 Years Average tenure $4,294 Debt Retirement $1,348 Capital Improvement $13,530 Total Equity at sale $2,300 Initial Investment 25% Annual Rate of Return Asset Building

17 Asset Poverty Home Equity Percent of Asset Poverty Level 58% At time of purchase 284% At time of sale Asset Poverty Level

18 Foreclosures 629 sales Foreclosures 1.43% Cumulative Rate 1.4% Freddie Mac 10 Year Rate 5.1% Freddie Mac > 90% LTV 2.47% 7 year rate for HOME/ADDI Buyers in Northwest CHT Comparison

19 Retention Reid (2005)53% Champlain Housing Trust <10% Precent of low income first time buyers that returned to renting within 5 years:

20 Subsequent Tenure

21 2% At time of purchase 9% At time of sale Owner Equity as a % of Unrestricted Market Value 50% of sellers could afford a comparable home with no increase in income

22 $0 Additional public subsidy needed to offer this same opportunity to future buyers

23 Conclusions We can preserve affordability and still offer life altering wealth building Shared equity homeownership can offer a predictable path for asset building

24 Asset Building and Shared Equity Homeownership April 14, 2010 Jeff Corey, Northern Communities Land Trust

25 Creating affordable homes and strengthening communities through the wise stewardship of land and resources

26 Who We Are Non-profit 501(c) 3 corporation, Non-profit 501(c) 3 corporation, governed by Membership and Board governed by Membership and Board of Directors of Directors Founded in 1990 Founded in 1990 Real estate developer in neighborhood Real estate developer in neighborhood revitalization initiatives revitalization initiatives Provide affordable housing for low and moderate income households Provide affordable housing for low and moderate income households Community Land Trustwork to provide affordable housing now and preserve the affordability of the housing for future generations Community Land Trustwork to provide affordable housing now and preserve the affordability of the housing for future generations

27 NCLT Homeownership Qualified, income-eligible buyers can purchase high quality homes at affordable prices Qualified, income-eligible buyers can purchase high quality homes at affordable prices In exchange, Land Trust homeowners agree to pay it forward and pass the bargain price they received on to the next owner of the home In exchange, Land Trust homeowners agree to pay it forward and pass the bargain price they received on to the next owner of the home 99 year, renewable lease formalizes the agreement 99 year, renewable lease formalizes the agreement Resale price determined by a resale formula in the lease that ensures permanent affordability of the homes Resale price determined by a resale formula in the lease that ensures permanent affordability of the homes

28 Northern Communities Land Trust Affordability Statistics There are 190 permanently affordable Land Trust homes in Duluth. There are 190 permanently affordable Land Trust homes in Duluth. Average yearly income of a Land Trust homebuyer was $30,515 in Average yearly income of a Land Trust homebuyer was $30,515 in Average Land Trust buyer earns about 60% of median income. Average Land Trust buyer earns about 60% of median income. Average purchase price for a Land Trust home is $88,530; average value is $131,777. Average purchase price for a Land Trust home is $88,530; average value is $131, homes have resold to date, re-using over $2.3 million in state, private and federal subsidies. 49 homes have resold to date, re-using over $2.3 million in state, private and federal subsidies.

29 Northern Communities Land Trust Resale Statistics 49 homes have resold to date 49 homes have resold to date –re-using over $2.3 million in state, private and federal subsidies. –All homes re-sold to income eligible households –80% of sellers have moved to market rate homeownership Urban Institute study shows Land Trust is preserving affordability of homes and our homeowners are building assets. Urban Institute study shows Land Trust is preserving affordability of homes and our homeowners are building assets. 29

30 NCLT Resale Example 1999 $64,000 Market Value - $12,000 Community Investment = $52,000 Original Purchase Price 2010 $112,000 Market Value - $33,201 Community Investment = $78,799 Resale Purchase Price (includes new windows and furnace for 8,500 and realtor commission of $4,599)

31 First Homeowners Specifics 1999: Michael and Charlotte, son Peter (age 4) Michael worked as assistant manager in produce department of local food co-op. Char working on undergraduate degree in social work. Michael worked as assistant manager in produce department of local food co-op. Char working on undergraduate degree in social work. 44% of area median income, $17,199/year 44% of area median income, $17,199/year Received assistance of $12,000 subsidy to lower the purchase price of the home. $4,000 worth of rehab done to the home after closingnot as much as we would have liked to do, but what we had funds for at the time. Received assistance of $12,000 subsidy to lower the purchase price of the home. $4,000 worth of rehab done to the home after closingnot as much as we would have liked to do, but what we had funds for at the time.

32 First Homeowners Resale Specifics 2010: Michael, Charlotte, Peter & Kylie (age 6) Michael now manager of produce department, earning 2 X the salary as in Charlotte finished her undergraduate and masters degree in social work, now employed by St. Louis County as a social worker. Michael now manager of produce department, earning 2 X the salary as in Charlotte finished her undergraduate and masters degree in social work, now employed by St. Louis County as a social worker. Stable, affordable housing for 11 years allowed them to more easily increase income and prepare for market rate homeownership once ready. Stable, affordable housing for 11 years allowed them to more easily increase income and prepare for market rate homeownership once ready. Net profit at resale of $23,600 ($13,800 share of appreciation + $10,800 payment on principal - $1,000 closing costs) Net profit at resale of $23,600 ($13,800 share of appreciation + $10,800 payment on principal - $1,000 closing costs)

33 2 nd Homeowner 2010: Karen, single. Karen is employed as an administrative assistant in a law firm. Karen is employed as an administrative assistant in a law firm. $27,040/year which is 64% of area median income (50% of AMI for a household of 3 as were the Karshs) $27,040/year which is 64% of area median income (50% of AMI for a household of 3 as were the Karshs) Received $33,201 discount in purchase prices as well as new windows and furnace. Received $33,201 discount in purchase prices as well as new windows and furnace.

34 LAND TRUST RESALES: Preserving affordable homes for the future $81,000 Market Value - $23,000 Community Investment = $58,000 Original Purchase Price 2009 $92,000 Market Value - $27,000 Community Investment = $65,000 Resale Purchase Price

35 First Homeowners Specifics 2006: Rain and Kris, Miles (age 2) Rain worked in grocery store. Kris worked as a health care worker. Rain worked in grocery store. Kris worked as a health care worker. 57% of area median income, $28,794/year 57% of area median income, $28,794/year Individual Development Account participantdown payment of $1,850 Individual Development Account participantdown payment of $1,850 Received assistance of $23,000 subsidy to lower the purchase price of the home. $20,000 worth of rehab done to the home after closing. Received assistance of $23,000 subsidy to lower the purchase price of the home. $20,000 worth of rehab done to the home after closing.

36 First Homeowners Resale Specifics 2009: Rain and Kris, Miles (age 5), Josie (age 2) Rain still works in grocery store. Kris works part time as a health care worker. Rain still works in grocery store. Kris works part time as a health care worker. Stable, affordable housing for 3 years. During this time household income increased to $37,000. Household size also increased. These were the reasons for moving. Stable, affordable housing for 3 years. During this time household income increased to $37,000. Household size also increased. These were the reasons for moving. Net profit at resale of $2,831 (loan for closing costs of $4,000 at original purchase was paid off at resale) Net profit at resale of $2,831 (loan for closing costs of $4,000 at original purchase was paid off at resale)

37 2 nd Homeowner 2009: Kevin, single. Kevin is employed by Gardaarmored truck transport service ocmpany. Kevin is employed by Gardaarmored truck transport service ocmpany. $23,000/year which is 55% of area median income $23,000/year which is 55% of area median income Received $27,000 discount in purchase price. Received $27,000 discount in purchase price.

38 Questions? 38


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