Models

Shared equity homeownership is a general approach to preserving affordability which can be implemented through a number of distinct legal and organizational structures. Among the most common are:

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Deed-restricted Homeownership

Under this very common approach, the subsidy is applied to reduce the purchase price 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% of AMI – 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. Learn more…

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Limited Equity Cooperatives

Under this approach – typically, but not exclusively, applied in the context of an apartment or other multifamily development – families purchase a “share” in the cooperative, rather than a standard property interest in the home. Members of the cooperative receive 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 other areas of joint responsibility (e.g., maintaining the roof), as well as the admittance of new members. Share prices are set by formula (contained in the co-op’s bylaws, subscription agreement and stock certificates), which can be used to implement one of the shared equity formulas described above.

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. There are roughly 400,000 to 500,000 limited or no-equity cooperative units in the country. Learn more…

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Community Land Trusts

Under this approach, the land is owned by a community land trust (CLT) and then leased to families who purchase the homes that sit on the 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 an affordable 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. Learn more…

Houses

Public Shared Appreciation Loans

Shared appreciation loans are generally second mortgages provided to homebuyers by a local government agency or nonprofit which require that homeowners repay not only the initial subsidy that they received, but also a share of any appreciation in the market value of the assisted home. By recapturing a portion of home price appreciation, this approach increases the amount of subsidy available to assist the next purchaser, reducing the likelihood of an affordability gap. Some of these programs couple shared appreciation loans with a right to purchase the seller’s home (at market value) allowing the program sponsor to retain affordability of the home by reinvesting the recaptured equity.

Not all shared appreciation loans are used for the purpose of preserving affordability. Some public agencies use recaptured equity for other purposes. There have also been many proposals for privately financed shared appreciation mortgages in which recaptured equity would be repaid to investors. We limit the use of the term “shared equity homeownership” to programs that attempt to achieve both homeowner asset building and durable affordability.Learn more…