In the new June/July/August issue of the Washington Monthly, freelance journalist Jordan Fraade has a piece on something you may not be familiar with yet. Driven by below normal home ownership in the Millennial generation, some communities are coming up with an interesting incentive called “Shared Equity Housing.”
Because Millennials began entering the economy right around the time the economy cratered in 2008, they don’t have the savings typical of people their age. This makes finding a down payment on a house one of the most significant barriers to home ownership.
All across the country, particularly in its most expensive regions, housing developers are becoming increasingly convinced that shared-equity housing can help solve this problem. Designed as a “third way” between owning and renting, shared-equity programs promote the idea that the primary benefit of homeownership isn’t necessarily wealth building, it’s stability.
In shared-equity housing, a third party provides a one-time subsidy to prospective homebuyers, allowing them to purchase a home they wouldn’t be able to afford otherwise. The third party tends to be a governmental housing agency or an affordable-housing nonprofit, but either way, according to a 2010 report by the think tank New America, the effect is to make buying a home easier, “either by lowering the price of the home which a lower-income family is attempting to buy or by reducing the down payment which a lower-income family must bring to the deal.” However, along with that subsidy comes a critical caveat: when the time comes to resell the home, a cap is placed on how much the owners can get for it.
The article uses the family of Seattle-based Estavan Muñoz-Howard as an example of a family for whom shared-equity housing made sense.
The trade off is what you might expect. Take the casino gambling out of home ownership and you aren’t going to get any big winners. For Estavan Muñoz-Howard, however, this downside is worth it.
Rentless in Seattle: The Muñoz-Howard family was able to pay much less through shared equity than they would have if they had bought a home normally.
The biggest drawback of shared-equity housing is baked into its very premise: low-income families need to accept limits on the appreciation of their home value. “Obviously that was something that was in line with our values,” Estevan said, but it was still a hard decision for a family that lives on a nonprofit salary. The system relies on the continued generosity of nonprofits and city governments, which have limited resources. And it won’t provide any first-time, low-income homebuyers with obscene amounts of wealth. But for most Millennials, any amount of wealth building, no matter how slow, still sounds like a good deal.
It’s hard to decide how I feel about this new phenomenon. It definitely will work for some people. I know I have Millennial stepchildren who had difficulty just making enough money to move out of the house and get an affordable apartment. And I know that their experience is the norm for their generation. Home ownership seems a long way off, although I’m not that much older and I had a home by the time I was twenty-seven.
Does Shared Equity Housing provide a helping hand to the American Dream, or it is just the latest adaptation to the fact that for Millennials the American Dream is dead?
I know this much. There’s something a little different about this kind of thinking:
In particular, he and his wife gravitated toward shared equity as a way to mitigate gentrification. Brighton and nearby Columbia City have a long history as African American neighborhoods that later became home to Vietnamese and African immigrants, and they remain relatively racially integrated. The point of living there, Estevan says, should not be to get rich: “This is a social-justice issue for me. If I’m able to extract as much equity as I possibly can out of this home, that is actually to the detriment of the community that’s already here.”
I guess that he’s got a point there, but getting as much equity as you can has traditionally been a big part of the American Dream. Some would say that without it, the American Dream is not possible. Yet, the Muñoz-Howard family obviously disagrees, and maybe they’re right. Maybe they’re the wave of the future.
In any case, you should read the whole thing.
There is no reason housing should appreciate as much as it has, bubble or no. I agree with this family.
I’m a millennial in my twenties and I can afford a home. I still rent because my location is ideal for work and not owning a car, and $1000 a month with utilities and Internet included cannot be beat. Buying a house here is $300k for a one bedroom condo or $500-750k for a typical three bedroom house.
So, you could afford the 3BR if you really wanted it? Or just the one bedroom condo? Frankly, Boo is lucky he was able to afford a house at 27. I’m probably about the same age he is, yet a house here is out of the question.
I could afford either, though I’d need another year or so for a decent enough down payment on the house. I wouldn’t buy either because I have no desire to live here long term. I would also rent rooms to pay the mortgage. However, it’s ridiculous how gentrified certain parts of the area have become. I was talking to this woman at a wedding a few weeks ago who used to live in what now is a “hip” part of town. Apparently in the early 2000’s it wasn’t as “attractive” as it is now. It was basically the area where poor people of Hispanic descent lived (hence the name of the neighborhood, “Del Ray”). Her husband was a teacher at the local public school, which might not even exist anymore.
And sure I get to enjoy the fruits of that with restaurants, bars, and people I know who own houses nearby. But at the expense of the poor and the people who worked to get the neighborhood into shape, only to get kicked out? Fuck that.
I don’t know the answer. And I’ve generally always been on the good side of the capitalist shit stick. But it cannot go on like this.
I’m kind of on the fence on the gentrification issue. Some people just can’t afford to live in areas with increasing costs of living and they should probably move to cheaper neighborhoods in the city or the suburbs. I realize this would affect the poor negatively. Better yet, reform housing and zoning laws in our major cities. There’s nothing wrong with taller buildings and greater population density if housing is affordable and abundant.
Squeezed out rather than kicked out. Squeezed by rising rents if they were renters, or by rising Real estate Taxes if they were owners. At least, in the latter case, they made a profit.
I bought my first house in 1971. I was 26 years old. It cost $36,500 (x10 for today’s dollars). The same house in 1969 was $29,900. The exact same house as I bought a leftover house in the old phase. The new models were upgraded to aluminum siding (from wood) and were $39,900. I don’t remember my salary but it was probably around $12,000. I had hired in out of school at $7729 in 1967 (like your first woman, you never forget your first salary or your first car). Again multiply those figures by ten for today’s dollars.
You young people don’t realize how Ronald Reagan stole your birthright.
$36,500 in 1971 = $213,231 today. Housing, healthcare, and college costs have far exceeded the general rate of inflation.
In CA house prices began going nuts in ’70-71. Not that I was in a position to consider such a purchase. By the time I was, that 20% down became a larger and ever increasing number beyond my grasp unless I was willing to double my commute time. OTOH, rents in the city were already too steep even without a car.
One of the recently frequent statistics cited on social media is that there are more empty houses than there are homeless people in America — about 2 to 1, as I remember. And yet the wonder of the market is not adjusting prices so as to allow every person who wants to buy a house to do so at an affordable price.
Another reality is how many housing units are tied up with multiple owners, such as third generation heirs of investment rental properties and banks holding forclosed properties and real estate trusts holding properties for tax loss deductions. The fact that these are not on the market artificially prop up high real estate prices even as wages and salaries are flat or declining.
And then there is the way that legislatively government-guaranteed loans are structured with what have become high downpayments because of inflated housing prices relative to wages and salaries in a geographical area.
There is the residual operation of redlining of neighborhoods and loans, demonstrably illegal in every jurisdication, but still operating through a variety of subterfuges.
And then there is the mono-priced neighborhood as an indication of “quality” and “exclusive status” in which setting the prices is a means of economic and ethnic segregation.
On the other side of the question, there is the own vs. rent Catch-22. If you own, the house owns you and at its convenience; maintenance is a constant drain on building equity. If you rent, rent payments will escalate faster than increases in wages and salaries.
Then there is the house as the piggy bank for emergencies — medical emergencies or other kinds of emergencies — how people got saddled with reverse mortgages on their existing equity.
The obvious solution is the one that is not happening — increased wages and salaries through raising the minimum wage.
So we have to split equity to get over the downpayment hump (because a lot of Boomer parents never accumulated the wealth to fund their children’s downpayment that the Greatest Generation did.)
Greater Generation parents never asked for return of their downpayment equity (unless they were very accountant-minded); they expected that their children would prosper and be able to extend a downpayment to the next generation from their maximum income years. The New Deal shaped perceptions like that. And for most Boomer parents, being able to pay it forward wasn’t from lack of trying. Successive unchecked recessions and the drag of Reaganomics took its toll. And the asset bubbles and busts took away substantial amounts of private savings.
In a time in which mega-salaries of non-profit CEOs and failure to delivery fundamental services are in the news (most notably Red Cross), I am not sure how durable a shared equity program could be.
After the New Deal, the most durable housing finance scheme was regulation of interest rates and establishment of highly regulated savings-and-loan companies (3% on saving, 6% mortgage, 5% downpayment) and incentives to build housing units (which caused suburban sprawl). Some of that system is still in place; a lot of it is in tatters after deregulation. Today with 0% savings rates and 4%-6% loans, the mechanism to acccumulate the downpayment has effectively been shut down.
I suspect that the shared equity payoff when you sell the property in the future could come as a shock if the property failed to appreciate or a sale was forced during a recession by the necessity to go to a new job. It is possible that the equity shares could wipe out the possibility of having the down payment for a new home in a new place because of a new job.
At best, it’s yet another band-aid because of the failure of policy solutions in the US.
I guess I’d better chime in on this, since I live in Seattle and since I’ve been working to help folks like the Munoz-Howard family to get into homes for a very long time.
About 25 years ago I helped start the Homestead Community Land Trust; I just rotated off the board after reaching my term limit (again). HCLT now has almost 200 properties in the Seattle area and is now, I believe, the largest urban land trust in the country. The model is simple: acquire (by donation, purchase, rehab, or more recently, our own development) properties and then sell the homes to first-time homebuyers with $100k or more in subsidies – but retain the land the homes sit on. There’s a resale formula that incorporates inflation, capital improvements, equity, and some modest appreciation – but the effect is to take the land permanently out of the speculative real estate market. The model is meant to address many of the concerns in the article – making homes more affordable to working class families, stabilizing both families and neighborhoods, racial and gender equity, and so on.
HCLT has been enormously successful, but it’s a drop in the bucket compared to the need. And as its 25-year history attests, this is not a new problem, or confined to Millenials. But especially in booming coastal cities like Seattle, the problem is getting much, much worse. It’s nearly impossible for a working class person to find an affordable rental here – “affordable” meaning less than 50 percent of monthly income, which is itself much, much higher than the 30 percent standard traditionally used. Home ownership isn’t even fathomable for many people.
And it’s ultimately a political problem. In Seattle and some other liberal cities, local politics is now dominated by an environmentalist/developer alliance that uses density and climate change as the excuse for tearing down existing, often affordable housing and massively subsidizing the building of new, expensive, market-rate development designed to attract upscale young professionals, often moving here from outside the area. The effect is to prepare for climate change by completely changing the city’s demographics by building an ark for the wealthy – a city that is richer, whiter, and less diverse in every way. If you don’t have a six-figure income, you’re really no longer welcome in cities like Seattle, San Francisco, L.A., D.C., or Boston.
The irony is that this is actually even bad for density and climate change – the wealthy bring their cars into the city but don’t give them up, and the non-wealthy get exiled to distant suburbs with underfunded public transit, forcing them to buy cars they otherwise wouldn’t need in order to commute. The inner city made denser by worsening sprawl in the larger region. The only unambiguous winners are the developers, and the politicians they bankroll. As usual.
“The irony is that this is actually even bad for density and climate change – the wealthy bring their cars into the city but don’t give them up, and the non-wealthy get exiled to distant suburbs with underfunded public transit, forcing them to buy cars they otherwise wouldn’t need in order to commute. The inner city made denser by worsening sprawl in the larger region. The only unambiguous winners are the developers, and the politicians they bankroll.”
Some good points here that I hadn’t considered.
“The effect is to prepare for climate change by completely changing the city’s demographics by building an ark for the wealthy – a city that is richer, whiter, and less diverse in every way. If you don’t have a six-figure income, you’re really no longer welcome in cities like Seattle, San Francisco, L.A., D.C., or Boston.”
Do you think this is intentional? I wonder if some of the politicians think their vision for cities is better achieved by exporting the undesirables.
My own thinking is that sometimes it is preferable that the poor, less educated, or less skilled migrate to places where they have better opportunities for employment. There’s been a reverse migration of blacks from northern cities to the South in recent years and I wonder if its largely attributable to economic reasons.
It is intentional to the extent that the city councils want to increase the tax base. If they can’t through annexation, gentrification, developing the last developable property, going vertical, or getting a huge private capital investment are the only alternatives. From a existing homeowner perspective, all of those suck.
The exporting of poorer folks and promotion of wealth is intentional, yes. The racial and gender impacts are byproducts they just don’t care much about, excepting the subconscious racism in which “everybody” (which is to say, their white peers) feels better in a community where they feel safe, which is to say, where everyone else looks, talks, and acts like they do.
Most of the nicer neighborhoods in places like Seattle, San Francisco, Boston, etc. have become theme parks, designed to entertain and extract money from a certain type of resident/customer. And everyone loves theme parts that are clean and efficient and where nothing bad ever intrudes. It’s very, very profitable. Was that a guy in a giant Mickey Mouse costume down the street, waving a sign for another condo open house?
In Seattle we have our gay theme park neighborhood (where the influx of overpaid young frat grads has led to a huge increase in hate crimes); our Scandinavian immigrant neighborhood (where no immigrants can now afford to live), our historic African-American neighborhood (which will be 90 percent white by 2020), our gritty industrial waterfront neighborhood (where the Port of Seattle is forsaking blue collar jobs in favor of property development), and so on. It’s all one giant pitch for real estate. And nobody, absolutely nobody, learned anything from 2008.
Great work you’ve done. I live up the road in Bellingham.
Home ownership has never been easy for young folks but it’s gotten much harder in the big desirable cities. Part of the reason, however, is that the cities themselves have gotten nicer. In the “70s, the middle class flooded to the suburbs. The move back to the urban core has caused gentrification and caused prices to soar. Ultimately it’s also caused suburbs around such cities to inflate (while suburbs far from those cores have not).
As with everything there are tradeoffs. If one goes all the way back to the 1950s, before white people fled the cities, homes were pretty much unaffordable for young people in urban cores. That’s why we saw so many Levitt-style homes go up on what had been farms and fields.
Overall, people think of the past as far rosier than it was. We’ve always had problems and we always will. There are also huge opportunities. There are always winners and losers. I’m fortunate that my children seem to be doing well (so far, knock on wood). But of course it’s never easy to be young. They’re striving. I’m old enough to coast a bit but worked really hard to get here (and was lucky too).
In many ways, I don’t know that wealth has really served our country. Less resources can force people to band together. It can also force people to find satisfaction in more meaningful ways. As with everything there are tradeoffs.
I’m in between Gen X and Millenials and I bought a house when I was 21 and when the economny cratered I lost so much home worth that it’s even painful to talk about. I can’t wait to sell it (hopefully finally this year), I don’t see a reason to ever buy a house again.
The American dream doesn’t have to be about owning your own home, we’ll just have to find a different definition
Yes. It should be a choice and in the long run, a renter should only have to settle for fewer sf and a few more net cash dollars for maintenance in lieu of the hassle of home ownership.