Is Shared-Equity Housing the Wave of the Future?

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.

Martin Longman

Martin Longman is the web editor for the Washington Monthly and the main blogger at Booman Tribune.