How Renters Can Earn Equity

An experimental new housing model is letting tenants build wealth. Could it work nationwide?

When COVID-19 hit and Louise Williamston worried she might lose her job, she took comfort in the fact she had a unique safety net: equity credits accrued over the past five years through her apartment lease. It’s a unique residential model in her neighborhood of Avondale, Cincinnati, in which Williamston rents but also participates in monthly tenant meetings and helps maintain the property she lives in. In exchange, she’s guaranteed permanently affordable rent as well as financial credits she can exchange for cash when the lease is up.

“It decreases the worries,” she says of the agreement. “I recommend the model because it’s just simple.”

It does sound simple enough: Residents fulfill commitments in their lease agreement, like paying rent on time and helping to maintain the property, and in doing so, earn financial credits they can exchange for cash after five years. But the model, known as rental equity or dividend housing, has been slow to get off the ground and scale, despite interest from other cities. In spite of challenges, it continues to forge ahead in Cincinnati.

“Owning doesn’t work for everybody and renting doesn’t work for everybody,” says Margery Spinney, who pioneered the dividend housing model with Carol Smith under the organization Renting Partnerships. “This is a third way. But we’re sort of running a business with the control [of the buildings] upside down. Not everyone sees the value.”

The prototype for dividend housing was renter equity, which Spinney created in 2000 as executive director of the Cornerstone-Homesource Community Loan Fund, now called Cornerstone Renter Equity. There she partnered with Smith, a property manager, to recruit residents for a participatory management system with equity credits in affordable housing, then prove that financial credits for households could be sustained without subsidies.

The pilot proved the model worked: Between 2002 and 2012, 24 participating households accumulated over $140,000 in equity credits even though their income averaged about $20,000 per year. There was clear community benefit. A 2013 report from the Ohio Housing Finance Agency examining the impact of renter equity in Cincinnati found tenants rated “community atmosphere” as the program’s highest appeal. The evaluation also confirmed “costs were comparable to those of similar properties that did not offer renter equity credits.”

But Spinney faced disagreements within Cornerstone Renter Equity on how to expand the program. “The issue was really about how much control residents had,” she says. So she and Smith split off and started Renting Partnerships in 2013. They re-launched the program—under the name dividend housing—by leasing a duplex in Avondale and subleasing it to two residents, Williamston and Rosetta Ferrell. After five years, both are now vested with financial credits worth about $4,000 each.

Spinney’s dividend housing model has continued as rental equity changed or died out elsewhere. Cornerstone Renter Equity ultimately transitioned out of property development and ownership, according to executive director Alisa Berry. Through a 2019 pilot they brought clients into a “renter equity club” to work with a family coach and earn equity through paying rent on time, attending community meetings, contributing to their community and personal investments like education. Participants earn up to $1,600 a year and can access the equity after three years. This year, the organization expanded family coaching to 109 community members. “It’s not tied to housing anymore,” Berry explains.

A renter equity pilot in Cleveland—which Next City covered in 2015—is no longer active, according to the organization that ran it.

Spinney acknowledges challenges that have kept the model from getting off the ground. While dividend housing borrows from cooperative housing, co-housing and land trusts, it’s none of those. “None of those models address the possibility of a third way,” she says. “In a land trust, there’s still ownership in a traditional sense for the residents … a co-op, again, you have to buy in and you can sell your unit on the market.”

Dividend housing creates pathways for residents to build equity without buying and selling property. It also flips the traditional property management model by prioritizing resident input, with the understanding that residents who fulfill their lease commitments, help take care of the property and attend monthly meetings are contributing to the financial success of their housing and quality of the living environment.

The type of resident who will choose dividend housing and the building have to be specific, Spinney and Smith found. The model can’t serve extremely low-income residents without government subsidies. And the long term commitment required from tenants won’t be a fit for someone temporarily renting on the way to buying a home.

The pair focused outreach to working-class Cincinnati residents with limited financial assets, either left out of homeownership opportunities or not interested in ownership. Rent was determined by the median income of Black households in Cincinnati: at roughly $35,000 a year, Spinney and Smith settled on rents between $600 and $800 a month set in place over a five-year lease.

Renting Partnerships also focused on a specific building type: small multifamily properties, like two-family homes, commonly bought by individual investors and rehabilitated, making them no longer affordable. “Those properties are gentrified because investors have to use the only financing available, which makes the rents market,” Spinney explains. “We’re saying, let’s be that investor, but because we are a nonprofit we can keep the rents affordable.”

To do so, Renting Partnerships developed unique ownership and financing structures. They’re preparing to buy the duplex property in Avondale as well as a vacant home next door they will rehabilitate. They’re doing so with $300,000 in loans from the city of Cincinnati and the Cincinnati Development Fund, as well as a social investment fund that’s raised $33,000.

Renting Partnerships will own both properties as a land trust, which means they can offer residents longterm leases. Equity credits accrue monthly up to $10,000 in ten years, depending on each household’s level of participation. The agreement can be renewed after that.

After five years of residency, residents can pull out all or part of their financial credits, leave the money there, or invest the money into Renting Partnership’s properties. Whichever choice they make, their credits continue to grow. Williamston—who spent the first five years paying rent on time, attending meetings, keeping up the front yard and shoveling snow—has signed a 25-year lease and will keep the equity in place.

“The money is there—if you have some sort of emergency, it is available to take care of that,” she says.

For the past several months Williamston attended Zoom meetings with the future tenants of the building next door. “We’re there for any questions and just for encouragement too,” she says. Renting Partnerships is working closely with the future tenants on how the apartments should be renovated and what building upkeep will look like.

Spinney still believes the model can scale. Renting Partnerships participated in the city’s Avondale Quality of Life Movement plan, approved by the City Council this January. One action step to “revitalize Avondale with a diverse quality housing stock” is to create and support a renter equity program in partnership with the organization. She’s also a partner in submitting an RFP to the Hope Village Revitalization in Detroit, which is exploring renter equity models as one element of its strategy.

But to expand, there needs to be more investors on board behind the vision. “It’s the last piece,” Spinney says. “But we’re at a point where we can guarantee a return to investors because we’ve demonstrated everything already.”

“It’s taken so long to get where we are,” she adds. “My hope is that there is an opportunity for us to demonstrate, again, that this will work not just in Cincinnati but elsewhere, and to do it at a larger scale.”

This story originally appeared in Next City. It is part of the SoJo Exchange of COVID-19 stories from the Solutions Journalism Network, a nonprofit organization dedicated to rigorous reporting about responses to social problems.

Donate Now to the Washington Monthly and your gift will be doubled

Emily Nonko

Emily Nonko is a Brooklyn, New York-based reporter who writes about real estate, architecture, urbanism and design. Her work has appeared in the Wall Street Journal, New York Magazine, Curbed and other publications.