An Alternative Vision for Affordable Housing: Mainstreaming a Third Tenure Option

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An Alternative Vision for Affordable Housing
Mainstreaming a Third Tenure Option

• Prepared for
• Affordable Housing Whats Next Nationally and in
  Nashville
• Vanderbilt University
• March 2008
• George McCarthy
• The Ford Foundation

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Starting points

• Traditional, bifurcated housing market
  (owner/renter) does not adequately house the
  population
• Viable alternatives are not part of unified
  approach to housing the population
• We have not been entrepreneurial in identifying
  and growing a third option

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Solution

• Shared Equity Homeownership (SEH) A sectoral
  approach to effective, permanently affordable
  housing
• Ultimate goals
• A linked system of community-managed affordable
  work force housing stocks
• Establishing SEH as a superior alternative to
  fee-simple owning or renting

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Tenure types of SEH Sector

• Deed restricted properties (DR)
• Community Land Trusts (CLTs)
• Cooperative ownership (COOPs)
• Hybrid models e.g. MH communities EAH

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Core Components of SEH

• Individual ownership and control of units
• Permanent affordabilitymaintained through resale
  restrictions
• Asset-building opportunities for owners modest,
  but limited
• Local stewardship of affordable housing

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Scale The ultimate goal

• Currently, less than 1 of natl housing stock is
  in SEH
• Meanwhile 69 H-O 30 Rental
• Where are we currently seeing prospects for
  reaching scale in SEH?
• Irvine, CA (10,000 units in CLT)
• Chicago (15,000 units in CLT)
• DC (10,000 units in CLT)
• NYC, DC, multifamily coops (2-5)
• New Hampshire 20 of MH sector

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What will it take to reach scale?

• 1500 CLTs with 10,000 units 15MM units
• Conversion of expiring tax credit and other
  multifamily to COOP or DR condos 2.5MM units
• Deed-restricted HO units 5MM units
• Half of MH parks converted to ROCs 2MM units

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Obstacles to scaling up

• External
• Public acceptance
• Market acceptance
• Capacity of developers
• Public sector support
• Internal
• Standardization
• Scalable approaches
• Limited vision of practitioners
• Philosophical/psychological

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What are we doing w/CLTs?

• Acquisition strategies
• Subsidized
• Debt financed
• Cross-subsidized
• Broader clientele served
• Not just affordable housing
• Not just residential
• Strong linkages b/t public sector and private
  market players
• Better business models

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What are we doing w/DR?

• Conversion strategies
• Using PLR from IRS, three LIHTC projects being
  converted to DR condos
• New production
• Multiple jurisdictions using DR strategies to
  preserve affordable units built under IZ
• Big challenges
• maintaining stock of DR units
• stan

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Success key Making SEH superior

• Standardizing tools and processes that promote
  and grow SEH
• Financial tools
• Legal tools
• Marketing
• Leveraging opportunities provided by segmentation
  of market
• Purchasing power
• Political power
• Example CCA Global Partners

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CCA Global Partners

• Started in 1984 as cooperative of 13 carpet
  retailers, grows to 200 w/sales of 800MM by 1990
  
• By 2004, support 3700 retailers, w/sales of
  8.7BB in 15 different industries
• Keycentralized provision of services for
  members
• Marketing, branding, warranty programs
• Common operating systems
• Access to health care, insurance, RE services
• Training

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Lessons from CCA-GP

• Success exhibited by growth, not survival
• Success predicated on making partners more
  competitive w/in their context
• Distinguishes, and elevates, alternative
  approaches within market
• Manifests opportunities offered through growing
  collective enterprise

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Applying lessons to SEH

• How do we make SEH more desirable than both fee
  simple homeownership and rental? By providing
  services to SEH members that are not available to
  other tenure choices
• Discounted insurance
• Bulk heating fuel purchases
• Maintenance assistance
• Reduction in transaction costs/facilitation of
  mobility w/in network

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Exhibiting benefits of SEH

• Benefits to individuals
• Asset accumulation
• Better housing, amenities
• Social benefits
• More effective use of subsidy
• More housing created
• Permanent use of subsidy
• More successful families
• More stable neighborhoods

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How do we do it?

• Mainstream treatment of SEH at all levelsbuyers,
  sellers, lenders, appraisers, secondary market
• Demonstration of scalability of SEH without the
  need for more subsidy
• Opportunistic action a solution to foreclosure
  crisis.

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Desired Outcomes

• SEH viewed as superior good, preferable to other
  housing types in performance
• Access to purchase and finance improved
• Public, and public sector, view SEH as desirable
  addition to local housing stock
• Broad participation by private sector

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What SEH Sector is doing

• Leadership development
• NCB Capital Impact CLT Network Lincoln Land
  Institute CFED NHI
• Systems development
• CoopMetrics ROC USA
• Resource development sustainable, long-term
  funding
• Partnership development
• Outcome and impact measures

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Summing Up

• We cannot rely on traditional methods of
  development to meet housing needs
• We need to rethink the way we finance and
  subsidize affordable housing
• A third tenure option, SEH, offers the best
  opportunity to
• Provide high quality affordable and workforce
  housing in all markets
• Make responsible use of public subsidy
• Re-engage a broad coalition of public and private
  sector actors to address local and national
  housing needs