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

1. An Alternative Vision for Affordable Housing: Mainstreaming a Third Tenure Option Prepared for Affordable Housing: What’s Next Nationally and in Nashville Vanderbilt University March 2008 George McCarthy The Ford Foundation

2. 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”

3. 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

4. Tenure types of SEH Sector • Deed restricted properties (DR) • Community Land Trusts (CLTs) • Cooperative ownership (COOPs) • Hybrid models: e.g. MH communities; EAH

5. Core Components of SEH • Individual ownership and control of units • Permanent affordability—maintained through resale restrictions • Asset-building opportunities for owners: modest, but limited • Local stewardship of affordable housing

6. Scale: The ultimate goal • Currently, less than 1% of nat’l 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

7. 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= 2.5+MM units • Deed-restricted HO units = 5+MM units • Half of MH parks converted to ROCs = 2+MM units

8. 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

9. 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

10. 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

11. 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

12. 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 • Key—centralized provision of services for members: • Marketing, branding, warranty programs • Common operating systems • Access to health care, insurance, RE services • Training

13. 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

14. 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

15. 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

16. How do we do it? • Mainstream treatment of SEH at all levels—buyers, sellers, lenders, appraisers, secondary market; • Demonstration of scalability of SEH without the need for more subsidy; • Opportunistic action: a solution to foreclosure crisis.

17. 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

18. 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

19. 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