What If There Was a Middle Option Between Renting and Owning?

An innovative program in Vermont helps low- and middle-income people ease into homeownership.

National Journal
Nancy Cook
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Nancy Cook
Feb. 13, 2015, 12:56 a.m.

Ian Boyd star­ted to think about buy­ing a home in his late 20s, as he and his friends com­pleted gradu­ate school, coupled up, and star­ted to think about chil­dren. Dur­ing that time in 2009, Boyd knew that pur­chas­ing a home would pose a fin­an­cial chal­lenge. He had about $35,000 in stu­dent debt and an­oth­er $5,000 on cred­it cards. Plus, he made only about $34,000 a year as an aca­dem­ic ad­viser at a com­munity col­lege in Ver­mont. In oth­er words, his debts ex­ceeded his in­come.

“I re­mem­ber go­ing to the bank to see about get­ting a mort­gage and hop­ing for the best. I left de­flated,” he says. The bank ap­proved him for a mort­gage of $50,000, he says — a sum that does not go far enough in Bur­l­ing­ton, the col­lege town where Boyd lives. There, the me­di­an sale price of a home is $265,000, ac­cord­ing to the real-es­tate web­site Trulia.

Through a co-work­er, Boyd learned about Champlain Hous­ing Trust, a non­profit that of­fers fin­an­cial edu­ca­tion and in­nov­at­ive hous­ing pro­grams geared to­ward low- and middle-in­come people. Now, six years later, Boyd owns a four-bed­room, two-bath fully ren­ov­ated home with an apple tree and a back­yard. “I feel a con­nec­tion to this city that I didn’t feel when I was rent­ing,” he says. “I could see ex­pand­ing my fam­ily here.”

Boyd went from debt­or to homeown­er in just three years — from 2009 to 2012 — thanks to an in­nov­at­ive homeown­er­ship plan called the shared-equity pro­gram. It works like this: Champlain Hous­ing Trust of­fers a down pay­ment for a home, paid for with gov­ern­ment funds. Then CHT screens po­ten­tial buy­ers, who are mem­bers of the trust, based on their as­sets and in­come. (To qual­i­fy, a fam­ily of four must earn $80,200 or less in gross an­nu­al in­come, they must not own an­oth­er home, and they must not have sig­ni­fic­ant as­sets out­side of sav­ings for re­tire­ment.)

The homeown­er then gets a mort­gage from a bank and pays the prin­cip­al each month. Usu­ally, the homeown­er also pays for the clos­ings costs and any up­keep and main­ten­ance. When the homeown­er de­cides to sell the prop­erty, he first must of­fer it back to the hous­ing trust. Both the homeown­er and hous­ing trust share in the home’s ap­pre­ci­ation. (That’s why it’s called “shared equity” — 25 per­cent of the ap­pre­ci­ation goes to the homeown­er and 75 per­cent to CHT). The homeown­er also re­coups all of the equity that he built up each month through mak­ing prin­cip­al pay­ments, as well as any money he has spent on cap­it­al im­prove­ments (a fig­ure de­term­ined by an in­de­pend­ent ap­praiser).

Hous­ing ex­perts like this shared-equity mod­el, also known in hous­ing circles as com­munity land trusts, be­cause “the po­ten­tial is that, if it’s done well, it oc­cu­pies the middle rung between rent­ing and own­ing,” says Brett Theodos, a seni­or re­search as­so­ci­ate at the Urb­an In­sti­tute, a non­par­tis­an think tank in Wash­ing­ton. “This is a mar­ket hit solu­tion.”

The shared-equity mod­el also ac­com­plishes two key goals for its be­ne­fi­ciar­ies and for com­munit­ies. First, it helps low- and middle-in­come people save money by re­quir­ing mort­gage pay­ments month to month without hav­ing to worry about the down pay­ment (of­ten, the stick­ing point for first-time buy­ers). Second, it helps to pre­serve af­ford­able hous­ing throughout the com­munity. Any money the hous­ing trust earns through ap­pre­ci­ation gets plowed back in­to the homes. “We use this to keep these homes per­man­ently af­ford­able,” says Emily Hig­gins, dir­ect­or of Home Own­er­ship for the Champlain Hous­ing Trust.

The shared-equity mod­el of hous­ing came out of the civil rights move­ment in the South in the late 1960s, says John Em­meus Dav­is, a private hous­ing con­sult­ant who works with com­munity land trusts across the coun­try. Act­iv­ists real­ized that fight­ing for Afric­an-Amer­ic­ans’ polit­ic­al and leg­al rights was only one step. To fully tackle ra­cial in­equal­ity, they also needed to en­sure eco­nom­ic in­de­pend­ence; hence, the em­phas­is on homeown­er­ship among Afric­an-Amer­ic­ans: a policy that re­mains one of the best ways to en­cour­age people to build up as­sets.

The first shared-equity hous­ing pro­gram star­ted in the rur­al area of Al­bany, Geor­gia, in 1967. Then, in the 1980s, act­iv­ists launched the first urb­an it­er­a­tion in Cin­cin­nati, Ohio. Now, more than 200 non­profits and groups work in this space.

Even the glob­al fin­an­cial re­ces­sion did not dampen hous­ing ex­perts’ en­thu­si­asm for the pro­gram. The rate of fore­clos­ures among homes in shared-equity pro­grams was 0.46 per­cent at the end of 2010, com­pared with 4.63 per­cent among own­ers of mar­ket-rate homes.

The Champlain Hous­ing Trust cur­rently of­fers about 550 homes in its port­fo­lio. The group also places great em­phas­is on fin­an­cial edu­ca­tion and money man­age­ment; after all, there’s little be­ne­fit in buy­ing a house if a per­son can’t af­ford to hold onto it.

As for Boyd, he moved in­to his new home in Janu­ary 2012 with the help of the Champlain Hous­ing Trust. His house was ap­praised at $230,000, but he bor­rowed roughly $160,000 be­cause the hous­ing trust had already put so much money in­to the place. He paid $9,000 in clos­ing costs. The monthly mort­gage pay­ment is roughly $1,150 — just $150 more per month than he paid for a one-bed­room rent­al.

Should something go awry with his home, Boyd feels that the Champlain Hous­ing Trust will sup­port him. The group does not mi­cro­man­age its homeown­ers, or their renov­a­tion or up­keep de­cisions, he is quick to say. But they will help if people run in­to trouble pay­ing for a ma­jor out­lay like a new fur­nace or roof. They also of­fer free pro­grams for their homeown­ers, like tax work­shops.

The ul­ti­mate goal of the Champlain Hous­ing Trust is to ease low- and middle-class in­di­vidu­als in­to homeown­er­ship by help­ing them save money and, even­tu­ally, pre­pare them to buy a home on the open mar­ket. For now, though, Boyd plans to stay in his charm­ing, two-story house on North Champlain Street. “I would be for­tu­nate to live my life in this house,” he says.

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