A study released by the Urban Institute in October comparing outcomes across seven shared equity homeownership programs finds that such programs are a sustainable long term homeownership option for lower income families. Few shared equity program participants face foreclosures and the great majority becomes long term homeowners, the study finds.
Shared equity homeownership programs allow income eligible families, often first time home buyers, to purchase homes at below-market prices. The owner’s capital gains on the property are limited by restrictions in order to keep the home’s price affordable for the next buyer. For the study, seven shared equity programs were chosen for evaluation based on their geographic diversity and the availability of data with which to judge their performance.
In order to assess long term affordability, the researchers measured the minimum income needed to purchase a shared equity home relative to area median family income over time. Researchers found that the change in minimum income required to purchase did not exceed 6.7% upon resale of shared equity homes. While the minimum income required to purchase a home did increase minimally, the resold homes still remained affordable for those earning well below the area median income. Based on these findings, the authors concluded that housing affordability was preserved due to the shared equity mechanism.
The study also assessed whether low income homeowners participating in shared equity programs were able to attain a high level of stability as homeowners. According to studies completed in recent years, approximately half of all first time homebuyers are not able to maintain long term homeownership and no longer own their home five years after their initial purchase. In sharp contrast, more than 90% of homeowners from three shared equity sites collecting data on long term homeownership rates remained homeowners five years after their initial purchase.
The researchers also found that very few homes sold through shared equity programs were cited for serious delinquency. Furthermore, three programs studied have never had a home enter the foreclosure process. The highest foreclosure rate among the seven programs was 1.1%, and every program’s foreclosure rate was far below that of the surrounding area. The authors attribute the low rates of foreclosure and delinquency among shared equity homeowners to the affordability of shared equity homes, which may have made it unnecessary for homeowners to take on high risk, highly leveraged loans.
Based on the findings of the seven case studies, the authors ultimate conclusion is that shared equity programs are effectively meeting the goal of expanding affordable homeownership in a way that maintains long term affordability and security for low income families.
The October 2010 report, Balancing Affordability and Opportunity: An Evaluation of Affordable Homeownership Programs with Long-term Affordability Controls, by Kenneth Temkin, Brett Theodos and David Price is available, along with in depth case studies of each program, at: http://www.urban.org/publications/412244.html