Preserving Affordability in Inclusionary Housing Programs

This half day workshop was offered as part of a training series organized by the Nonprofit Housing Association of Northern California for local housing activists working toward local inclusionary housing ordinances.


To give participants an opportunity to discuss and think about the social objectives of affordable homeownership programs and specifically about the tradeoffs between wealth creation and preservation of public subsidy.
To familiarize participants with a wider range of alternative approaches that balance those interests differently
To encourage critical thinking about existing programs and to model the kinds of questions that policy makers and program managers might ask to insure that their programs are appropriate to local circumstances.
To expose participants to techniques for mathematically modeling long-term affordability and the consequences of program design choices.

One case study
Example spreadsheet comparing approaches

Powerpoint projector and laptop with speakers
Flipchart and markers
Sheets of 8.5×11 paper and tape
Spare pens and blank paper

Total Time: 3 hours

1:00 Opening
OK you just won your campaign and now developers in your community will be building affordable units into every new project. Low-income homebuyers will, at last have some homes within their price range. If you have done your advocacy work well, your program will produce brand new homes that look a lot like the market rate homes that they are built alongside but sell for hundreds of thousands of dollars less than the neighboring homes. What keeps the low-income families that move in from turning right around the next day and selling at market rate and pocketing all of that money? Would that be wrong?

Audience response about preserving the stock, requiring people to live there for a fixed period, resale restrictions, shared equity, etc.

Overview of workshop: this is a workshop about “WHY” we have affordable ownership programs. This is a workshop about thinking harder about the goals.

Who I am:
I noticed that local ownership programs varied very widely in how they balanced asset building and maintaining affordability. The only common factor was that the program managers were sure that what they were doing was “Fair”. How can we talk about “Fair” without knowing the goals of these programs? To most people what seemed fair was actually just the option that was most familiar. But there are a lot of options and while some may be truly unfair, it seems like there really is not a “most fair” approach. That is bad news because it means we have to do some hard work to balance different interests and clarify our values.

1:15 Small Group Discussion: 15 Minutes
Given the costs and subsidies required, and the developer’s goals…

How should they handle the potential increases in the value of these homes?

Should the homeowners be allowed to keep all of the increase in price?

Should they have to return all of the increase to the developer or something in the middle?

Large Group Discussion: 10 Minutes
One or two present what they came up with.
What are some other options?

1:40 Video – Race the power of an Illusion

Show a brief excerpt from this PBS video about race in America. The clip presents the story of how homeownership in postwar America functioned as a great wealth generator for white families while, housing market descrimination and federal lending policies meant most African-American families were unable to buy homes and those that did earned little equity.

Discussion about how home equity can dramatically change people’s lives and the futures for their children.

2:10 Flash Presentation: Understanding Subsidy Retention – 20 Minutes

Animated presentation demonstrating the underlying economic differences between different approaches to preserving homeownership subsidy.

2:30 Continuum of Subsidy Preservation Mechanisms – 15 Minutes
Full group discussion focused on placing different approaches that participants are familiar with on a continuum between models that allow homeowners to earn unlimited equity and those that preserve public subsidy perfectly.

Make a large post-it for each option
– Grants
– Forgivable Loans
– Interest Free Deferred loans
– Deferred Interest Loans
– Shared Equity Loans
– Resale Price Restrictions
— Appraisal Based
— Indexed
— Mortgage based

2:45 Other Factors to consider in program design:
Every program needs:
1)A pricing formula, which defines the maximum price at which the housing may be rented or resold; a cap intended to maintain rents and resale prices at an affordable level for some targeted class of low-income or moderate-income persons while providing a modest build up of equity if homeownership is involved;
2)a legal mechanism by which the pricing formula is contractually imposed on the housing’s current (and future) owners; and
3)An administrative structure for monitoring and enforcing any restrictions on price (and use) imposed on the housing.

Some other issues
Owner Occupancy/Subletting
Longevity/stability: Do you want people to stay?
Improvements: Do you want people fixing their homes up?
Administration – Outsourcing
Dealing with law suits
Marketing resales

3:00 Detailed Comparison of Two Mechanisms

Case #1: Shared Equity Loan Agreement
Small Group Activity: – 15 Minutes
Handout two legal documents and ask groups to summarize the relevant terms and identify some potential strengths and weaknesses of each approach to preservation of subsidy. Under what circumstances would this approach make sense?

Full group discussion: – 15 Minutes
Did all the groups come to the same conclusions?
Which of these two approaches works better?
Which preserves affordability best?
Which generates the most wealth creation?
Which is easiest to administer?
Do these approaches work as well under different assumptions about inflation and interest rates?

3:30 Modeling Long-Term Affordability Under Changing Market Conditions
(30 Minutes)

Project at an Excel spreadsheet which compares the several alternative resale price restriction formulas under several different interest rate and price inflation scenarios.

Download the spreadsheet

4:00 Adjourn