Author: Rick Jacobus

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Here is a recap of what we have been working on in 2018.

Inclusionary Housing Policy

We are working with local communities across the country to help design inclusionary housing policies that work economically and politically in what is becoming a very difficult environment for any affordable housing program.  Earlier this year Honolulu adopted an inclusionary program that we helped design and we are now helping them to set up systems for implementation.  Just this month, Minneapolis finally adopted an inclusionary housing requirement as part of their ambitious new comprehensive plan. Street Level and Grounded Solutions Network have been studying the economics of IZ in Minneapolis and advising the city on program design issues since 2016.  In addition we are working with the Province of Ontario and Evergreen to support the implementation of a provincial inclusionary housing policy.

Housing Calculators

Much of our work on Inclusionary has focused on helping a broader set of local stakeholders constructively engage in discussions about what is realistically economically feasible. Street Level led the development of a new Inclusionary Housing Calculator released in February by Grounded Solutions.  This is a complete rebuild of our prior calculator which is designed to help local governments and other housing stakeholders to better understand the economic feasibility of inclusionary housing requirements and related incentives. Check out the new tool at calc.inclusionaryhousing.org. We built custom versions of this tool for the Twin Cities Region and the Province of Ontario. We have also recently built simpler tools to help stakeholders in Oakland better understand the tradeoffs in using publically owned land for housing and in Berkeley to better understand how development fees impact housing feasibility.

 

Los Angeles River

Street Level is working with a team led by Architect Frank Gehry on the development of a new master plan for the Los Angeles River.  The LA River, which you know if you ever saw Grease, is currently a concrete culvert in many places.  Revitalization of the 51-mile long River has the potential to dramatically improve access to open space in Los Angeles County but improving the river also brings a very real risk of exacerbating ongoing displacement of lower income communities along the river.  Street Level Advisors is working to develop practical strategies to reduce displacement and expand access to affordable housing.

 

Public Life Leadership

We worked with Pathline Consulting to help the John S. and James L. Knight foundation to evaluate a series of grants that the foundation has made to support the development of organizations focused on improving access to public space, and public life in American cities.  The foundation will release our report in 2019.

 

Duty to Serve

We are working on a team led by Abt Associates, assisting the Federal Housing Finance Agency (FHFA) in developing systems for evaluating the performance of Fannie Mae and Freddie Mac in meeting the ‘Duty to Serve‘ obligations outlined by congress in the Dodd Frank Legislation.  Duty to Serve requires the mortgage intermediaries to take proactive steps to provide capital to a set of under-served communities.  We have been helping FHFA to review Duty to Serve plans and develop systems for ongoing reporting and evaluation.

 

AC Boost

Together with Hello Housing, we designed and developed a new shared equity downpayment assistance loan program for Alameda County, CA.  The $50 million loan program will help lower income homebuyers access homes in one of the most expensive markets in the country.

 

Adeline Corridor Plan

We have been working with Rami + Associates on a plan for Berkeley’s Adeline Corridor, the area surrounding the Ashby BART transit station.  After years of disinvestment, the neighborhood has been heavily impacted by gentrification.  Housing affordability, security and displacement prevention are top community priorities for the new plan.  Street Level has been developing strategies to ensure that existing community residents are primary beneficiaries of future development at the Station and in the surrounding neighborhood.

 

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A key element of Seattle’s Housing Affordability and Livability Agenda (HALA), the Mandatory Housing Affordability (MHA) policy increases density in many neighborhoods in exchange for a requirement that a percentage of all new housing be affordable to lower income residents. A group of neighborhood organizations opposed to new development appealed the City’s EIS, arguing, in part, that new building would exacerbate displacement.  Rick Jacobus testified before the hearing officer in support of Seattle’s EIS, arguing that failing to build more housing would increase displacement pressure and that Seattle had taken the risk of displacement seriously and taken steps to minimize impacts in sensitive neighborhoods. Seattle won the appeal and is now proceeding with MHA.

 

Feasibility Study Convening

Street Level Advisors planned and facilitated a day long expert convening focused on identifying best practices for Inclusionary Housing Feasibility Studies. Convened by Grounded Solutions Network, The Terner Center for Housing Innovation at UC Berkeley and The Lincoln Institute of Land Policy, the event brought together academic economists with many of the professional consultants charged with implementing these studies.  A report summarizing our findings was released in December.

 

Home Coming Project

Street Level Advisors helped Impact Justice to develop a radical new approach to reentry housing for people released from prison. The Homecoming Project helps communities unlock the value of underutilized housing assets in places that aren’t well served by AirBnB while offering stable community housing to recently released inmates which has been shown to reduce recidivism.  A pilot underway now in Oakland has shown that there are people willing to open their homes to a stranger right out of prison.  This NPR Story profiles one of these families.

 

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Permanent affordability and asset building might seem at first blush to be contradictory goals for a low-income homeownership program, but new research says in fact they can be achieved together. By Rick Jacobus

In the mid 1990s, the homeownership rate began to rise for the first time in decades. Social equity advocates were encouraged by the fact that, also for the first time, it appeared that ownership for lower income buyers and buyers of color was rising even faster. Policymakers in Washington cheered the fact that this change seemed to come from private mortgage market innovation rather than increased federal spending.

Looking back, this all seems like a dream—or rather a nightmare. Rather than opening a door to economic opportunity for disadvantaged families, “innovative” mortgage products led to financial ruin for families and for our whole economy.

The foreclosure crisis has led some policymakers to call for abandoning the goal of expanding access to homeownership. Certainly ownership has been oversold, and the current crisis demands a rethinking of housing policy including greater investment in affordable rental housing. But persistent and still-growing asset inequality (itself largely a product of discrimination in earlier generations of housing policy) remains a problem with very significant consequences, one that is unlikely to go away on its own. Any serious effort to overcome persistent asset inequality will require renewed efforts to overcome barriers to homeownership.

Luckily, relaxing credit standards is not the only strategy for expanding access to homeownership. Decades of experimentation in state and local programs have shown that it is possible to invest in homeownership in smarter and more sustainable ways. A new research report from the Urban Institute suggests that local programs that provide significant purchase assistance to low-income buyers while preserving long-term affordability can offer a sustainable and scalable strategy for overcoming generational asset inequality.

Homeownership and the Asset Gap

Social policy in the United States has long focused on income-based measures of poverty and inequality. Since the late 1980s, however, there has been a growing attention to asset poverty and asset inequality and over the past few decades assets have been distributed more unevenly than income, and asset disparities have grown wider. According to a 2003 Census Bureau report, the average African-American family has net assets of only $9,750 while the average white family has $79,400.

Most of this difference is home equity. The average homeowner has net assets of $235,000 while the average renter has only $5,000.

This persistent and growing asset inequality is both a result and an ongoing cause of widespread inequality in access to homeownership. During the period following WWII, when federal programs made homeownership possible for the great majority of American families, these same programs were actively promoting racial discrimination in the housing market. By the mid 1960s, when overcoming discrimination became a key federal housing goal, federal programs were, ironically, no longer contributing to rising homeownership rates. The homeownership gap between white and minority households has not changed in decades and is projected to be higher in 2010 than it was in 1910.

This historical ownership gap today drives continued inequality in access to homeownership—and by extension continued asset inequality. Renters who want to buy homes face multiple barriers including credit barriers, income barriers, and asset barriers. But recent studies have shown that asset barriers are the most widespread.

Many young families overcome a lack of savings through gifts or loans from their parents or other family members. One-third of white first-time homebuyers receive financial support from a family member, but only 6 percent of African-American buyers receive family assistance, and those who do receive much lower levels of assistance. Families that didn’t benefit from asset appreciation through homeownership in prior generations therefore find that they are unable help the next generation access homeownership today. The high cost of housing and lack of family assets have largely taken the place of overt discrimination in preventing minority families from buying homes today—but the result is just the same.

Overcoming the Wealth Barrier

And yet, we do know how to overcome these barriers and make ownership safe and affordable for lower income families.

A 2009 report by the U.S. Census Bureau estimated that 7 percent of current renters could safely afford to buy homes using standard mortgage products. They found that subsidizing mortgage rates by as much as 3 percentage points had virtually no effect on the number of renter families that could afford ownership and that offering loans with no downpayment requirements would increase that number by only 2 percentage points (to 9 percent). Providing purchase subsidies, on the other hand, had a more dramatic result. A subsidy of $10,000 (whether from a family member or a public program) would increase the number of renters who could qualify for ownership by 12 percentage points (to 19 percent).

In light of this research, it is surprising to note that while we spend billions of dollars annually on programs to expand homeownership, only a very small fraction is currently invested in purchase subsidy programs. This is so even though purchase subsidies are currently the dominant strategy for supporting affordable rental housing.

Programs that provide purchase assistance to bring the costs of homeownership down to an affordable level not only make ownership possible for lower-income buyers, they make it safer and more sustainable. Instead of borrowing more than they can afford to repay, qualified buyers borrow what their incomes can support, with the gap being covered not by a relative, but by a public or nonprofit agency.

Many believe, however, that these programs are simply too expensive to offer a realistic alternative to mortgage product innovation as a path to expanded homeownership.

A growing number of affordable homeownership programs address this concern by preserving long-term affordability so that a one-time public investment can make homeownership possible for one lower income family after another. These programs offer targeted assistance to buyers who would not be able to buy without such help and they preserve the affordability of assisted units so that many more households can ultimately benefit from the same initial investment. The growing stock of affordable homes in these programs offers a sustainable way to grow the overall rate of low-income and minority homeownership.

These programs achieve this result by limiting the level of price appreciation available to owners. In exchange for significant public support at the time of purchase, they require owners to pass that benefit along to future lower income buyers by reselling at an affordable price or repaying the subsidy along with a share of any market price appreciation. Participating homeowners do build assets, but in an expanding market they earn less than unrestricted market-rate homeowners.

Critics of this approach understandably question whether limiting a lower income buyer’s potential price appreciation defeats one of the key purposes of homeownership. If appreciation is limited, can affordable homeownership still offer a path out of generational asset poverty? If assisted homeowners can’t earn the same home equity gains that other owners enjoy, won’t they be trapped in affordable homes?

Policymakers face what sometimes seems like a no-win decision: either they make grants that offer wealth-building but only to a lucky few or they preserve affordability but sacrifice the goal of reducing asset inequality.

New Research

Though many working in programs that balance both goals have long said this was a false choice, for the first time, there is real data that shows that long term affordability and significant asset-building can go hand in hand.

NCB Capital Impact commissioned the Urban Institute to rigorously evaluate measurable outcomes for seven affordable homeownership programs that attempt to preserve long-term affordability. The Urban team analyzed data on home sales and subsequent resales through 2008 from three community land trusts, two limited-equity cooperatives, and two deed-restricted affordable housing programs.

Each of the programs in the Urban study imposes some form of price restriction designed to keep homes affordable. And yet, these programs nonetheless had strong asset-building outcomes at the same time.

Homeowners in these programs sold their homes after an average of three to six years. Their average total proceeds from sale ranged from $6,277 for a limited equity cooperative in Atlanta to $70,495 for owners in San Francisco’s Inclusionary Homeownership Program. In spite of the limitations, sellers received average appreciation ranging from $2,015 to $42,524.

Because, for the most part, homeowners made small initial investments, this appreciation tended to represent a very high annual return on investment. For example, in Boulder, Colo., the average Thistle CLT homebuyer invested $6,080 in downpayment and closing costs at purchase. The Boulder sellers moved after an average of 3.4 years and earned an average of $8,107 in appreciation. These buyers earned the equivalent of 22 percent annual interest on the money that they invested to buy their affordable homes (“internal rate of return”). In the programs in the Urban study, participants’ internal rates of return ranged from 6.5 percent to 59.6 percent. In all but one case, they built more equity than they would have if they had placed their downpayment in an S&P 500 index fund or a 10-year Treasury Bond.

But was it enough? The modest level of asset-building that these programs offer was enough to support sustained homeownership and to give households who originally couldn’t access the wider housing market the means to move on to buy a market-rate home.

As part of their research, the Urban Institute surveyed households that had sold affordable homes in one of the programs. In the four programs that participated in the questionnaire, a significant majority of sellers went on to buy owner-occupied

market-rate housing without any further public subsidy. Boulder had the highest rate, with 78 percent of sellers using their affordable unit as a stepping-stone to market-rate homeownership.

The annual turnover rate for the programs studied was comparable to national rates for all owners, dispatching concerns that participants would be locked into their properties.

Although assisted homeowners generally accumulated less home equity than buyers of unrestricted, market-rate homes, they also had significantly less risk. They were less likely to experience foreclosure than the average homebuyer—even though their average incomes are much lower (See Stewardship Works, SF #163). And they managed to sustain homeownership at a far higher rate. Several studies have found that roughly half of all low-income, first-time homebuyers revert to rental housing within five years. By contrast, fully 91 to 95 percent of homeowners in this study remained owners five years later, either continuing to occupy their affordable home or having acquired a market-rate home.

During a time when the housing market fluctuated drastically, the prices in all seven of these programs were remarkably stable, as were the income groups that could afford them. The result was that, because the homes remained affordable, the programs could offer safe and sustainable ownership and asset-building opportunities to a second, third, or fourth generation of buyers, generally without investing any further public subsidy. The Urban study found, for example, that the City of San Francisco was saving roughly $25 million annually by preserving affordability rather than having to introduce a new subsidy each time these homes were resold.

Affordable Ownership as an Asset-Building Strategy

Because these affordable homeownership programs can help families build wealth faster than investing in stocks or bonds with less risk than traditional homeownership, they offer a promising strategy for overcoming asset inequality. Much of the attention in asset-building policy has focused on individual development accounts (IDAs), which provide matched savings as an incentive to help lower income families build assets. While IDA programs generally serve a slightly lower income population, and they offer a way to save for important goals other than homeownership (including education and small businesses), they are often promoted as offering a path to homeownership for low-income participants. And yet most IDA participants are unable to save enough to access homeownership. Most IDA programs limit savings to $6,000 to $10,000 and the average IDA saver accumulates only $1,500. By comparison, affordable homeownership programs, even those with long-term affordability controls, seem of offer a more reliable way for low-income families to save enough to make traditional homeownership safely attainable.

Contrary to what many have thought, we do not have to choose between affordability and asset building. We can do both. By offering real equity to families who would otherwise remain renters, and providing a safer vehicle for them to attain—and retain—homeownership, affordable homeownership programs can provide a predictable avenue for asset building and economic advancement.