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Shared Equity models offer sustainable homeownership (continued from previous page)rates to first-time homebuyers earning no more than100 percent of AMI.More than 850 Below Market program units —most of them condominiums — are in the city’s portfolio.These units are overseen by the Housing Office, whichalso administers the Residential Inclusionary AffordableHousing Program. The department posts information onbelow-market units available for purchase on its websiteand requires developers to advertise the units in at leastfive local newspapers that reach low- and moderateincomeand minority households in the city.Income-eligible buyers are required to participate in afirst-time homebuyer workshop conducted by designatedhousing counseling agencies. These agencies receiveCDBG funds from the city to promote homeownershipcounseling and build capacity in minority communities.Buyers must finance their purchase through 15- to40-year fixed-rate mortgages from approved lenders.Housing Office staff members review the mortgagesto make sure that buyers are not subjected to predatorylending practices.For both new and resale units, buyers are chosen bypublic lottery from a pool of qualified applicants. TheHousing Office offers prospective homeowners assistancewith down payment and closing costs ranging from$10,000 to $36,000. The funds are structured as sharedappreciation loans to be repaid by the homeowner atthe time of resale along with a certain percentage ofthe property’s price appreciation; the amount of homevalue appreciation to be shared with the city dependson the portion of the original purchase price coveredby the loan.Long-term affordabilityTo protect the long-term affordability of below-marketunits, resale restrictions are recorded with the propertydeed; purchasers sign a secondary deed of trust andrelated documents acknowledging the restrictions.Such restrictions or covenants are a widely usedmechanism to preserve affordability. Hundreds ofjurisdictions across the country employ deed restrictionsto impose controls on affordable housing units producedthrough inclusionary zoning, and many CLTs use themin lieu of long-term ground leases, particularly forcondominium developments.Unlike a CLT ground lease, however, the lengthof the affordability period in deed-restricted housingprograms can vary depending on state statutes. Somestates specify a limit to the affordability period, while veryfew explicitly define or authorize perpetual affordabilityrestrictions. The restrictions placed on San Francisco’sbelow-market units are applicable for the life of theproject and survive foreclosure; for units that werecreated before June 2007, the restrictions apply for50 years but restart every time a unit is sold. The units,which must be owner-occupied at all times, can be passedto heirs only if the heirs meet all of the program qualifications(income-eligible, first-time homebuyer).The Housing Office monitors compliance by requiringbelow-market owners to submit an annual occupancycertification and report any changes in ownership status.The office also reserves the right of first refusal topurchase below-market units listed for resale.A balancing actIn 2007, the city revised its homeownership program inresponse to changing market conditions. Previously, theresale price for below-market units was based on one oftwo formulas: changes to the consumer price index or amortgage-based formula.The latter formula calculates the resale price byarriving at a mortgage payment that is affordable(defined as no more than 33 percent of gross income)to a household earning 100 percent of AMI. Along with a10-percent down payment, the formula takes into accountinterest rates, taxes, homeowners association fees, andinsurance costs at the time of resale. This formula “yieldedperfect affordability,” notes Myrna Melgar, who oversawthe changes to the Below Market program as the HousingOffice’s homeownership director during this time.As interest rates began to rise in 2006, however, homeownerswho had purchased their deed-restricted unitswhen the rates were low found themselves having to sellat a loss. The city responded by changing the resale formula.“We made the decision to sacrifice perfect affordabilityto ensure more predictability for individual homeowners,”explains Melgar. With the new formula, the resale price iscalculated based on the changes to AMI, providing a morestable equity building opportunity for owners. Sellersreceive the resale price excluding loans, closing costs, andany shared appreciation related to the city’s down paymentassistance. Sellers also get reimbursed for capital improvementsmade to homes 10 years or older, although thisamount is capped at 7 percent of the home’s resale price.(continued on next page)Northern News 20 May 2013
Shared Equity models offer sustainable homeownership (continued from previous page)Melgar observes that the AMI formula may make belowmarketunits more expensive over time, especially wheninterest rates are high. But given the city’s strong housingmarket, the program still meets a need for affordablehousing for moderate-income families. “A number ofhomeowners were able to build a nest egg and move onto market-rate homeownership, which is the program’sgoal,” Melgar notes.The Urban Institute’s evaluation of the BelowMarket program substantiates this conclusion basedon an analysis of 771 sales and resales between 1999and 2009. Study findings show that during this 10-yearperiod, below-market units were purchased by first-timebuyers with a median household income of about$60,000 at a median price of nearly half the units’appraised value. Moreover, homeowners in theprogram were able to realize an annual rate of returnof 11.3 percent on resale.San Francisco’s ownership program is not withoutchallenges, however, and chief among them is limitedaccess to credit for many income-qualified households.Few lenders are willing to provide first mortgages forthe below-market units. Buyers at the lower end of theincome scale who do manage to secure a mortgage oftenface high homeowners association fees in some neighborhoods,which significantly decrease affordability.Another challenge involves the substantial amountof resources needed to reach out to and serve the city’shigh percentage of minority households. The HousingOffice overcomes some of these problems by supportinga network of outside organizations. “The key is havinggood partners,” notes Melgar. “The city does a goodjob of training lenders and title companies, fundingcounseling agencies, and including stakeholders inany policy decisions. All of that is important to keepthe program healthy and productive.”A way forwardShared equity homeownership continues to gain popularityas a viable alternative to traditional homeownership.Shared equity programs have proven successful at providingstable, affordable homeownership opportunities tolow-income families who would otherwise be priced outof the housing market. At the same time, these programsensure that public resources invested in affordable housingare maximized. Homeowners realize many of the samebenefits offered by traditional homeownership, only withmuch lower risk. Inherent safeguards — such as mandatoryhomebuyer education and fixed-rate mortgage requirements— continuous monitoring, and other stewardshipactivities that are a part of shared equity models support asustainable homeownership experience. Just as important,the Below Market program in San Francisco shows that,regardless of market conditions, shared equity models thatbalance preservation of affordability with wealth creationhave the potential to help lower-income households buildequity and move up the housing ladder. nAnswer to “Where in the world?” (Page 13)Augsburg, Bayern, Germany. Maxilianstrasse looking toward the Perlachturm, a medievalwatchtower now part of the city hall complex. Photo: Kieulan Pham, LEED AP BD+C16th Street Mall, Denver, looking northwest from Stout Street toward the clock toweron Arapahoe Street. Photo: Juan Borrelli, AICP.Corn exports from the United States were down in 2012; gasoline exports were up.Higher domestic production and reduced demand allowed the United States to export more oilproducts than it imported for the second year in a row — after more than six decades of beinga net importer. (The United States is still a net importer of crude oil, though.) The Globalisthttp://bit.ly/12qYcjCNorthern News 21 May 2013
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