Expanding Asset-Building Opportunities Through Homeownership

by Jeffrey Lubell
Guest Blogger

From time to time, Housing Perspectives features posts by guest bloggers. Today's post, written by Jeffrey Lubell, Director of Housing and Community Initiatives at Abt Associates, reflects thoughts from a book launch & panel discussion he participated in at the Harvard Kennedy School on October 30, 2014. The panel was entitled "The Future of Homeownership in America", was moderated by NPR Reporter Chris Arnold, and also included panelists Chris Herbert (Joint Center for Housing Studies), Marsha Courchane (Charles River Associates), and Patricia McCoy (Boston College).

In a recent editorial titled "Homeownership and Wealth Creation," the New York Times highlighted an analysis by Chris Herbert, Dan McCue, and Rocio Sanchez-Moyano of the Harvard Joint Center for Housing Studies that re-examined whether homeownership contributes to individual wealth creation in light of the experience of homeowners during the housing bust of the late 2000s. Building on the findings of this analysis, the Times emphasized that homeownership remains a critically important vehicle for the accumulation of wealth and expressed support for policies that make mortgage products safer and boost Americans’ incomes to expand their purchasing power.

The paper by Herbert, McCue and Sanchez-Moyano was originally presented at a symposium in 2013 and recently published as a chapter in a new Joint Center book, Homeownership Built to Last.  Earlier this fall, the Joint Center hosted a book launch that included presentations by authors of four of the chapters in the book.  As a contributing author and participant in the book launch, I am pleased to see the New York Times utilize the research in Homeownership Built to Last for its intended purpose: to draw lessons from the foreclosure and housing crises and other recent experience that can help us develop policies to support sustainable homeownership. 

I would take the Times’ recommendations one step further, however.  In my chapter and presentation at the book launch, I urged us to take the additional step of working to expand the supply of homeownership opportunities affordable to low- and moderate-income households by investing in shared equity homeownership.  Shared equity homeownership represents an alternative to down payment grants and forgivable loans that enables asset-building homeownership opportunities to be provided to many more families with the same amount of government investment.  Under this approach, a government subsidy (or an inclusionary housing policy) is used to reduce the purchase price of a home.  In exchange for a more affordable purchase price, the homebuyer agrees to sell the home to the next buyer at an affordable price, set by formula to balance wealth creation by the homeowner with ongoing affordability to the next owner.

The result is the preservation of the initial subsidy to help one homebuyer after another.  While the shared equity homeowner gives up the opportunity to make a killing if the market goes through the roof, the homeowner nevertheless has the opportunity to build sizable and potentially life-altering wealth through the combination of the forced savings of a fixed-rate mortgage and a generally predictable amount of home price appreciation.  As an added bonus, shared equity homeownership may help reduce the incidence of foreclosure and provides some protection from modest declines in the market.

Shared equity homeownership is not for everyone.  But it does fill an essential market niche.  If we want to expand asset-building opportunities through homeownership to the low- and moderate-income households that really need them, we’re going to need to both expand the credit box so that more families can access reasonably priced mortgage capital AND expand the supply of homes low- and moderate income households can afford through strategies like shared equity homeownership.

My essay on shared equity homeownership may be found in Chapter 6 of Homeownership Built to Last.  (An earlier version of the chapter was published as a working paper by the Joint Center.)