League of California Cities
Mayors and Council Members Executive Forum
Monterey Conference Center
July 26th 2007
This presentation for approximately 500 Mayors and Council Members from cities and towns throughout California focused on defining the purpose of affordable homeownership and balancing competing goals for local homeownership programs.
Download City Hall Steps In Written by Rick Jacobus and Michael Brown. Published By Shelterforce.
This article from Shelterforce Magazine outlines the growing trend of municipal sponsorship of Community Land Trusts including profiles of new CLTs in Irvine, CA and Chicago.
Download Preservation of Affordable Homeownership: A Continuum of Strategies Written by Rick Jacobus and Jeff Lubel.
Published by the Center for Housing Policy of the National Housing Conference.
In recognition of the significant benefits of homeownership for families and the communities in which they live, many cities, counties and states have adopted policies that seek to increase residents’ access to affordable homeownership opportunities. This paper examines the range of different policy options that communities have adopted to reduce the cost of homeownership, with a particular focus on the effectiveness of each option in preserving affordable homeownership opportunities over time.
The focus of this review on the preservation of affordable homeownership grows out of the collective experience of numerous communities around the country with sharply rising home prices over the past five to ten years. As many communities have learned the hard way, homes that they helped make affordable through an initial downpayment grant or other assistance often have become unaffordable when sold to the next family. With the amount of subsidy needed to bring homeownership within reach of working families growing exponentially, communities have struggled with the question of how to ensure that the public’s investments in homeownership keep pace with the market. This review provides an overview of the range of mechanisms that local governments use to ensure that housing funds invested in affordable homeownership today are able to serve additional families into the future. In general, this is accomplished either through resale restrictions that preserve the affordability of specific assisted units or through deferred loans that allow the locality to capture a portion of home price appreciation at the time that assisted units are sold that can then be used to help subsequent buyers purchase homes of their choice.
Written By Rick Jacobus and Maureen Hickey.
Affordable By Choice:Trends in California Inclusionary Housing Programs was commissioned by the Nonprofit Housing Association of Northern California, The California Coalition for Rural Housing, The San Diego Housing Federation and the Sacramento Housing Alliance. The report details the findings of a statewide survey of local government agencies that have adopted inclusionary housing policies. Key findings include:
* Nearly one-third of California jurisdictions have inclusionary programs
* More then 80,000 Californians have housing through inclusionary programs
* Most inclusionary housing in integrated within market rate developments
* Inclusionary housing provides shelter for those most in need
* Lower-income households are best served through partnerships
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.
DETAILED AGENDA:
Goals:
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.
Handouts:
Agenda
One case study
Example spreadsheet comparing approaches
Materials:
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
Monitoring
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.
4:00 Adjourn
I created this interactive tutorial on the economics of permanently affordable housing after trying to explain these concepts to small groups with static PowerPoint slides. The key to understanding the growing homeownership affordability challenge is the relative rates of change of housing prices and incomes. I found that this idea was difficult to explain verbally but was easy for people to understand with the help of simple drawings. To create the tutorial, I had to not only create the images and write the accompanying text but build a complex user interface to allow people to control the flow of the presentation and skip forward and backwards.
The presentation has proven extremely popular and has been shown by myself and a number of other advocates to thousands of people at a series of housing and urban development conferences. The latest version includes an imbedded voice narration. The presentation can also be run without the audio with either full text narration on screen or with bulleted text for live presentations to groups.
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