understanding affordable homeownership

.

Rick JacobusBurlington Associates

www.rjacobus.com

What is the purpose of affordable housing?

Families? Children? Homeless? Employers? Commuters?

Who is supposed to benefit?

VS

Is the problem permanent?

“It would be wrong to let homeowners walk away with large windfalls when there are so many others who will never have the chance to buy anything.”

“If homeowners can’t earn equity through the program it is not really homeownership”

Competing Goals

Affordability Asset Building

Some programs maintain affordability over time by limiting the wealth creation for individual homeowners.

Other programs offer unlimited wealth

creation but don’t keep units affordable

for future buyers.

Which matters more?

Preserving Affordability

Or

Building Assets?

What is fair?

Market Value: $500,000

Public Subsidy: $200,000

Affordable Price: $300,000

What should they owe when they move?

Preserving Affordability

Or

Building Assets?

Subsidy levels are too high for only one family to benefit.

Investment in housing today should create units that stay affordable for future buyers…

…without additional subsidy.

Preserving Affordability

Or

Building Assets?

Wealth matters!

Rental Housing = “Getting by”

Homeownership = “Getting ahead!”

Preserving Affordability

Or

Building Assets?

Average Family Net Worth

White $81,000

Black $ 8,000

Preserving Affordability

Or

Building Assets?

Do we really have to choose?

Monterey CountyPopulation by household income level

0.000%

1.000%

2.000%

3.000%

4.000%

5.000%

6.000%$1

0,00

0$3

0,00

0$5

0,00

0$7

0,00

0$9

0,00

0$1

10,0

00$1

30,0

00$1

50,0

00$1

70,0

00$1

90,0

00$2

10,0

00$2

30,0

00$2

50,0

00

Zillow.comApproximate price for a 1,500 Sq Ft home at each location

Monterey CountyRoughly how much can each income group afford to pay for a home?

0.000%

1.000%

2.000%

3.000%

4.000%

5.000%

6.000%

$34,

609

$103

,826

$173

,043

$242

,260

$311

,478

$380

,695

$449

,912

$519

,129

$588

,346

$657

,564

$726

,781

$795

,998

$865

,215

Where are the Blue houses?

Where are the Yellow houses?

What if there were $300,000 houses?

Something for these people to buy?

What if there were $300,000 houses?

Purchase

Price 300,000

Downpayment 15,000

Sale (10 years later)

Price 540,000

Seller's Gain 240,000

Return on Investment 32%

What do we do when there are no $300,000 houses?Local programs make green houses affordable to blue buyers.

Inclusionary or Subsidized

Homes

When a family buys a $500,000 home for only $300,000, how much should they earn when they sell?

Market Subsidized

Purchase

Price 300,000 300,000

Downpayment 15,000 15,000

Sale (10 years later)

Price 540,000 900,000

Seller's Gain 240,000 600,000

Return on Investment 32% 45%

When a family buys a $500,000 home for only $300,000, how much should they earn when they sell?

MarketShared

Appreciation

Purchase

Price 300,000 500,000

Downpayment 15,000 15,000

Sale (10 years later)

Price 540,000 900,000

Seller's Gain 240,000 240,000 60%

Return on Investment 32% 32%

Shared appreciation offers comparable wealth creation

Shared Appreciation

Affordable Price

Purchase

Price 500,000 300,000

Downpayment 15,000 15,000

Sale (10 years later)

Price 900,000 440,000

Seller's Gain 240,000 140,000

Return on Investment 32% 25%

Resale restrictions tied to incomes limit appreciation but protect affordability

Affordable Price Rental

Purchase

Price 300,000

Downpayment 15,000

Sale (10 years later)

Price 440,000

Seller's Gain 140,000 0.00

Return on Investment 25% 0%

Even restricted prices can generate life altering wealth

We don’t need to ask: Should homeowners earn equity?

We do need to ask: Will prices continue to rise – long term? How much can we afford to spend to

preserve affordability of existing homes? How much wealth should buyers earn?

Rick JacobusBurlington Associates

510-653-2995

Rick@rjacobus.com

www.rjacobus.com