Sustainable Renting and Affordable Homeownership

OVERVIEW

Millions of people are unable to afford their housing. Almost one-third of US households are cost burdened, with 14% spending more than 50% of their income on housing. While renters face obstacles in finding housing (e.g., finding available units at the right price, security deposits, background checks, making payments), homebuyers are challenged with limited supply and rising mortgage costs (e.g., extremely few starter homes), some homeowners have difficulties in keeping their housing (e.g. making payments, unexpected repairs, rising utility costs). We need ideas that support affordability and financial sustainability for renters, homebuyers, or homeowners in lowering their housing costs, particularly for low-to-moderate income households.

Basic Facts | Cost-Burdened Housing | Renting vs. Owning | Renter Equity | Accessing Homeownership | New Ownership Models | Maintaining Affordability

Basic Facts and Overview

Cost-Burdened Housing

The United States Department for Housing and Urban Development defines cost-burdened families as those “who pay more than 30 percent of their income for housing” and “may have difficulty affording necessities such as food, clothing, transportation, and medical care.” The 30-percent rule for measuring affordability can be traced back to an amendment passed in 1969 by Senator Edward Brooke, the country's first popularly elected African American senator and a vocal advocate of affordable housing. He and then-Senator Walter Mondale coauthored the 1968 Fair Housing Act, which prohibits housing discrimination on the basis of race.

While researchers have debated whether 30 percent is the “right” number, the concept of cost-burdened renters and owners is more important than ever as housing costs continue to outpace wage growth across the country.

Renting vs. Owning

Homeownership has been a key driver of wealth generation in the United States. But the national homeownership rate has remained between 60 and 70 percent since 1960, meaning that millions who have not been able to afford homes – or those that were shut out of equal homeownership opportunities through policies like redlining – have missed opportunities to build generational wealth. As the price of ownership increases, some writers have begun to explore the benefits of renting over ownership and new ways of building wealth.

Renter Equity

While homeowners earn equity over time in their homes (as they pay off mortgages), renters do not traditionally receive any returns from their monthly housing payments. Some new models aim to change that by providing renters with “renter equity” or rewards for paying rent on time. While small scale, these solutions have the potential to help tens of millions of renters across the United States.

Accessing Homeownership

As the costs of building new housing have increased over time, the number of for-sale entry-level homes has decreased dramatically across the United States. In addition to a lack of accessible supply for first-time home buyers, the costs of ownership – mortgage rates, utility bills, renovations and repairs, etc. – have risen as well.

New Models of Ownership

Homeownership has become increasingly difficult for first-time home buyers and others who struggle to save for down payments, have low credit scores that prevent them from accessing conventional mortgage products, or find homes in the right place at the right price. New models of ownership, such as shared equity or land trusts, aim to improve affordability for buyers by changing the financing structure of home and land ownership.

Shared Equity

Land Trusts

Maintaining Affordability

While some housing units are mandated by the government as “affordable”, income-restricted units, others exist as “naturally occurring affordable housing” based on market dynamics. Maintaining both types of units is critical across the US, as is finding creative ways to add additional supply. New ideas such as helping existing homeowners rent out rooms, providing greater flexibility for multigenerational households, and supporting Accessory Dwelling Unit (ADU) construction, offer promising solutions.

Ivory Prize Winners and Finalists Addressing Sustainable Renting and Affordable Homeownership

2019 Finance co-Winner - landed

Landed is on a mission to help essential professionals (starting with educators) build financial security near the communities they serve. They invest alongside teachers and school staff when they are ready to buy a home in expensive cities. The Landed “shared appreciation” model has broad applicability and could make a significant impact. To date, Landed has helped nearly 150 public school teachers and employees purchase homes valued at $100 million. Landed in helping teachers help put deep roots in their communities. In high priced communities the down payment is a daunting challenge for many people striving to afford workforce housing. The availability of an “equity partner” can be an essential ingredient to achieving homeownership.

www.landed.com