How We Can Overcome the Homeownership Crisis Through Shared Equity The shared equity housing model (SEH) stands out as an effective solution to the homeownership crisis.
By Adam Gant Edited by Chelsea Brown
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Homeownership, for many people, symbolizes the epitome of success that comes from years of hard work and dedication. Homeownership is an aspirational status even amongst those who would rationalize it isn't for them when believing it is beyond their grasp.
When only the most "successful" individuals own their homes, we create a gap of disparity within the overall population. As many of us have seen in the last few years, this gap has grown dramatically and created an ever-widening moat around the fortress of affordability, deterring many families from the prospect of homeownership. It would be a rare individual who wouldn't want to own a mortgage-free home and never have to make a mortgage payment or monthly rent payment again.
Related: How to Save the Dying American Dream of Homeownership
How do we as a society overcome this barrier to ownership?
When looking for ways to introduce accessible and effective homeownership models, the shared equity housing model (SEH) stands out as a solution. Shared equity housing works because it accelerates the saving of a down payment while still offering affordable monthly payments. Through the SEH model, home buyers can plan a realistic route to ownership that allows them to believe they are contributing to their future investment. Even if the initial investment is a relatively small amount, it still contributes to the overall equity of the individual.
The three key components of the shared equity approach are: 1) an affordable monthly savings program, 2) a share in the growth in the equity in the home, which creates pride of ownership that leads to 3) the home being well looked after. Having the home cared for like an owner would reduce annual operating costs for the housing fund by more than the cost of the equity share given up.
How does shared equity housing work?
There are several factors that make shared equity housing a financially and socially attractive concept. A few of these concepts are as follows:
The home buyer starts with a small deposit or down payment, ideally 1%.
The home buyer does not need to qualify for a mortgage upfront.
The buyer is matched with a home where the monthly payment is comfortable for their family's income level.
The buyer shares in the equity growth in the home from the price appreciation.
The exact % share of the home equity growth is dependent on the deposit size. 20% is a good range because it accelerates the home buyer towards a 20% down payment.
The home buyer keeps their share of the equity even if they don't end up buying the home.
These factors are all significant in the process, but the share of equity is crucial when it comes to implementing a change in the industry. Most rent-to-own programs that currently exist do not secure the home buyer's equity and instead require the home buyer to either close on the home purchase or forfeit their equity.
Related: Accessibility (or Lack Thereof) in Today's Housing Market
How can shared equity housing help buyers?
Due to the ongoing housing crisis, many families are struggling to even consider the prospect of homeownership. Rather than rely on the adaptive measures we see in the market today, shared equity housing could help alleviate the stresses facing homeowners by providing alternative investment opportunities. SEH models offer prospective buyers the realistic potential to achieve a position of ownership position and make strategic steps toward a more traditional purchase.
SEH allows smaller, more achievable investments that contribute to a healthier society, market and individuals, with buyers eventually building reputable equity. As a result of SEH models, research has found that the number of foreclosed properties drops drastically in markets where SEH is introduced. Shared equity housing benefits home buyers by creating an environment that increases care for the investment. When multiple individuals are invested in the well-being of one unit or housing community, we see increased pride and commitment to savings and even going above and beyond by adding even more value to the home through improvements.
Not only does this benefit the buyers, but it builds a stronger community as a result. For buyers, the shared equity housing model is a beneficial solution that opens the door to opportunity in an otherwise exclusive market.
Key takeaways:
Shared equity housing accelerates the ability to buy property by removing barriers.
The shared equity housing model creates the potential for buyers who are unable to contribute a substantial down payment.
The shared equity housing model is affordable and allows incremental investment opportunities.
Shared equity housing implies shared interest in a home and increases stewardship.
The model promotes community through a shared interest in one investment.
Pursuing SEH would allow the reduction of annual operating costs for the housing fund.
There is less instability in the housing market with a shared equity investment than when compared to a high loan-to-value mortgage financing approach.
Related: What Is a Housing Market Recession?
Many individuals are skeptical of a large institutional system's ability to change, but it's been done before. Developers and real estate professionals need to begin examining the future of the industry and the various ways they can create a more sustainable, families-focused housing market. Shared equity housing is one financial solution to an accessible future in housing for all, and it's time we begin taking those next steps on both an individual and national scale.
