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Implementing Shared Equity

Shared equity approaches are most effective in markets in which home prices are rising faster than incomes, or are expected to do so. This includes neighborhoods near public transit and job centers or other areas likely to experience gentrification pressure, where the community seeks to preserve homeownership opportunities for families with a mix of incomes.

By their nature, shared equity approaches require a significant upfront subsidy. This may be funded directly, through such sources as the federal or programs, or indirectly, through inclusionary housing programs. The high initial costs involved with shared equity may be daunting. However, this approach may ultimately be less expensive than other approaches that do not preserve affordability or the value of subsidies over time. Given that funding for affordable housing is limited, it is important to preserve the value of subsidies over time by requiring long-term or permanent affordability. By making affordability covenants permanent or putting the units into a community land trust, jurisdictions can add to the stock of affordable ownership opportunities at a minimal ongoing cost to the jurisdiction.

While well-structured shared equity approaches help to preserve the value of public homeownership investments in the face of rising home prices, they are not entirely without cost after the initial investment. The resale restrictions in a subsidy retention model or the repayment clauses in a shared appreciation mortgage must be enforced, which requires ongoing supervision of the units. In addition, grants or reduced-rate loans for home improvement needs must be available to help maintain the permanently affordable housing stock.

In some cases, properties may need to be acquired and renovated if they have not been kept up adequately. The costs required for a program to execute these functions should be anticipated and budgeted for as part of the shared equity calculus to ensure the portfolio remains intact and an enduring asset for the community. The possibility of declining home values and ways to structure sales during a down market should also be considered when thinking about long-term and ongoing stewardship.

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