There are three models of ownership in the United States that can be included in the category of “shared equity”: deed-restricted homeownership, limited equity cooperatives and community land trusts. For a more in-depth discussion of these models, see John Davis’ report on shared equity models, published by the National Housing Institute in 2006.
Deed-Restricted Homeownership
Under this approach, a subsidy is applied to reduce the purchase price of a new or existing home to a level affordable to homeowners at the target income level. Then restrictions are put into place requiring that the home be sold, and eventually resold, to buyers meeting certain qualifications—for example, incomes below 80 percent of the area median—at an affordable price as defined according to a formula set in the deed restriction or covenant. While these agreements are sometimes assumed to be self-enforcing, they do need to be actively monitored by an entity with an interest in maintaining ongoing affordability.
The Moderately Priced Dwelling Unit (MPDU) program in Montgomery County, Md., is one of the oldest examples of deed-restricted affordable housing in the country. Started in 1974, the program has produced over 9,500 units of affordable owner-occupied homes as of 2013. The covenants in the deeds place restrictions on the sale price of the units for a term of 30 years, during which the units can be sold only for a certain price to another eligible household.
Limited Equity Cooperatives
Under this approach, families purchase a “share” in the cooperative rather than a standard property interest in the home. Limited equity cooperatives are typically, but not exclusively, applied in the context of an apartment or townhouse community, or other multifamily development. Each member of the cooperative receives a right to occupy one unit, as well as a vote on matters of common interest. Cooperative members share responsibility for maintaining common areas and admitting new members. Share prices are set by a formula contained in the co-op’s bylaws, subscription agreement, and stock certificates.
One of the principal distinctions of this model is the concept of common ownership and shared decision making. Proponents of cooperatives also point to financial advantages stemming from economies of scale and the fact that the mortgage is held by the collaborative rather than by individuals, reducing the need for families to qualify individually. There are roughly 400,000 to 500,000 limited- or no-equity cooperative units currently in the U.S.
Cooperatives are not limited to multifamily buildings. A number of manufactured home communities have transitioned from investor or landlord owned to resident owned, where homeowners form a nonprofit cooperative or corporation to own and operate the community. Resident Owned Communities (ROCs) help preserve long-term affordability while also helping residents to building wealth. According to the Corporation for Enterprise Development, about 33 percent of all residents own their manufactured homes but rent the land their homes sit on. The cooperative borrows money from a home loan fund or local bank to purchase the property, eliminating the need for each family to apply for a loan to purchase their portion of the land.
ROCs help to preserve the affordability of manufactured home parks by reducing the risk of rapid rent increases for — or even the eviction of — owners that currently pay rent to lease the land their home sits on and help to ensure that manufactured homes are recognized as real estate, with access to competitive financing tools to purchase a home. Each household shares ownership of the cooperative and can vote on decisions related to the governance and operation of the park.
Community Land Trusts
Community land trusts (CLTs) are organizations that own land and develop it through an inclusive, community-based process. This process lets CLTs develop land according to the community’s needs, which can include anything from open space to a multifamily rental housing project. Most often, however, CLTs are created to provide affordable homeownership opportunities to low- and moderate-income households. There are about 200 community land trusts currently in the U.S., and the model has become popular in the U.K. as well.
The CLT model is structured around a ground lease. The CLT owns land, which is leased to households who purchase the homes that sit on CLT land. Removing the cost of land from the cost of purchasing the home provides a significant subsidy to the households. The ground lease limits the amount for which the home can be sold, passing the subsidy on from one homeowner to the next. CLTs also often retain the right to repurchase the home in the case of foreclosure.