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OC Housing Summit IV                                                    May 20, 2010




                  Orange County H...
OC Housing Summit IV                                        May 20, 2010




                   Home Ownership Rates by Co...
OC Housing Summit IV                                   May 20, 2010




                   Family Homeownership by Income
...
OC Housing Summit IV                                                            May 20, 2010




                   Home O...
OC Housing Summit IV        May 20, 2010




Rethinking Home Ownership             5
OC Housing Summit IV                                                                          May 20, 2010




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OC Housing Summit IV                                                           May 20, 2010




                   Afforda...
OC Housing Summit IV                                                                      May 20, 2010




               ...
OC Housing Summit IV                                                        May 20, 2010




                 Thank you


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READI, LLC                                  Housing Alternatives: Market Rate Unit vs. Rental Unit vs. Ground-Leased Unit ...
READI, LLC                                   Housing Alternatives: Market Rate Unit vs. Rental Unit vs. Ground-Leased Unit...
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Oc Housing Summit Rethinking Homeownership V5 Color

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Presentation at the Orange County 5/20/10 Housing Summit

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Transcript of "Oc Housing Summit Rethinking Homeownership V5 Color"

  1. 1. OC Housing Summit IV May 20, 2010 Orange County Housing Summit IV Irvine, May 20, 2010 Rethinking Home Ownership observations & commentary without conclusions ith t l i Professor Kerry Vandell / UCI Ehud Mouchly / READI, LLC & USC Who Is Here Today? Homeowners Why own? o Financial o Other Would you prefer renting? Renters By choice? Would you prefer owning? o Hurdles? Down payment Monthly cost Rethinking Home Ownership 1
  2. 2. OC Housing Summit IV May 20, 2010 Home Ownership Rates by Country – 2002 Source: The Economist, March ‘02 Source: US Census Rethinking Home Ownership 2
  3. 3. OC Housing Summit IV May 20, 2010 Family Homeownership by Income Percentile Source: Federal Reserve Board, 2009 Rethinking Home Ownership 3
  4. 4. OC Housing Summit IV May 20, 2010 Home Ownership – 1945-2010 1945- – Shelter vs. Financial Asset Post World War II Experience Living the American Dream o Rent > Own > Upgrade > Downsize / Rent Income-driven housing solutions o Low and moderate income household – need-driven o Middle income (~100% AMI) – struggling between “need vs. want vs. afford need vs vs afford” o High income – discretionary Non-financial / semi financial considerations o Public policy o Social / psychological value setting o Mobility Home Ownership – 2010 and Beyond A new paradigm or continuing pattern? Changing employment patterns Technology and communication Transportation and commuting Evolving planning, design & architecture Higher density development Smaller units Changing patterns of residential uses o e.g., multi-generational housing Accommodating California / So. Cal population growth Rethinking Home Ownership 4
  5. 5. OC Housing Summit IV May 20, 2010 Rethinking Home Ownership 5
  6. 6. OC Housing Summit IV May 20, 2010 Buy vs. Rent Tradeoffs: The NY Times Buy vs. Rent Calculator http://www.nytimes.com/interactive/business/buy-rent-calculator.html Biases Generational social / political / public policy bias towards ownership Political stability / personal safety / perceived economic security / “Community building” / Managing expectations with taxation preferences Changing the bias – if desired Subsidizing ownership housing instead of just rental housing (LIHTC / NMTC) Regulatory production incentives Rethinking Home Ownership 6
  7. 7. OC Housing Summit IV May 20, 2010 Affordability, Workforce & Employer- Employer- Assisted Housing Issues Shortage of affordable near-employment housing: g p y g roadblock to employee attraction, retention, economic development and community building Middle-income housing to be priced at “4X Income” “New normal” will make the shortage acute again For many employers the emphasis is on JOD not just TOD Commuting costs are combined with PITIH for qualifying ratios in mortgage underwriting “Smart Commuting” mortgage financing – ~$1K income increase per 1 mile reduction in commuting distance Rethinking Home Ownership 7
  8. 8. OC Housing Summit IV May 20, 2010 Balancing Acts and Tradeoffs for Affordable Workforce and Employer-Assisted Housing Employer- (+) (–) End of “drive to qualify” Higher densities Reduced time-distance Smaller opportunity to jobs parcels /higher land cost Increased discretionary Lower value of suburban income and exurban homes More time with family Need for investment in and community attractive / efficient More efficient municipal mass transit services Indicated Housing Solutions Rental – for: Shelter Sh lt Short tenure Alternative investment of surplus funds for higher returns Ownership – for: Shelter Longer tenure Forced savings / investment Alternatives / hybrids: Rent-to-own Ownership on ground leases (community land trust) o Shared equity model – continuing affordability o (ref. University hills / ICHA) Rethinking Home Ownership 8
  9. 9. OC Housing Summit IV May 20, 2010 Thank you Prof. Kerry Vandell, UC Irvine, Merage School of Business 949.824.1985 / kvandell@uci.edu Ehud Mouchly, READI, LLC 310.289.1855 / emouchly@readi.com / www.readi.com Rethinking Home Ownership 9
  10. 10. READI, LLC Housing Alternatives: Market Rate Unit vs. Rental Unit vs. Ground-Leased Unit May 20, 2010 Illustration: Market Rate Unit vs. Rental Unit vs. Ground-Leased Unit Assumptions Orange County Metro - comparing median housing unit to Ground- a middle-income ground-leased workforce housing unit Ground- For-Sale leased for a family earning $86,100 - the OC Metro AMI Generic Market leased Market Unit Rental Unit Owned Unit Home Purchase Initial Purchase Price $435,000 23% (discount) $435,000 $336,065 First Mortgage 90% 100% 391,500 336,065 Down Payment 10% 0% $43,500 $0 Mortgage Loan Fees 1.00% 3,915 3,361 Other Closing Costs 2.00% 8,700 6,721 Rental Unit Security (2 X monthly rent (1/20 of house price)) $1,800 3,600 Cash at closing $56,115 $3,600 $10,082 Annual Housing Costs & Required Income Mortgage Interest Rate (ground-leased rate after buy-down) 6.50% 5.75% Mortgage Term (years) 30 Annual Mortgage Payments $29,695 $0 $23,534 Annual PMI Premiums (no PMI on Ground-leased unit) 0.52% 2,036 - Annual Rental Payments 21,600 Property Tax (rate - excl. special districts / other assessments) 1.00% 4,350 3,361 Property Tax Annual Increase 2.00% - - Homeowners / Renters Insurance 0.25% 1,088 840 840 HOA Fees per month $250 $200 3,000 2,400 Housing Assistance Loan (HAL) 1st Year Disbursement per mo. $0 - - Annual Housing Costs $40,168 $22,440 $30,135 Required Annual Income by 35% Qualifying Ratio 35% $114,765 $64,115 $86,100 Price/income Multiplier 3.8 - 3.9 Home Resale in Yr. 7 Time in Home (years) 7 Sale Price in Yr. 7 by Market Appreciation Rate for Market Unit / CPI for Ground-leased unit 4.0% 3.0% $572,430 $413,317 Home Price Appreciation $137,430 $77,252 Appreciation Multiplier of Cash at Closing 2:1 8:1 Resale Price in Yr. 7 (mkt unit by appreciation / GL unit by CPI) $572,430 $413,317 Pay-off Mortgage Balance (353,980) (299,882) Repayment of Housing Assistance Loan (HAL) $0 0 0 Brokers Commission / Transfer Fee 5.0% 1.0% (28,622) (4,133) Share of Appreciation to Landowner / Ground Lessor (a Special Purpose Entity (SPE)) 10.0% 0 (7,725) Return of Rental Security 0 3,600 0 Pre-tax Cash Proceeds to Homeowner From Home Sale $189,829 $3,600 $101,576 Equity Multiplier of Cash at Closing 3:1 1:1 10 : 1 Compounded Annual Growth Rate of Cash at Closing 19% 0% 39% After-tax Benefits During Time in Home Total Mortgage Interest $170,341 $128,557 Total PMI Premiums 14,251 0 Total Property Taxes 32,339 23,525 Tax-deductible Housing Costs $216,931 $0 $152,082 Federal Income Tax Savings During Time in House 25.0% $54,233 $0 $38,020 Cash Proceeds From Home Sale / Deposit Return 189,829 3,600 101,576 After-tax Cash Gain Including Homeownership Benefits $244,062 $3,600 $139,597 After Tax Equity Multiplier of Cash at Closing 4:1 1:1 14 : 1 Compounded Annual Growth Rate of Cash at Closing 23% 0% 46% OC Housing Summit IV page 1 of 2
  11. 11. READI, LLC Housing Alternatives: Market Rate Unit vs. Rental Unit vs. Ground-Leased Unit May 20, 2010 Assumptions Orange County Metro - comparing median housing unit to Ground- a middle-income ground-leased workforce housing unit Ground- For-Sale leased for a family earning $86,100 - the OC Metro AMI Generic Market leased Market Unit Rental Unit Owned Unit Nominal total housing benefits / (costs) after 7 years. Appreciation: 4.0% / Inflation: 3.0% / Reinvestment: 4.0% Cash at home purchase / rental start ($56,115) ($3,600) ($10,082) Annual housing costs Mortgage payments (207,862) 0 (164,739) PMI premiums (14,251) 0 0 Property taxes (32,339) 0 (23,525) Homeowners insurance (8,589) (6,438) (6,438) HOA fees (23,695) 0 (18,390) Housing Assistance Loan (HAL) 0 0 0 Total [CPI-escalated] $1,800 / month rent (HUD FY2009 Fair Market Rent) over 7 years. (165,509) Annual Housing Costs (286,736) (171,947) (213,091) Total Cash Outlays ($342,851) ($175,547) ($223,173) Offsets Cash from sale / Deposit return 189,829 3,600 101,576 Tax savings 54,233 0 38,020 ($98,789) ($171,947) ($83,577) Nominal after-tax compounded savings - from differences in cash at closing plus annual housing costs among a market rate unit, rental unit and a ground-leased unit. This assumes that the renter or buyer of the ground-leased unit has sufficient income to qualify for a market-rate unit but opts (if eligible) for a rental unit or a ground-leased unit and invests the equivalent amount at 4.0%. Furthermore, that ground-leased unit buyer's qualifying ratio is then reduced from 35% to 26%. n/a 190,204 134,972 Nominal combined after-tax benefits / (costs) of cash at closing, annual housing expenditures and final sale outcome or alternative investment of cash-at-closing funds ($98,789) $18,257 $51,395 Rental Unit Comparison Annual Rent $1,800 per month $21,600 Total [CPI-escalated] $1,800 / month rent (HUD FY2009 Fair Market Rent) over 7 years. No gain at end of tenure ($165,509) OC Housing Summit IV page 2 of 2

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