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Understanding Affordable Homeownership

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Presentation to CA League of Cities Mayors Forum 2007

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Understanding Affordable Homeownership

  1. 1. . Rick Jacobus Burlington Associates www.rjacobus.com
  2. 2. What is the purpose of affordable housing?
  3. 3.  Families?  Children?  Homeless?  Employers?  Commuters? Who is supposed to benefit?
  4. 4. VS Is the problem permanent?
  5. 5. “It would be wrong to let homeowners walk away with large windfalls when there are so many others who will never have the chance to buy anything.”
  6. 6. “If homeowners can’t earn equity through the program it is not really homeownership”
  7. 7. Competing Goals Affordability Asset Building Some programs maintain affordability over time by limiting the wealth creation for individual homeowners. Other programs offer unlimited wealth creation but don’t keep units affordable for future buyers.
  8. 8. Which matters more? Preserving Affordability Or Building Assets?
  9. 9. What is fair? Market Value: $500,000 Public Subsidy: $200,000 Affordable Price: $300,000 What should they owe when they move?
  10. 10. Preserving Affordability Or Building Assets? Subsidy levels are too high for only one family to benefit. Investment in housing today should create units that stay affordable for future buyers… …without additional subsidy.
  11. 11. Preserving Affordability Or Building Assets? Wealth matters! Rental Housing = “Getting by” Homeownership = “Getting ahead!”
  12. 12. Preserving Affordability Or Building Assets? Average Family Net Worth White $81,000 Black $ 8,000
  13. 13. Preserving Affordability Or Building Assets? Do we really have to choose?
  14. 14. Monterey County Population by household income level 0.000% 1.000% 2.000% 3.000% 4.000% 5.000% 6.000% $10,000 $30,000 $50,000 $70,000 $90,000 $110,000 $130,000 $150,000 $170,000 $190,000 $210,000 $230,000 $250,000
  15. 15. Zillow.com Approximate price for a 1,500 Sq Ft home at each location
  16. 16. Monterey County Roughly how much can each income group afford to pay for a home? 0.000% 1.000% 2.000% 3.000% 4.000% 5.000% 6.000% $34,609 $103,826 $173,043 $242,260 $311,478 $380,695 $449,912 $519,129 $588,346 $657,564 $726,781 $795,998 $865,215
  17. 17. Where are the Blue houses?
  18. 18. Where are the Yellow houses?
  19. 19. What if there were $300,000 houses? Something for these people to buy?
  20. 20. What if there were $300,000 houses? Purchase Price 300,000 Downpayment 15,000 Sale (10 years later) Price 540,000 Seller's Gain 240,000 Return on Investment 32%
  21. 21. What do we do when there are no $300,000 houses? Local programs make green houses affordable to blue buyers. Inclusionary or Subsidized Homes
  22. 22. When a family buys a $500,000 home for only $300,000, how much should they earn when they sell?
  23. 23. Market Subsidized Purchase Price 300,000 300,000 Downpayment 15,000 15,000 Sale (10 years later) Price 540,000 900,000 Seller's Gain 240,000 600,000 Return on Investment 32% 45% When a family buys a $500,000 home for only $300,000, how much should they earn when they sell?
  24. 24. Market Shared Appreciation Purchase Price 300,000 500,000 Downpayment 15,000 15,000 Sale (10 years later) Price 540,000 900,000 Seller's Gain 240,000 240,000 60% Return on Investment 32% 32% Shared appreciation offers comparable wealth creation
  25. 25. Shared Appreciation Affordable Price Purchase Price 500,000 300,000 Downpayment 15,000 15,000 Sale (10 years later) Price 900,000 440,000 Seller's Gain 240,000 140,000 Return on Investment 32% 25% Resale restrictions tied to incomes limit appreciation but protect affordability
  26. 26. Affordable Price Rental Purchase Price 300,000 Downpayment 15,000 Sale (10 years later) Price 440,000 Seller's Gain 140,000 0.00 Return on Investment 25% 0% Even restricted prices can generate life altering wealth
  27. 27. We don’t need to ask:  Should homeowners earn equity? We do need to ask:  Will prices continue to rise – long term?  How much can we afford to spend to preserve affordability of existing homes?  How much wealth should buyers earn?
  28. 28. Rick Jacobus Burlington Associates 510-653-2995 Rick@rjacobus.com www.rjacobus.com

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