Post Election Back to Work:  Members’ Affordable Housing Needs

In addition to consumer inflation concerns as in the price of groceries, another economic topic on voters’ minds was affordable housing.   High interest rates have brought the home purchase market to almost  a standstill except for the well-to-do.

The average home price in the United States in 2024 is around $420,400, a 25% increase from 2020. Home prices vary widely by location. For example, the average home price in Iowa in 2024 is $205,988, while the average in Alabama is $217,75.  Even with candidate Harris’ $25,000 down payment assistance for first time buyers, many would still see the aspiration as very difficult.

Today an update on the median home price for every state as of August 2024 was published by the Visual Capitalist website.  The overall median (not average) for the US was $385,000.

Credit unions have been innovators in assisting members first home purchase efforts. These changes often go outside the standard secondary market underwriting requirements as many credit unions hold non conforming loans on their balance sheet.  Product initiatives include low or sometimes no down payment,  waiving transaction closing costs,  and structuring variable rate loans with initial lower short term fixed rates followed by variable price reviews to ease the first years of payments.

This video is an example of how Community First (WI) structured their home lending to meet a family’s unique circumstances.

(https://www.youtube.com/watch?v=d6AQbDYSmpg&t=15s)

FHLB grants and other forms of community assistance are sometimes available.  But given the continual rise in home prices even in the current slow markets, the prospect of a higher normal level  interest rates, and the lack of affordable supply in many markets, is another approach required?  Housing is also a market where technology would seem to have limited potential to change the cost side of the problem.

New approaches rethink the structure of home ownership by separating the cost of land from the house built on the property.  Here are two examples of this approach.  The descriptions are largely from the linked websites.

Neighborhood Housing Trusts

The first example is the Community Housing Trust (CHT) based in Ithaca, NY.   CHT helps people with modest incomes buy their first homes. Since 2009, all of Ithaca Neighborhood Housing Service’s (INHS) home sales have been part of the Community Housing Trust. By using a special ownership structure, It is able to keep CHT homes affordable for the first buyer, and all future buyers as well.

INHS got its start by trying a new way to reverse the decline of downtown Ithaca: fixing homes up rather than tearing them down. In the 1960s and 1970s, Ithaca faced the problems challenging urban areas across the nation: a depressed economy, deteriorating housing, and the flight of homeowners to the suburbs.

Most of the homes in Ithaca’s downtown neighborhoods were more than 100 years old and owners could not get bank loans to buy new ones or didn’t have the skills or financial resources to make repairs.

In late 1976, inspired by an urban renewal program created in Pittsburgh which relied on a partnership between residents, businesses, and local government, Ithaca joined a network of successful Neighborhood Housing Services (NHS). Recognized by Congress in 1978 and known today as NeighborWorks® America, the national network of NHSs continues to recognize and nurture local solutions to local community development.

The Program’s Structure

The CHT is a “shared equity” program: the homebuyer purchases only the house and the Trust owns the land. The homeowner has a 99-year lease on the land, with a small monthly land rent. This arrangement greatly lowers the purchase price of the home.  Because most CHT homes receive a special tax assessment, the property taxes can be much lower than a market rate house. INHS ensures that all CHT homes are built or renovated to be energy efficient and environmentally sustainable, another way that operating costs are kept low.

In exchange for these financial benefits, CHT homeowners agree to limit the amount of profit they can take from their homes when they are sold. CHT homes have a resale value that is capped at 2% increase per year. This allows the homeowner to build wealth in their properties, while ensuring that the home remains affordable for future owners.

The Funding

CHT homes cost on average more than $400,000 each to develop.  The homes are sold for only about half that amount—between $150,000 and $210,000. INHS receives grant funds from a variety of sources to help fill the gap between development cost and selling price.

The permanent affordability of CHT homes means that the grant funds utilized to build them will benefit many lower-income households for generations to come!

The Durham Community Land Trustees

The timeline of this second example begins in 1987. The development of this  North Carolina affordable housing initiative can be found here.  This video, from 2017, shows a before and after  look for one neighborhood built with members’ self-help.

How It Works

Similar to to Ithaca, a community land trust nonprofit organization retains land ownership, ensuring future housing affordability.  Purchasers buy DCLT homes and lease the land these houses sit on for a low monthly fee for 99 years.

  • Owners can improve and maintain their homes.
  • They can leave their home to their children.

If a homeowner decides to sell, DCLT retains an option to repurchase the home to sell or rent to a future low-income resident or to assist the homeowner in identifying a new income-eligible purchaser.

The key feature: Homeowners share the equity they earn on their homes with future buyers, thus fostering long-term affordability even as surrounding neighborhood property values grow.

Credit Union’s Enhanced Role

Cooperatives are critical mortgage lenders in their local communities versus the nationwide all-comers model such as Rocket Mortgage.  Many credit unions also sponsor foundations for local grants.   Partnering with local housing agencies can  facilitate  oversight of land trusts or gain zoning support for both building and then managing the subsequent turnover with foundation land ownership.

Credit unions creative lending with on balance sheet solutions are a start to home ownership for some situations.  But the broader challenge of affordability requires a collaborative effort that brings multiple resources and a different ownership design to the economics of single home ownership.  A design that is partly cooperative but also combines with individual ownership responsibility.

If you are aware of credit unions participating in efforts to develop new ways of organizing home ownership and address affordability, I would welcome examples.

If one looks at the amounts of foreclosed property reported on the quarterly 5300 call reports, this suggests credit unions are already vested in home ownership turnarounds.   Why not go the next step and create CUSO’s or other organizations that will restore neighborhoods and members’ ability to build financial well-being from home ownership?

 

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