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Notes from the Field

Shared Equity Affordable Homes Unlock Racial Equity for All

Home prices are rising, pricing out many potential homebuyers. This alternative homeownership model keeps homes affordable for lower-income buyers and increasingly for buyers of color.

As we emerge from the COVID-19 pandemic, home prices are rising at the fastest pace in 15 years. As a result, many potential homebuyers are priced out of neighborhoods in cities small and large. A record high of 43 percent of all homes sold for more than their asking price in March 2021. In addition, demand for homes is significantly outpacing the available supply and building material costs are surging, with lumber prices increasing 200 percent in the last year.

In the struggle to manage these skyrocketing construction costs, innovative homebuilders are increasing their use of alternative building materials. Similarly, as our nation struggles to address and correct a documented history of redlining, housing discrimination, and exclusion, we must increase the use of alternative homeownership models that advance racial equity and increase homeownership opportunities for BIPOC families still experiencing inequality. One such alternative is shared equity homeownership (SEH).

What are SEH models and why are they important?

Grounded Solutions Network defines shared equity homeownership as a self-sustaining model that takes a one-time public investment to make a home affordable for a lower-income family and then restricts the home’s sale price each time it is sold so that it remains affordable for future lower-income buyers.

SEH helps build wealth for families who would otherwise be unable to afford owning a home and preserves the community’s investment by keeping the home affordable. SEH options include:

More than 270 CLTs today are increasingly serving families of color with permanent affordability across a range of housing markets. High-cost housing markets such as New York, Chicago, Philadelphia, Denver, and Houston boast successfully operating CLTs. Small and midsize cities, with less intense but still challenging housing market cost conditions, such as Durham, Pittsburgh, Kansas City, Cleveland, and New Orleans have also established CLTs to address local resident affordability and displacement concerns.

A 2019 Lincoln Institute of Land Policy report validates the multiple benefits of SEH. Across 58 shared equity homeownership programs and 4,108 individual properties over the past three decades, documented performance data proves that shared-equity homes are (1) serving low-income homebuyers and increasingly serving people of color, (2) providing affordable homes and mortgages, (3) ensuring homeownership is sustainable, (4) building wealth for families, (5) remaining permanently affordable to serve households of the same income levels over subsequent sales, and (6) retaining the public investment in affordable housing.

The Crescent City Community Land Trust (CCCLT) in New Orleans is one prime example of leadership of color achieving racial equity outcomes for families of color. CCCLT Executive Director Julius Kimbrough, describing 10 recently completed CLT homes in New Orleans Lower 9th Ward, writes, “the new 2-bath, 2–3 bedroom homes, are priced for mortgage payments at no more than 25 percent of the owner's monthly income. The Ford Foundation significantly subsidized the homes, which cost between $33,000 and $90,000 based on buyer’s monthly income. CCCLT partner Capital One also provided grant support for the project as well as financial coaching to assist potential homeowners, a majority of which are Black families.”

Kimbrough is also clear about the opportunity before us all: “We’ve shown that SEH, permanent affordability, and stewardship are effective tools in addressing the affordable housing and displacement crisis; put it in the policy tool belts of New Orleans and every other city across the country.”

“We must invest in local, place-based SEH capacity building and direct significant development capital to BIPOC- and women-led community development organizations that are rooted in the communities of color they serve,” he continues. “All of that must be driven by leadership who use a racial equity lens to ensure people of color have greater access to homeownership.”

The benefits of homeownership are numerous: It builds wealth, supports better neighborhoods, and contributes to greater educational attainment. Providing greater access to homeownership for households of color is essential for advancing racial equity and can achieve a more vibrant economy for all people.

Tony Pickett is chief executive officer of Grounded Solutions Network, and Julius Kimbrough Jr. is executive director of Crescent City Community Land Trust. Pickett will moderate a session titled, “Creating Inclusive, Equitable, Mixed-Income Communities with Community Land Trusts,” on June 24 at Policy Summit 2021.

The views expressed in this report are those of the author(s) and are not necessarily those of the Federal Reserve Bank of Cleveland or the Board of Governors of the Federal Reserve System.