Addressing Affordable Homeownership in a Different Way: The Present and The Alternative

The Present: Long-Term Resale Restrictions

The current long-term resale restrictions that the DC government places on homebuyers of affordable units – typically 15-20 year restrictions, but even reaching up to 30 years or permanent – force home owners to sell their properties at below market rate. The intended purpose of these restrictions is to preserve affordable housing units in Washington, DC and ensure against people immediately reselling their properties and making a ‘windfall’ profit. However, the flipping of affordable units is almost nonexistent and these restrictions have the unintended result of preventing home owners from building up equity. The chance to build reasonable equity is one of the main reasons people become homeowners, and home equity has historically and continues to be the primary asset builder for lower income people.

The effects of long-term resale restrictions include:

  1. Short-term effects: home owners are unable to access their home equity when unforeseen or emergency expenses arise (e.g. health emergencies, emergency home repair, etc.).
  2. Long-term effect: home owners are unable to build wealth and maintain generational home ownership.  With long resale restrictions, home ownership is not a viable investment. Instead, it creates one-time home owners.

Real-life situations to consider in regards to long-term resale restrictions:

  1. If a lower income person gets married, or a couple has a child, and needs to trade up to a larger home in the same neighborhood, where will the equity come from to enable them to buy a larger home in DC? As second-time homeowners, they will not be eligible for the same benefits they could get as lower income, first-time homebuyers.
  2. If a lower income owner has a better job opportunity in another location, how will he/she be able to remain a homeowner unless reasonable equity can be realized so that a home can be purchased in another area? Even in an area with lower prices, substantial down payments are often needed for low-income persons.
  3. What happens if the housing market declines and there is a financial loss? It would appear that the lower income owner bears the full burden of all losses whereas that same owner is severely restricted in what he/she can realize.

In summary, without the ability to accumulate reasonable equity over time, the lower income buyer can easily become trapped in a homeownership situation and forced to sell rather than be able to cope with adverse life circumstances. Therefore, the people who can least afford it and are in need of the economic opportunity only homeownership can give them are being forced to shoulder a disproportionate share of the burden in creating affordable homeownership in DC. We and the population we serve feel this is unfair and discriminatory.

The Alternative: Recapture and Recycle

Manna advocates an alternative to long-term resale restrictions, particularly in wealthier areas of the city where home appreciation is high. A better, more equitable way to insure against the concerns voiced by long-term resale restrictions, specifically against “windfall profit” and “property flipping”, is through what Manna calls a “Recapture and Recycle” provision. This provision, which has been promoted in different forms by the US Department of Housing and Urban Development, recaptures all funds that are considered “subsidy” to the buyer, which is the difference in the original sales price to the lower income buyer and the higher appraised/market price at that time. This difference would be repaid if and when the lower income buyer resells his/her unit. This allows the “recaptured” funds and any funds considered subsidies to be treated as a loan that gets repaid and  “recycled” back into additional affordable units for more qualified lower income families. Rather than long-term resale restrictions, Manna advocates and employs a 5-10 year resale restriction.

An example of the “Recapture and Recycle” provision:
If a lower income person purchases a unit that is worth $435,000 from a developer for $235,500 (the cost of developing the unit), then the $199,500 “discount” would be considered a subsidy that would be repaid to the city to produce more affordable homeownership opportunities when the homeowner sells or refinances. The homeowner would benefit from being able to fully utilize, like a typical homeowner, any appreciation accumulated above the original $435,000 value after the 5-10 year period.

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