Shared Equity Homeownership

What Is Shared Equity Homeownership?

Shared equity homeownership is a way of making a home affordable once and keeping it affordable through future sales. A public or philanthropic investment lowers the price for a lower- or moderate-income buyer. In return, the buyer agrees to resell at a restricted price to another income-qualified buyer. The “shared” equity is the gain in value. Part goes to the seller, and part stays with the home so the next buyer can afford it.

There are three common forms:

• Community land trusts, which own the land and lease it to homeowners
• Deed-restricted homes, often created through inclusionary zoning, with resale limits recorded against the property
• Limited-equity cooperatives, in which residents buy shares in a building at a capped price

How It Works

The key document is the resale formula. HUD’s rules for the HOME program require resale terms that give the seller a “fair return on investment” while keeping the home affordable to a reasonable range of low-income buyers. The rules list four permissible approaches, and allow others:

• Itemized: adds up the down payment, principal paid, and improvements, then applies an index.
• Appraisal-based: gives the seller a set share of the market appreciation.
• Index-based: adjusts the price by a measure such as the change in median household income.
• Fixed-rate: raises the price by a set percentage for each year the seller owned the home.

Shared Equity vs. Down Payment Assistance

Evidence and Criticisms

Grounded Solutions Network is a national network that supports these programs. Its fact sheet combines a 2022 census of the field with an earlier analysis of data collected in 2018 from 58 organizations with more than 4,000 homes in 20 states over three decades. It reports:

• Scale: 314 CLTs and nonprofit shared equity organizations in 46 states, Washington, D.C., and Puerto Rico. Together they had a projected 15,600 or so homes at the end of 2022.
• Wealth and stability: The median household built about $14,000 in equity from a median initial investment of $1,875. More than 99% of homes avoided foreclosure proceedings.

Critics point out that owners give up much of the appreciation they would capture in a rising market. Programs also need permanent staff to monitor occupancy and manage resales. Proponents respond that, without resale limits, each new buyer would require a new subsidy.