Alternative land ownership and homeownership approaches can provide benefits that traditional markets cannot. Long-term equity may be offered in full (e.g., co-housing) or offered on a limited basis through resale restrictions to preserve affordability for future residents (e.g., community land trusts or co-ops). There is growing awareness of shared-equity models, especially community land trusts (CLTs) and cooperatives, and mounting interest among housing advocates, policymakers, and community developers for using market alternatives to make homeownership more attainable and affordability last longer.
The market alternatives discussed in this section have not been widely used in most communities, yet there are examples and instances where they have been extremely successful in achieving both affordability and promoting homeownership opportunities. Pending legislation and possible constitutional amendments could expand the use of alternative homeownership options in the future. Awareness of these options and the willingness of local jurisdictions to consider and/or assist with them could result in more affordable housing options for communities moving forward.
Social housing. The concept of “social housing” or public housing has come into wider use among housing advocates over the last few years. The basic idea of publicly owned, de-commodified housing has gained appeal; however, the creation of publicly owned housing in California currently requires voter approval, which restricts this type of housing. In 2020, the State Legislature endeavored to place a constitutional amendment before the voters but did not meet the deadlines for completing the process. Voter approval, however, remains feasible given that in November 2020 San Francisco voters pre-authorized up to 10,000 units of public housing and authorized an increase in Transfer Taxes to help fund affordable housing.
Community land trusts (CLTs). CLTs are community-led, nonprofit organizations that hold land in trust for the benefit of a community. CLTs may be formed to provide affordable housing for residents either through construction of new housing or through preservation and rehabilitation of existing housing. CLTs may also incorporate and support other community-serving amenities, like parks and community gardens and even locally important businesses and/or nonprofits.
CLTs create permanently affordable housing options by separating the land value from the value of the improvements on the land. Homes are sold (or rented) to income-qualified purchasers along with an interest in the underlying land that is offered through a ground lease (i.e., an annual fee). The ground lease incorporates resale restrictions to ensure that the home remains permanently affordable. By removing the property’s land value from the speculative market, CLTs can reduce the cost of housing while also providing an opportunity for residents to build some wealth (equity) through homeownership. Resale restrictions may cap equity and/or incorporate equity sharing to ensure that the housing remains affordable to subsequent buyers. Additionally, revenues from the ground leases and any resale profits/equity shares enable CLTs to support long-term maintenance of the property and can also be used to continue their mission through incorporation of new projects.
Shared or limited equity cooperatives. Shared or limited equity cooperatives are an alternative to traditional homeownership (and renting) that provides a substantial upfront reduction in the purchase price of the home, which reduces the cost of homeownership and can expand access for households that do not have the savings for a down payment or have incomes too low to qualify for market rate mortgages. An individual with a share is entitled to one unit in the cooperative as well as a say in the decision-making regarding the project. Upon resale, share owners’ rate of return is limited to maintain affordability for future buyers.
Shared equity in rentals or dividend housing is a variation on a shared equity cooperative that allows renters to build equity credits for assisting with property maintenance and/or management. This is a relatively new model that currently has been tried on a smaller scale using duplexes and smaller multi-unit properties but could potentially be scaled up to larger projects. Support for these types of projects typically comes from a local jurisdiction or community foundation with ongoing assistance from a non-profit manager. The model also allows renters to gain homeownership skills and build equity while pursuing their longer-term quests for affordable housing ownership.
Awareness and support. Local jurisdictions should be aware that these other forms of housing can provide alternatives to conventional affordable housing. Housing Authorities that have voter approval for public housing, CLTs, and Shared or Limited Equity Cooperatives can all benefit from support by local jurisdictions. This can be in the form of financial assistance to acquire or develop affordable housing or provision of expedited permit processing.
Lasting Affordability. One of the strongest attributes of public and shared equity models is that they offer lasting affordability, which is a more prudent use of public resources than other deed-restricted units whose affordability terms may expire. Additionally, equity ownership models can result in better outcomes that help more families build wealth through owning a home. They can also provide greater community impact by permanently incorporating families with modest incomes into revitalizing neighborhoods and neighborhoods of opportunity which can benefit the social fabric and economic vitality of a jurisdiction.
Funding challenges. Shared-equity programs are still in need of better access to financing as well as equity, and financing challenges are different across models. For example, shared-equity cooperatives need greater access to blanket financing and share loans with much more favorable terms and liquidity for preservation and recapitalization. Below-market-rate homes created by inclusionary housing policies and community land trusts need their homebuyers to have mainstream access to home purchase and refinance loans. Shared-equity cooperatives and CLTs typically rely on public subsidies; therefore, significant growth will require subsidy, financing, and political buy-in.
Relevant State Law
Pending Legislation: Assembly Bill No. 387 (AB 387) (2021). Social Housing Act of 2021.
Shelterforce. The State of Shared-Equity Homeownership.
U.S. HUD Office of Policy Development and Research (PD&R). Ensuring Long-Term and Stable Affordability With Community Land Banks and Trusts.
Local Housing Solutions. Limited Equity Cooperatives.