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September 21, 2005
Scenario 1: Static
If housing prices rise at the same rate as incomes, and interest rates remain constant, the market, shared appreciation, affordable housing cost and AMI models all generate about the same return for owners and the same ongoing affordability. Table ___ shows the performance of the approaches assuming a family sells after 10 years during which incomes and home values have both risen at 3% annually and interest rates have remained at 6.5%.
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Under this scenario where prices and incomes are rising at the same rate, the two resale price restrictions (AHC and AMI) will result in growth in the homeowner’s equity that keeps pace with market prices. While their restricted units will still sell for less than the full market price, the homeowner’s total equity at sale will be approximately the same as it would have been if they had initially purchased an unrestricted unit for $180,000. In fact, their returns may be slightly greater than market rate housing because they may not have to pay broker commissions when they sell. The model assumes that market rate sellers face higher transaction costs at resale (primarily broker commissions) than limited equity buyers who are generally selling homes at far below market price. Other than this difference, the market transaction and the shared equity loan are quite similar. The shared equity seller is receiving a return on their investment in the home but not on the public investment. And under this “static” scenario, the resale restrictions function very much like the shared equity loan, they tie appreciation to incomes instead of the housing market but here the two are rising at the same rate.
Posted by Rick Jacobus at September 21, 2005 04:37 PM
