Shared-Equity Homeownership Offers an Alternative Path to Wealth Building for Renters with Low Incomes

Homeownership is a key tool for wealth building, particularly for households with low and moderate incomes, for whom homeownership is often their primary means of asset building. Yet barriers to entry, including down payments and other borrowing constraints, prevent many households from accessing and equitably benefiting from homeownership. 

Shared-equity homeownership (SEH) programs are one potential tool for expanding access to homeownership to low- and moderate-income households and people of color, who have lower levels of homeownership because of systemic racism and ongoing market barriers. SEH programs make homes affordable (PDF) by investing funds to reduce initial purchase prices. The homes remain affordable to all future homebuyers through resale restrictions. One primary type of SEH is the homeownership model of community land trusts (CLTs): nonprofit, community-based organizations governed by a board of CLT residents, members of the broader community, and public representatives. CLT homes are priced well below market values because homeowners only purchase houses on CLT-owned land, and they lease the land from the CLTs in a long-term, renewable lease.

Under all SEH types, homeowners agree to pay the opportunity forward by reselling their homes below their market values, so these homes remain affordable to subsequent lower-income households. The original homeowner builds wealth by paying down the mortgage and capturing a portion of the appreciation. Because the homes are resale restricted and less subject to market fluctuations, shared equity is referred to as a “third sector” of housing that sits between renting and private-market homeownership. 

To better understand how SEH programs affect wealth accumulation, this study’s authors compare outcomes for SEH participants with similar households with low and moderate incomes who rented or owned non-SEH units. The authors matched data from the Panel Study of Income Dynamics and HomeKeeper National Data Hub, the largest database of administrative data from SEH programs.

To compare wealth changes for shared-equity participants with other homeowners with similar sociodemographic characteristics, the authors compare median annual changes in home equity. For renters, they use the same calculations but with nonequity wealth. Though shared-equity homeowners generally build less equity than similar homeowners, they build considerably more equity than similar renters. The authors conclude that renter households who desire traditional homeownership but face financial barriers may build greater wealth through SEH than through renting. 

Key findings

• Between 1999 and 2017, the median SEH owner experienced an annual increase in housing wealth of $1,657 in real terms, compared with $2,079 for the median low- to moderate-income homeowner. 
• The average holding period for a property was six years, during which the median SEH household would have accumulated about $10,000 in housing wealth, compared with $12,500 for a similar, non-SEH homeowner. 
• Median wealth for matched-renter households only increased by $16 per year in real terms. This finding suggests that as long as SEH homeowners do not lose substantial nonequity wealth during their tenure, they would be able to accumulate substantially more wealth than similar renters would.

• Though shared-equity owners build slightly less housing wealth than similar non-SEH homeowners, they are able to build substantially more wealth than similarly positioned renters. 

Policy implications

• Shared-equity homeownership programs have the potential to expand access to homeownership. Households wanting to become homeowners but lacking financial assets can instead pursue SEH as a means of asset building and a stepping stone to homeownership.
• The authors note that SEH programs face political and governmental barriers. Federally, implementing supportive policies to provide mortgage credit to SEH programs could expand their reach and effectiveness. Locally, policymakers may need to adjust zoning policies to make SEH programs accessible in their area.
• Because of data limitations, the authors were unable to examine their results by race and ethnicity. However, future research should examine wealth-building outcomes by race and ethnicity to understand whether and how SEH programs advance racial equity.