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Local Planning, Housing Research, Forecasts and Analyses

Local Solutions in Action: Shared Equity Homeownership

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Local Solutions in Action: Shared Equity Homeownership

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The Local Solutions in Action series highlights strategies for expanding housing options and increasing housing affordability. The focus is on land use, zoning, financial and other regulatory tools that are available to cities, counties and towns that can be used to meet the housing needs of their residents and workforce.

Shared Equity Homeownership

Shared equity homeownership refers to an array of programs designed to promote long-term, affordable homeownership opportunities. These programs generally involve a combination of municipal and/or non-profit subsidy and restrictions on the sale and resale of homes. Shared equity programs fill the gap between what lower-income households are able to afford to pay for a mortgage and the actual mortgage cost to own a property. In addition, these programs explicitly are designed to ensure that homes remain affordable over the long-term, allowing for multiple families to benefit from access to affordable homeownership.

There are many different ways shared equity housing programs are structured. Among the multiple shared equity models include shared-equity cooperatives, limited-equity resident-owned communities, community land trusts and deed-restricted/below market-rate programs (e.g. inclusionary zoning models).

The Urban Institute has evaluated the impacts and benefits of share equity homeownership, finding that these programs are effective both at promoting homeownership among low- and moderate-income households and creating wealth in the form of housing equity.

According to the Grounded Solutions Network, hundreds of thousands of families in the U.S. have benefited from shared equity homeownership (including me).

The Champlain Housing Trust (CHT), based in Burlington, Vermont, is the nation’s largest community land trust, founded in 1984 by the merger of the Burlington Community Land Trust and Lake Champlain Development Corporation.  Through its shared equity homeownership program, the CHT makes homes available for purchase to lower-income households through a ground lease whereby the CHT retains ownership of the land. This structure allows the home sales price to be affordable to purchasers with lower incomes.  The other mechanisms that allow for lower-cost homeownership opportunities and permanent affordability include downpayment assistance (through state and federal sources) and limits on the appreciation that accrues to the owner (the remainder stays with the home to keep in affordable to the next buyer.)  There are more than 700 shared equity homes supported through the CHT.

Why We Care About Interest Rates

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Late last year, it seemed all but certain that the Fed would be raising rates in 2019, perhaps three or four times. However, now it is looking like the Fed could move more slowly on interest rate hikes.

Why do we care so much about the Federal Reserve and whether the Fed decides to push up interest rates?

The Federal Reserve sets the U.S. federal funds rate, which is the interest rate that banks charge each other to borrow money. Making changes to this rate is the Federal Reserve’s mechanism for influencing monetary policy. Raising this rate makes it more expensive to borrow in the short-term (and also impacts borrowers with adjustable-rate mortgages). Increases in the federal funds rate eventually lead to increases in the cost of borrowing over the long-term.

If—really when—the Fed does increase interest rates this year, there will be an increase in mortgage rates.  The current 30-year fixed-rate is 4.35 percent (as of February 21). The National Association of REALTORS®, National Association of Home Builders, Mortgage Bankers Association and Freddie Mac, all predict interest rates will rise to above five percent in 2019 (predictions range from 5.1 to 5.3 percent).

What this means is that current mortgage rates are likely the lowest we will see this year, but even the higher predicted rates are still low by historic standards.

So what does this increase in rates mean for the housing market?

While the relationship between interest rates and home prices or housing market activity is not straight forward, it is true that mortgage rate increases have usually been accompanied by reductions in mortgage originations and home sales nationally.

The reason is that the rate increase makes it more expensive to buy a home. Assuming you have a $300,000 mortgage, an increase from a 5.0 to a 5.5 percent interest rate would increase payments by about $90 per month. Not only does the interest rate increase monthly payments, it also increases the amount of income need to qualify for the mortgage.

Will higher interest rates lead to a slowdown in the market?

This housing market cycle is very different than past cycles. Rates have been very low for a long time and there is still pent-up demand for housing.  Furthermore, there are economic fundamentals that point to continued strength in the housing market. Strong job growth, low unemployment rates, and wage increases all suggest increases in the demand for homeownership. Demographic factors—primarily the huge Millennial population that is starting to feel more economically stable and is reaching homebuying age—will have a positive impact on homebuying activity as well.

Interested in more analysis of the housing market? Email us!

Amazon HQ2 and the Demand for Housing in Northern Virginia

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In December, I attended a forum on Amazon and the Northern Virginia housing market. The audience was primarily made up of realtors along with apartment owners and managers and the focus was on what the impact of Amazon’s arrival might be on home prices and rents in the region. If those in attendance were expecting (or hoping) to hear evidence of a dramatic spike in home prices and rents, then they might have been disappointed by what they heard. But what they heard was probably right.

Some of the key takeaways:

  • The Washington region is not Seattle; it is a bigger and more concentrated economy and housing market. The impact of the Amazon HQ2 development won’t be the same in Northern Virginia as HQ1 was in Seattle.
  • According to Amazon’s buildout schedule, HQ2 will bring about 38,000 total jobs over 16 years (25,000 jobs are phase 1, 13,000 are in phase 2). Another 33,000 jobs are expected as new jobs supported by HQ2 spending. This level of job growth accounts for a very small share of typical annual regional job growth, about seven or eight percent of typical annual job growth in the DC region.
  • Most Amazon HQ2 workers will be homeowners but the number of new owners will constitute a very small share of homebuyers in the market. Jeannette Chapman of GMU’s Fuller Institute estimated that Amazon HQ2 will result in an increase in demand for homeownership in the Washington DC region by between just one and five percent.
  • Two-thirds of Amazon-related demand will be for single-family detached homes. Not surprisingly, the strongest demand will be for housing in Arlington and Alexandria but there will be some Amazon-related housing demand as far out as Clarke, Page and King George counties.
  • The HQ2 hysteria is much bigger than the actual impacts that will be realized in the housing market:
    • Daniel Hale of realtor.com showed data on website traffic of searches for Arlington homes with a huge spike on the day of the HQ2 announcement but a quick return to normal levels of traffic.
    • In an analysis of new home demand, Metrostudy’s Ben Sage cautioned about “overreaction and overspeculation” in the new home market.
    • Sandy Paul of Newmark Knight Frank noted that the longer-term impacts of HQ2 on workforce development is a bigger deal than any shorter-term impacts on home prices, rents or new construction.
    • Michelle Winter of the Alliance for Housing Solutions made the point that the region already has a significant housing affordability problem and a major housing shortfall; Amazon won’t change that.

The primary takeaway from the data and analysis presented at the event was that while Amazon’s decision is exciting for the region and will be a driver of long-term economic growth in the region, potential homebuyers and sellers, in general, should not expect a significantly different housing market than is typical in Northern Virginia’s hot market, even when Amazon-ites begin arriving. However, the market for particular product types in particular neighborhoods could be in demand by new Amazon workers and there could be price pressure in the segment of the market. For example, single-family homes in some closer-in neighborhoods in the $700,000 to $900,000 price range could see relatively strong interest from new Amazon employees.

Local Solutions in Action: Opportunity Zones

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The Local Solutions in Action series highlights strategies for expanding housing options and increasing housing affordability. The focus is on land use, zoning, financial and other regulatory tools that are available to cities, counties and towns that can be used to meet the housing needs of their residents and workforce.


Opportunity Zones
The Opportunity Zone program was created as part of the Tax Cuts and Jobs Act of 2017 to encourage investment in low-income neighborhoods. Each state (often in collaboration with local municipalities) defined Opportunity Zones based on socioeconomic characteristics of Census tracts. A list and map of currently defined Opportunity Zones is available from the U.S. Department of Treasury. The Opportunity Zones program provides a tax incentive for investors to re-invest unrealized capital gains into Opportunity Funds that are dedicated to investing into these Opportunity Zones.


More information about how the Opportunity Zone program and the Opportunity Funds will work is available from the Economic Innovation Group and Enterprise Community Partners.


In late October, the U.S. Treasury Department and Internal Revenue Service issued proposed regulations and other guidancefor the Opportunity Zone tax incentive.
Because the regulations are not final, there is still some uncertainty about how the Opportunity Funds will work and what projects will be funded. However, there is growing interest in how the Opportunity Zone program could bring additional resources for the development and preservation of affordable housing. The question is what should communities be doing to best position themselves to benefit from the Opportunity Zone program?


A good example of a community working proactively on Opportunity Zones is the City of Norfolk, Virginia. The City includes 16 Opportunity Zone tracts and City officials have done a tremendous amount to educate stakeholders about the program, align existing planning and policy initiatives to be consistent with the goals of the Opportunity Zone program, and actively bring together key development and financial partners.


In July, the City held an Opportunity Zones Day, which included presentations about the defined Opportunity Zones in the City, as well as key information presented by Enterprise Community Partners and Novogradac & Company LLP. At this event, the City was a leader in bringing together a wide range of stakeholders to learn about the opportunities in the City and to begin to facilitate key partnerships.


In addition, the City has posted detailed information about its Opportunity Zones along with links to the existing Master Plansassociated with each community.


The City is intentionally aligning its planning efforts and public investments to make sure Opportunity Zone funding has an impact in its neighborhoods. This move to explicitly align community planning efforts with the Opportunity Zone program and to proactively outreach to developers, banks, foundations and others is putting Norfolk in a good position to attract investment to its distressed neighborhoods. Other communitiesare also taking a proactive approach even as the specific policy regulations get ironed out.
Let us know if we can help your community think through how to align broader planning goals with the Opportunity Zone program.

Did Housing Affordability Even Matter to Amazon?

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When Amazon announced that it had selected both Northern Virginia and New York locations for its second headquarters, there was outrage that the entire process had been a stunt and a sham. One criticism has been that while Amazon claimed to be concerned about housing availability and affordability in its selection process, the choice of two of the highest-cost regions in the country makes their claim suspicious. For example, in Northern Virginia there are well-founded concerns that the housing affordability challenges faced by many low- and moderate-income residents will only be exacerbated by Amazon’s arrival in Crystal City.


Northern Virginia, and Arlington and Alexandria, in particular, are indeed high-cost areas. There is strong demand for housing in these close-in locations and very little developable land. But against strong market forces, both communities have made affordable and workforce housing a priority and have put their money and land use policies where their mouths are.


For example, Arlington County’s Affordable Housing Trust Fund (AHIF) supports the production and preservation of below-market-rate rental housing. This year, the County has allocated $14.3 million to the fund. In the City of Alexandria’s Potomac Yard area, located just south of Crystal City, the community has engaged in a multi-year planning processto intensify development potential and significantly expand housing options with affordable apartments, condos and townhomes.


Arlington and Alexandria have worked to create diverse housing options, as well as a range of retail and restaurant options and other amenities. Taken together, and along with their locations close to the District, these strategies have made these communities very attractive to just the types of workers Amazon is hoping to attract.


These efforts don’t mean that Arlington and Alexandria shouldn’t do more to address housing availability and affordability. They can and should work both locally and regionally to commit to the land use changes and financial investments needed to ensure that new workers, as well as existing residents, can find housing they can afford in this sought-after region.

3D Printed Housing: The next frontier for affordable housing?

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3D printed home in Nantes France. Source: BBC
Over this past summer, a French family of five became the first in the world to permanently live in a 3D printed home. The 4-bedroom, 1,022 square foot home was printed on-site in just 54 hours in the city of Nantes France. Over the past few years, 3D-printed structures have been popping up around the globe and at remarkable speeds and costs. From a 650 square foot home in Austin Texas (the first in the US to meet all building codes and be fully-permitted for occupancy) to a 400 square foot home in Russia. Both examples were printed in less than 24 hours for about $10,000, a fraction of the cost of tradition construction methods. While these early prototypes have been done at a relatively small scale, the prospect of wider use for affordable housing could be an exciting reality sooner we think. Two US-based firms (ICON, a robotics construction company, and New Story, and non-profit housing developer) are teaming up to create the world’s first 3D-printed community inEl Salvador. Work on the 100+ unit community is set to being in early 2019 with cost estimates at about $4,000 per house. In Eindhoven, Netherlands, a 5-house 3D printed community is also planned with the first home set to be occupied by next year. As this technology continues to rapidly evolve, we can expect wider application of 3D printed buildings in the coming years from offices to skyscrapers.


Cost of construction.
A major factor in the viability of affordable housing developments are costs, much of which comes from construction of the homes. 3D printed homes can be constructed at a fraction of the cost of traditional construction methods. This is largely driven by amount labor, materials, and time required to complete the home. 3D printing requires very little manual labor, most of the work is completed by a machine printing the main structure. Labor is needed to monitor the machine and install the finishing elements on the building such as the windows, doors, wiring, and the roof. In addition, the accuracy of the printer eliminates the need for time-consuming steps such as laying mortar and insulating. The homes are printed fully-insulated in a tight envelope. Another major cost benefit is that the homes can be printed on-site which dramatically cuts the cost of material transportation and construction logistics. While the data on cost savings is somewhat limited at this early stage, estimates range from 20% to 70% depending on the level of finishing and size of the home.


Flexible designs.
3D printed homes can be configured in flexible shapes and designs. Traditional construction methods, particularly for small residential buildings remains rigid. 3D printers however can be programed to pour concrete as desired, which opens the door for exciting architectural possibilities. Homes can be custom-designed to meet the needs of the residents and respond the context of its surroundings. The building walls can curve to save trees and maintain a natural canopy, or they can follow property lines of irregular shaped lots, the design possibilities are virtually limitless with this technology.


Environmental considerations.
A major advantage of 3D printing over traditional construction is the overall efficiency of the process. This efficiency allows a 3D printed home to have less impact on the environment. It’s estimated that traditional construction produces a waste stream of three to seven tons per house on average. The precision of 3D printing eliminates most of this waste stream because the printer will only use the amount of material needed to complete the design. In addition to less material waste, as noted earlier, the homes are printed in a tight building envelope, which helps to reduces energy consumption once the home is occupied (heating and cooling). The construction timeline also has a big impact on the environment. Printing a home in a matter of days uses less energy than a typical home construction timeline which takes an average of seven months to complete.


The potential of 3D printing technology in the residential housing market is just starting to be understood, but early demonstrations show the shifts could be monumental and on a global scale. While most of these initial pilot homes have been small single-story structures that work well in rural areas, it is only a matter of time before the technology evolves for construction of multi-story buildings on more complex urban sites. The impact of this technology on affordable housing could be dramatic in the coming years. Could entire blocks of vacant, dilapidated, and uninhabitable housing that exists in many of our cities be replaced by new structures within a matter of weeks at affordable prices? Could hurricane and earthquake rebuilding efforts occur over the course of months instead of years? Could the hundreds of millions of families residing in tents and shacks in slums around the world have a solid and safe structure to call home in the coming decades? These are just some of the exciting possibilities that could transform the way we build our homes in the coming years.

Is Attainable Housing Around the Corner?

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Attainable housing often refers to for-sale housing that is affordable to moderate-income households, often first-time homebuyers. These households are increasingly being priced out of the homeownership market and as a result are renting. Current trends are pointing towards a growing awareness of the unmet demand for attainable housing and a shift in residential construction practices as a strive towards attainable housing. Understand the drivers of the costs of residential construction is key when trying build for this segment of the market.


The Make-up of Residential Construction Costs
Perhaps not surprisingly, construction costs play a key role in a final home sales price. According to a NAHB survey, 55.6% of the home sales price comes from hard construction costs. Construction cost includes all the costs paid by a builder, including costs of materials, labor and subcontractors. It is no secret that after the Great Recession, home and construction cost have been on the rise. The cost of lumber, historical has been on the steady rise since 2009, but in the past 6 months seen a drastic drop in price by 50 percent.


While materials play a role in the costs of delivering housing, government regulations have been a critical driving force in price increase. In 2016 an NAHB survey showed, regulatory costs associated with the construction and development of residential single-family homes averaged 25% of the final home sales price, which reflects a 10% increase from the 2011. NAHB concluded that over this five-year period, the overall cost of regulation in the final home sales price is rising twice as fast as the average American’s ability to pay for it.


Out with the Old?
One approach to reducing costs is to introduce new building processes. However, the implementation of novel technologies into the construction process has run into a number of entry barriers. These alternative approaches include technology such as prefabrication, modularization, virtual and augmented reality. These can lead to whole house panelization, whole house concrete, and pre-cut logs. New technologies require a large amount of upfront capital, entitlement risks, compliance with building codes, and market acceptance. But we are beginning to witness innovation and change to overcome these barriers.


Labor.
Part of the innovation is in response to the lack of labor. The construction labor force is approaching a pivotal point in the near future. As the older labor force is entering retirement age, there is a missing young labor force. Tightening immigration policies are also contributing to the unsettling trend of an unfilled demand for labor. Builders are responding to this challenge by training and marketing to the younger population, generation Z, and targeting high school graduates not going to college or those who have dropped out of college.


Off-site Construction.
There has been an increasing trend in CNC (computer numeric control) tools. CNC tools have been implemented into off-site residential buildings in order to manufacture panelized section of the home off-site. Due to the challenging harsh climate conditions, there is a need to produce homes quickly that are stress tested for mother nature. In addition, there are also advancements in education (e.g. in Architecture, Engineering, Construction), which are improving building modeling and digitalizing the construction process.


New Buyers.
Millennial buyers (national average age 32) are moving their preference towards smaller square footage and more community connectivity. In response to this changing consumer preference, we are seeing the rise attainable housing in cottage homes projects and the adaptation of smaller homes with local building codes.


So when will we begin to see this shift in construction practices on a national scale? Will smaller homes be accepted in cost-burden communities or spark a lively debate in their town hall? The affordability challenge is causing communities and builders to build unique housing solutions.

Local Solutions in Action: Faith-Based Development

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The Local Solutions in Action series highlights strategies for expanding housing options and increasing housing affordability. The focus is on land use, zoning, financial and other regulatory tools that are available to cities, counties and towns that can be used to meet the housing needs of their residents and workforce.


Faith-Based Development
There has been growing interest on the part of the faith community to become more directly involved in the production of housing affordable to lower-income individuals and families. Faith-based organizations often partner with local jurisdictions to provide services to vulnerable populations in the community, including food assistance, job and life skills training, personal and family counseling, and other services. However, faith-based organizations are increasingly looking for ways to partner with local governments and the development community to develop underutilized real estate resources into affordable housing.


A house of worship may have surplus land or underutilized density, which could be used for the construction of affordable housing. In addition to working with partners on the finance and development side, often the faith-based group will have to work with the local jurisdictions to get zoning changes and other development approvals.


In the City of Alexandria, Virginia, St. James Plaza is a 93-unit affordable project developed by AHC, Inc on land previously owned by the St. James United Methodist Church and the Bi-District Office of the Northern Virginia Methodist Church. The project, occupying approximately one-half of the church’s property, serves households earning between 40 percent and 60 percent of AMI along a future transit corridor and will host a daycare facility on the ground floor. The remainder of the property is being developed into a market-rate townhouse community. A $5.7 million loan from the City successfully leveraged over $27 million in private and public funding sources. The project is slated for completion in 2018.


A great resource for partnerships between housing organizations and faith communities is the Faith-Based Development Initiative (FBDI), a partnership of Enterprise Community Partners, Wesley Theological Seminary and other organizations. The FBDI provides financial support and technical assistance to faith-based organizations to develop or rehabilitate affordable housing in the mid-Atlantic region. HUD also has a Center for Faith-Based and Neighborhood Partnerships which can be a good resource.


If you’re a community looking for new and innovative approaches to housing solutions, please reach out to see if we can help!