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A Path to Homeownership

Building A More Sustainable Strategy for 

Expanding Homeownership

Rick Jacobus and David M. Abromowitz February 2010
A Path to Homeownership

Building A More Sustainable Strategy for 

Expanding Homeownership

Rick Jacobus and David M. Abromowitz February 2010
Introduction and summary | www.americanprogress.org 

Introduction and summary

For more than 60 years, federal government efforts to expand homeownership were the 

centerpiece of U.S. housing policy. These policies made homeownership possible for the 

majority of American families. But the housing bust of 2007-2008 followed by the stillrolling foreclosure crisis in many parts of the country has sparked calls to reevaluate the 

importance of homeownership as a central policy goal of the federal government. Clearly, 

homeownership was oversold amid the recent housing bubble, and owning a home is 

not appropriate for every family. Yet homeownership continues to provide real social and 

economic benefits and remains a high priority for most American families. 

What’s needed, then, is a reevaluation of the ways in which the federal government 

encourages homeownership. Past racial discrimination in housing programs and access to 

credit results today in very uneven rates of homeownership between racial groups, which 

contributes even today to a wide and still-growing wealth gap in our country. Minority 

families and low-income families often find it difficult to come up with a sizable down payment for their first home precisely because they and their extended families lack the sufficient wealth. Expanding access to homeownership remains one crucial part of overcoming 

wealth inequality in our country. After all, even after the current deflation in home prices 

from inflated highs, the most valuable asset most Americans will ever own is their home. 

We have learned some important lessons from the foreclosure crisis. Most renters, of 

course, face multiple barriers to homeownership. Inadequate credit, lack of sufficient 

income, and other challenges may exist in addition to the lack of wealth or savings for a 

standard down payment. This is even more so the case with minority family renters, who 

lack parents and grandparents who own homes of their own and boast the financial capability to help their children and grandchildren with the down payments. Recent research 

consistently shows that wealth barriers pose the most significant obstacle to ownership for 

most of these low-income and minority families. As this paper will highlight, the lack of 

savings and family wealth can be addressed with carefully crafted programs. 

Federal homeownership programs, however, have long focused primarily on credit and 

income barriers, and far too little on overcoming wealth barriers to homeownership. 

Depression era federal programs such as mortgage guarantees from the Federal Housing 

Administration and federal support for the mortgage securitization giants Fannie Mae 

and Freddie Mac focused on overcoming credit barriers. In the postwar era, these efforts 

Even after the 

current deflation in 

home prices from 

inflated highs, the 

most valuable asset 

most Americans 

will ever own is 

their home.
2 Center for American Progress | A Path to Homeowner

succeeded in making homeownership possible for the great majority of American families. 

Between 1940 and 1965, the national ownership rate rose from 45 percent to more than 

65 percent, but almost exclusively among white families due to widespread (and often 

legal) racial discrimination during this period. 

But from 1965 to 1995 the homeownership rate remained virtually unchanged despite 

significant continued federal, state, and local investment in homeownership programs. 

Beginning in the late 1960s, a new set of programs focused on bringing down the cost of 

homeownership through mortgage interest rate subsidies. Federal mortgage revenue bonds, 

for example, allow states to fund mortgage loans at below market interest rates because 

interest earned by investors who buy the bonds is exempt from federal income tax. But 

such programs have not had major impact on the homeownership rate because they do not 

overcome wealth barriers that prevent many renters from being able to afford a home. 

Then, starting in the late 1990s, private mortgage market “innovation” led to further 

increases in the homeownership rate by lowering the amount of money required for a 

deposit on a home. Most of these loans artificially inflated the amounts borrowed through 

low “teaser” rates and other variations that masked the true borrowing burden. While 

some government-sponsored low down payment programs were combined with safer 

fixed-rate loans and prepurchase counseling, many of these mortgage products lacked 

basic consumer protections. We are now seeing that much of that growth was unsustainable because of unsound mortgage underwriting standards. 

Today, the United States is experiencing significant declines in the ownership rate for the 

first time in decades as first-time homeowners who were peddled subprime mortgages 

often with little or no down payment required but with hefty interest payments kicking in 

later. But the choice today is not between unsafe loans or low ownership rates for a large 

segment of the population. Instead, there are safer, proven strategies for making ownership possible for lower-income and minority buyers. 

What we need is greater availability of targeted purchase assistance programs that address 

wealth barriers to homeownership. One-time purchase assistance—in the form of down 

payment assistance or neighborhood development subsidies that create below market-rate 

homes—expands the number of lower-income renters that can afford ownership dramatically. These kinds of purchase subsidies work because they both overcome the buyer’s lack 

of down payment savings and lower their monthly costs by reducing the size of the family’s mortgage. Especially promising are so called shared equity homeownership programs.

Shared equity homeownership programs make purchase subsidies 

cost-effective 

A growing number of state and local housing agencies are pioneering the most dependable kind of home purchase assistance, shared equity homeownership programs. These 

What we need is 

greater availability of 

targeted purchase 

assistance programs 

that address 

wealth barriers to 

homeownership.
Introduction and summary | www.americanprogress.org 

programs invest significant upfront assistance to create homeownership units that remain 

affordable over the very long term and offer ownership to one generation of buyers after 

another. These programs structure public funding as investments rather than a grant to 

first-time homebuyers, making it possible for many more families to benefit from the same 

level of public investment. Frequently these first-time buyers save enough equity in their 

new homes to make subsequent home purchases, selling their first homes to new buyers 

through shared equity programs.

How does this work? State and local taxpayers who provide this funding make a fair deal 

with buyers who would otherwise be locked into renting as their only option. When investing in significant upfront purchase assistance, taxpayers expect these programs in return to 

pass the benefits of the investment along to another family. The terms of the deal require 

reselling the home at a similarly affordable price, or in some cases repaying a share of any 

price appreciation back to the taxpayers through the agency that provided the subsidy. 

Like any capital investment, investors expect a fair return on their investments. It should 

be no different for taxpayers as investors. In the private market, these returns on investment come in the form of cash profits. In the public realm, the deal between homeowners 

and taxpayers gives the homeowner the benefits of ownership and a reasonable amount of 

price appreciation. The public investor forgoes a cash return in exchange for keeping the 

home affordable for another homeowner when the first family leaves its starter home, in 

effect recycling a single investment multiple times.

Shared equity homeownership is not a new idea. Hundreds of local communities and 

several states have developed shared equity homeownership programs that have already 

created hundreds of thousands of permanently affordable homeownership units. There are 

currently 425,000 families living in limited equity housing cooperatives, many built with 

financing from now-defunct federal programs. There are more than 200 community land 

trusts in 42 states which have built or acquired more than 5,000 shared equity homes. And 

more recently, hundreds of inclusionary zoning and similar programs have created tens of 

thousands of price-restricted homes for low- or moderate-income households.1

This is why a significant federal investment in a targeted purchase assistance program with 

an equity-sharing requirement would build a portfolio of affordable homeownership units. 

Over time, the portfolio would grow and help our nation overcome the persistent homeownership gap between low-income and minority families and other American homeowners. 

Create a “Promote Affordability To Homeownership” fund

Current purchase subsidy programs are typically structured with only minimal ongoing 

affordability requirements. This means each new investment in affordable homeownership 

tends to serve only one family. By contrast, public investment in subsidized rental housing generally remains affordable over the long-term and serves one family after another. 
4 Center for American Progress | A Path to Homeowner

Consequently, an expanded home purchase subsidy approach, which requires a substantial 

initial investment, may appear relatively expensive.

Understood in context, however, purchase subsidies that lock in long-term affordable homeownership are relatively efficient. As a nation we already spend enormous sums of federal tax 

dollars annually to encourage ownership, while making little headway in expanding broadly 

affordable ownership. As noted in more detail below, the recently renewed homebuyer tax 

credit, for example, is expected to cost $15 billion in 2009 alone, while most of the nearly 

2 million taxpayers expected to claim the credit would have purchased a home without it. 

Some studies show only 200,000 of these buyers were truly new homebuyers for whom the 

credit made the difference, the cost per such buyer could be as high as $75,000.2

Even without this special credit, the subsidy (in terms of lost tax revenues) to one higherincome family of the tax savings resulting from the mortgage interest deduction on a 

$500,000 loan exceeds $200,000 over the life of a 30-year mortgage.3 The barrier, then, is 

not a lack of budget resources currently available for subsidizing home ownership. But 

current subsidies are neither targeted to make the greatest difference in aiding families 

who could be owners but need some help, nor crafted to steward public investment for the 

longest possible public benefit. 

The answer: Allocating even a small portion of current ownership subsidies to a Promote 

Affordability To Homeownership, or PATH, trust fund could easily finance a national shared 

equity homeownership program at a meaningful scale within a reasonable time frame. 

Moreover, a PATH fund would provide both the short-term stimulus effects that come 

from increased home buying, and the long-term stabilization of neighborhoods and families that shared equity has already demonstrated. PATH assistance for working families 

who are otherwise qualified owners could stimulate the economy as effectively as a broad 

tax credit, but at a much lower cost. At an average public investment of $25,000 per home, 

bringing roughly 200,000 new homebuyers into the market would cost $5 billion. 

A PATH fund of this magnitude structured as a shared equity investment rather than as a 

grant (like the home buying tax credit) could be expected to benefit families beyond the 

initial buyers. Experience shows that many of the lower-income and minority families 

who initially purchase a shared equity home later move up the housing ladder into the 

general market, making way for the next family in need. Consequently, a one-time investment of $5 billion could make homeownership possible for between 600,000 and 1.5 

million families over a 30-year period, based on typical rates of turnover, and depending 

upon size of initial subsidy. 

Moreover, all (or nearly all) of these families would likely be families that would otherwise 

not have been able to purchase a home. The PATH program would target this assistance 

to buyers who are otherwise priced out of homeownership. Working with state housing 

A PATH fund would 

provide both the 

short-term stimulus 

effects that come 

from increased 

home buying, and 

the long-term 

stabilization of 

neighborhoods and 

families that shared 

equity has already 

demonstrated.
Introduction and summary | www.americanprogress.org 

agencies, the PATH fund would allow price and income limits that were responsive to 

regional markets rather than setting a single national limit. And importantly, because the 

shared equity feature requires the homeowner to give up a potential portion of future 

home appreciation, buyers who do not need help would have an economic incentive not 

to participate in such a program. This self-selecting feature would tend to tailor the program to those working families who see the best fit to their own circumstances. For buyers 

who lacked the assets to afford ownership otherwise, this public investment would make 

ownership attainable for the first time. 

In short, shared equity purchase assistance is more carefully directed to where it is needed 

initially, and creates a long-term housing opportunity for multiple families. Overall, this is 

a far more efficient approach than what we do today. The pages that follow go into further 

detail on why the wealth side of the homeownership hurdle is the critical one to overcome, 

and how our shared equity proposal would work in practice. Examples from around the 

country will illustrate where programs such as these are working today—and working well. 

Policymakers therefore will find a path to continue to offer the opportunity of homeownership to every American who can afford to take that first step into their first home, while 

creating opportunities for the next generation of homeowners to follow in their footsteps.