Housing SummitIsland Housing Solutions
Research Performed
and
Initial Ideas Put Forward
A Report by the Orcas Research Grouphttp://orcasresearch.org/
June 4, 2005
The Underlying Problem
Expected increases in house price and mortgage rates producean increasing gap between salaries and affordability.
At current rates of appreciation, that house will cost $486,000 in 2011!
Who will qualify for today's $275,000 home in the future?
$50,000
$70,000
$90,000
$110,000
$130,000
$150,000
2005 2006 2007 2008 2009 2010 2011
Year
Expected Income
Qualifying Income
What do we seek?
• Solutions that assure that our working families can live in our communities.
• Solutions that are perpetually affordable.• Solutions that are consistent with our values
and culture: – our sense of self-sufficiency, – our respect for the environment, – our sense of community and – the self-actualizing power of home ownership.
Financing
Financing Affordable Housing for a Family of FourResearch Methodology -- Income Levels and Target Markets
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
$100,000 $200,000 $300,000 $400,000
House Value
Middle Income
Moderate Income
Low Income
Affordability Gap
Financing: Conventional Mortgages
Conventional Mortgages are now and will continue to be the primary form of financing.
Homeowner
Bank Seller
Financing only 6 years ago:
Mortgage rates were higher and income limits were lower, BUT houses cost a lot less than what they do today!
Financing Affordable Housing for a Family of Four1999 HUD Income Levels, Mortgage Rates and Target Home Prices
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
House Value
$62,202
$41,468
$49,243
$25,918
6%
7%
$100,000 $200,000 $300,000 $400,000
Financing: Baseline Figures
At today’s mortgage rates and house prices, few families can afford a home using only conventional mortgages.
Financing Affordable Housing for a Family of FourConventional Mortgages
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
House Value
6% 5%
$72,120
$48,080
$57,095
$30,050
Middle
Moderate
Low
$100,000 $200,000 $300,000 $400,000
Financing: Local Decisions
Recommendation #1: Form a local mortgage company.
Financing Affordable Housing for a Family of FourConventional Mortgage Qualification Decisions Made Locally
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
House Value
6%
$72,120
$48,080
$57,095
$30,050
Middle
Moderate
Low
$100,000 $200,000 $300,000 $400,000
Financing: Adding a Co-owner.Homeowner
Bank Seller
3rd PartyInvestor
•Secure Investment•Modest Return•Inflation Protection•Tax Deferred Gain•Homeowner Buyback
Recommendation #2: Encourage conservative 3rd party investments
Finance: Land Rich, Tax Poor
Recommendation #3: Make use of tax breaks
•Land as Investment•Avoid Property Tax•Tax-free Transfer•Modest Income•Inflation Protection•Depreciation Allowance•Tax Deferred Gain
Homeowner
Bank Builder
3rd PartyLand Owner
Financing: Joint OwnershipFinancing Affordable Housing for a Family of Four
Conventional Mortgages compared to Perpetual Shared Equity
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
House Value
$72,120
$57,095
Middle
Moderate
Low
$30,050
$48,080
6%
PSE 6%
PSE 5%
$100,000 $200,000 $300,000 $400,000
Financing: Land TrustsHomeowner
Bank Builder
Land Donor
Financing: Land Trusts
Recommendation #4: Take the cost of the land out of the equation.
Financing Affordable Housing for a Family of FourConventional Mortgages compared to Community Land Trust
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
House Value
6%
CLT 5%
CLT 6%
$72,120
$57,095
Middle
Moderate
Low
$30,050
$48,080
$100,000 $200,000 $300,000 $400,000
Financing: Bring solutions together
Recommendation #5: Combine financing approaches when they make sense.
Financing Affordable Housing for a Family of FourCombining Several Approaches to Financing
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
House Value
$72,120
$57,095
Middle
Moderate
Low
$30,050
$48,080
6%
$100,000 $200,000 $300,000 $400,000
How are we doing so far?
Life Cycle Costs: Energy Efficient Mortgages
Recommendation #6: Use sound conservation policy to reduce cost.
Fiberglass Batts
Soffit Vent
Baffles
Ridge Vent
Vapor Barrior
Structurally Insulated Panels
•1992 Model Energy Code•DoE Building America Projects
Note especially:
Life Cycle Costs: Maintenance
Recommendation #7: Build housing that will outlast the investment cycle.
Asphalt Shingles Metal Roofing
Life Cycle Costs: Financial ImpactFinancing Affordable Housing for a Family of Four
Considering Life Cycle Costs
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
$100,000 $200,000 $300,000 $400,000
House Value
$72,120
$57,095
Middle
Moderate
Low
$30,050
$48,080
6%
Reduce Risk that: 1) The homeowner can service the debt2) The value of the home is retained
Life Cycle Costs: Planning
http://www.bowenisland.info/
Aerial View Land Use Forest Resources
Water Resources Geology
•Time is money.•Reduce risk throughpublic awareness.
Changing How We Do Business: Time is money
• Modular Design• Focus on Quality• Get Subs Involved• Control Schedule• Control Costs• Eliminate Callbacks• Make a profit so that
you can do it again!
Changing How We Do Business
Recommendation #8: Remove risk from the entire process.
Financing Affordable Housing for a Family of FourImproving How We Do Business Buys Back at Least 5% in Cost
House Value
$72,120
$57,095
Middle
Moderate
Low
$30,050
$48,080
6%
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
$100,000 $200,000 $300,000 $400,000
Are you still with me?
The Housing Bank: Bringing it Together.
Recommendation #9: Pull organizations together around use of tools.
Projects Implemented by Community Teams
Mortgage Company
ContractorsCommunity Land Trusts
3rd Party Investors
Trades
Housing BankProvides "Capstone" Funding
Tool Box of Financial Products
Potential Sources of Funding
Private Public
Purchase
of Existing
Land & Homes
New
Construction
Education &
Facilitation
Project
Proposals $Policy Solicitations
Permanent Pool of Affordable Homes
Funding: Alternatives
Recommendation #10: There is no practical alternative except a transfer tax to fund moderate income homes.
• Federal, State, and Local Programs• Fee-Based Approaches
– Mitigation Fees – Aspen req. 60% - 70% affordable– Permitting Fees – Limit growth at the top– Planning Fees – Key West limit on transient rentals
• Tax-Based Approaches– Exemptions and Incentives – 3rd party investments– Real Estate Transfer Tax – Taxes demand side– Property Tax – Not likely except as last resort– Sales Tax – Aspen 0.045% sales tax, also not likely
• Other Approaches
What happens if we delay?
Financing Affordable Housing for a Family of FourTwo years from now...
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
$100,000 $200,000 $300,000 $400,000 $500,000
House Value
7%
$51,008
$76,512
$60,572
$76,512
$60,5726%
$31,880
Middle
Moderate
Low
Many households again out of luck!
Our 10 Recommendations:
1. Form a local mortgage company
2. Encourage conservative 3rd party investments
3. Make use of tax breaks for land rich, cash poor investors
4. Take the cost of land out of the equation
5. Combine financing approaches when they make sense
6. Use sound conservation policy to reduce life cycle cost.
7. Build housing that will outlast the investment cycle
8. Remove risk from the entire process
9. Pull organizations together around the use of tools
10. There is no practical alternative except a transfer tax to fund moderate income homes
Summary
• Identified the problem.
• Attributes of a solution.
• 10 Recommendations.
• Small window of opportunity.
• Now, we need to engage in a public dialog about these and hopefully other ways that we can work together.