Re: Long-term affordability
From: David L. Mandel (75407.2361compuserve.com)
Date: Sat, 1 Apr 95 01:53 CST
Another reply to Bill Paiss, who asked whether any groups that may have tried 
hard to keep initial costs under control also thought of keeping units 
affordable for future buyers. We did, and succeeded, partially.

As I've said before, 11 of our 25 units went to low- and moderate-income 
buyers who were able to afford the purchase only because a silent second 
mortgage made up the gap between the first mortgage they could qualify for and
the unit's value. From the start, in negotiating the terms for these loans, we
and the local housing agency agreed that the buyers should not be able to reap
a windfall by turning around shortly after purchase and selling their units at
market price. 

We, the group members, would have been happy with a formula that would have 
kept the units affordable in perpetuity, but the housing agency said we 
couldn't for legal reasons. So we negotiated a solution consistent with the 
federal rules and a lot better than nothing from our point of view. Here's the
short explanation. Contact me if you have more questions or want to receive 
copies of any of the legal documents.

        Low-income buyers (under 80 percent of median for the region; six of 
the 11) are restricted by a regulatory period of 30 years from date of 
purchase. For moderate-income buyers (80 percent to 120 percent), the period 
is 10 years, the rationale being they don't need as much help.
        Except for the time periods, the rules are identical: a member who 
sells within the regulatory period must repay the principal sum plus a share 
of appreciation, if any, upon sale. The new purchaser must be in the same 
income category or lower, and the sale price can be no more than the buyer's 
original purchase price, adjusted for inflation. Meanwhile, the sum repaid by 
the first buyer goes through a revolving door and is available to the 
subsequent buyer on similar terms. 
        The 10- or 30-year regulatory period does not start over upon resale, 
however. Thus, an owner who is the first to resell a regulated unit after the 
restrictions are lifted may reap a windfall, if house prices have risen 
rapidly in the area, because he or she can sell it for full market value. A 
portion of the appreciation will go to the housing agency, but most will not.

We settled for this less-than-perfect solution, but it is definitely more than
nothing as long-term affordability goes. I would be very happy to hear how 
other groups managed to build in permanent affordability, if any did.
Thanks.

David Mandel, Southside Park Cohousing   

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