Re: equity caps
From: Cohomag (Cohomagaol.com)
Date: Fri, 13 Aug 1999 10:52:19 -0600 (MDT)
Phil Bush of Cobb Hill, VT asked for experience regarding equity caps.  He 
writes, "We may have some subsidized affordable housing units where equity 
limits are required by the funding.  Our current question is whether to 
impose similar limits on all units in order to keep costs low for future 
buyers."
We have resale price restrictions on all of the units here at Berkeley 
Cohousing.  My neighbor David Dobkin, who worked with me on the deed 
restriction language, may have some different recollections or current 
feelings, but here's my two cents worth.
Our resale restrictions were put in place as part of a deal we struck with 
the city a few years ago to exempt this project from some onerous fees that 
otherwise would have been imposed to get a use permit.  The deed restriction 
we worked out limits future sales prices to a base price multiplied by a 
factor that takes into account the area increase in median incomes (with 
allowance for money spent on capital improvements).
Basically we had a choice way back in 1996/97:  we could use internal 
subsidies to sell several of our units for much less than it cost to build 
them (applying severe resale price restrictions to these units but not to the 
market-price units), or we could initially price all the units at cost but 
slap a more modest resale restriction on everybody.  We went with the latter 
approach, because, I think, internal subsidies can lead to inequities and 
resentments.  For example, how would the owners of high-priced units feel if 
owners of low-priced units ended up getting great jobs and making lots of 
money?  Or how would the owners of the low-priced units (subject to severe 
resale price restrictions) feel if, at some point, the owners of high-priced 
units sold their homes for a huge resale gain?
We have some pretty idealistic people here, but I rather doubt that we would 
have chosen to implement resale price restrictions at all if we hadn't, 
essentially, been forced to do so.  After all, these kinds of restrictions 
(typically imposed under local "inclusionary zoning" laws) basically make a 
very small group of people (current homeowners in a given project) pay for 
future affordable housing in the area.  In my opinion, affordable housing is 
a social good, the cost of which should be borne widely by all members of 
society.  From a selfish but I think realistic point of view, why should I 
personally make a huge financial sacrifice for affordable housing that other 
people are not expected to make?  If affordable housing is so important (and 
I believe it is), shouldn't we pay for it through our our system of 
progressive (or what passes for progressive) taxation?
I think this has all acquired new meaning for us lately because, after 2-1/2 
years, one family is thinking about leaving and we have all suddenly realized 
that real estate prices in Berkeley have gone through the roof since we moved 
in; some reports indicate as much as 20% appreciation in the past six months. 
 That means that anyone who sells here and hopes to continue living in 
Berkeley will have a huge financial problem; area homes that are otherwise 
comparable to ours are now priced for way more than the allowable sales 
prices here.  It also means that people have an artificially constrained 
ability to generate cash through home equity loans.  And it could constrain 
future retirement options as well, since a "reverse equity mortgage" 20 years 
from now will yield a lot less cash flow than it would if our homes could 
sell at market rate.  These are all very real considerations for the people 
here, who by and large work really hard to make a living and don't seem to be 
on the bandwagon that is making "everybody" in America rich these days.
Assuring future housing affordability through deed restrictions sounds like a 
nice idea -- and it seemed palatable to us three years ago after a very 
extended period of home price stagnation in this area.  Now, however, I feel 
like I've been taken to the cleaners by well-meaning but somewhat unrealistic 
city politicians and bureaucrats -- even though I expect to live here for a 
long time and certainly didn't move here because it sounded like a good 
speculative investment.
Bottom line:  If you want to assure affordable housing for future 
generations, join the National Housing Institute and put some pressure on 
Washington.  But don't single out people who work for modest wages as as 
house cleaners and window washers and nonprofit employees to pay for public 
policies that should be EVERYBODY's responsibility.
PS:  I recognize that these opinions may spark some controversy, maybe even a 
future article in the journal of The Cohousing Network.  I would be very 
interested to hear from others.
Don Lindemann
Editor, CoHousing (the Journal of the Cohousing Network)
cohomag [at] aol.com

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