The title of the DC Council hearing last week sounded mind-numbingly dull ‘ “District Funded Affordable Homeownership Programs: Long-term Housing Affordability Restrictions.” Yet the topic was anything but that.
The underlying question at the roundtable was this: If the District helps a low- or moderate-income household become a first-time homebuyer, and the home then increases in value, can the owner at some point sell the home at market value and reap the full gain in equity? Or should there be some limit on the sales price and a requirement to sell the home to another low-income first-time buyer?
DCFPI and others testified that resale price restrictions are important to preserving affordable housing opportunities in DC. But some witnesses at the hearing argued that these restrictions deny low-income homebuyers the chance that others have to use their home to build wealth. DCFPI responded that a balanced approach is possible ‘ one that allows buyers to gain equity while still keeping the home affordable for the next buyer.
Our testimony made three key points:
- Affordable homeownership opportunities in the private market are dwindling. The number of DC homes valued at $250,000 or less fell by two–thirds over the last decade, according to a February DCFPI analysis. It therefore is important for the city to preserve its investments in affordable housing by keeping homes affordable as long as possible. Any program that ultimately allows the owner to sell the home at market rate means that gains in affordable housing ultimately will be lost.
- When a program makes the difference between staying a renter and becoming a homeowner, it’s reasonable to ask something of the owner in return. Even if the owner remains in their home for a long time, asking them to pass on that benefit by selling their home to another low- or moderate-income family is legitimate.
- Families can gain equity from owning a home even if the sales price is restricted. With a 3 percent cap on annual increases in the sales price, the buyer of a $225,000 home would gain $45,000 after 5 years and $213,000 after 15 years, according to a DCFPI analysis. This includes equity gains from the rising sales price and principal payments, tax savings, and other factors.
While sales price restrictions by definition mean that families will gain less equity from owning a home than otherwise, well-designed programs can allow owners to build wealth. Over time, these gains could be enough for many families to purchase a home without a subsidy — at which point they would benefit fully from any increase in home value.
Councilmember Michael Brown, who heads the Housing and Workforce Development Committee that held the roundtable, pledged to explore this issue further and make recommendations. We are fully confident that this can lead to new policies that create long-term affordability in homeownership programs while also helping families live out the American dream.
