Diffusion and Scaling Public Investments in Starter Home Development

Communities need to understand their local for-sale housing development ecosystem to diffuse and scale public investments in starter home development. They should target the barriers that mostly directly prevent the production of homes that are available for-sale to communities’ median-income households.

Once programs have been developed targeting those barriers — interest rates, permit fees, land costs, or other impediments — communities must identify the best mechanism to distribute that funding to developers. The case studies highlight different approaches to capital disbursement. In the case of Utah, the state is partnering with existing qualified financial institutions to deploy loans to developers and homebuilders. These qualified financial institutions already have the in-house expertise and experiencing in underwriting, monitoring, and disbursement to private entities. In Washington County, WI’s Next Generation Housing Initiative, the county itself enters into a development agreement with developers to provide funding for new housing developments. Programs in other places, like the Pennsylvania Housing Finance Agency’s mortgage programs, can help with the purchase and rehab of existing homes, while Philadelphia’s Turn The Key program encourages developers to create affordable single-family homes scattered throughout Philadelphia on city-owned land. Other sources of financing, especially for more resilient homes, may be available to complement or augment these new dedicated sources of funding for starter home development.

Other potential models exist as well. While not explicitly focused on homeownership opportunities, models like a Housing Accelerator Fund, or a Public Asset Corporation could be used to develop new starter homes with public or philanthropic investments.

One long-term challenge that communities need to address when considering public investments in starter home development is the long-term monitoring and enforcement of any deed restrictions. Both Utah and Washington County place deed restrictions on the homes developed with public funds. Utah requires owner-occupancy for the first five years, while Washington County requires owner occupancy in perpetuity through a Deceleration of Protective Covenant. Furthermore, a deed restriction on NGH homes sold under fair market value may recapture a portion of the difference between the initial sale price and the fair market value if the home is resold within the first five years after initial occupancy. These sort of deed restrictions require enforcement — while title companies and recorders of deeds will likely flag these sort of deed restrictions related to resale, a Declaration of Protective Covenants specifying owner occupancy is harder to enforce. Communities may wish to partner with existing nonprofit organizations, like Community Land Trusts, to act as stewards of these new homeownership-focused developments. Community Land Trusts — which own the land and lease it to homeowners for a nominal fee — often have the mechanisms and in-house expertise to monitor the condition and occupancy of the housing over the long term.

Finally, communities may consider public investments to increase the supply of entry-level homeownership opportunity with demand-side subsidies like downpayment assistance, such as Utah’s requirement that developers provide prospective homebuyers with information regarding Utah’s Homebuyer Assistance Program. Washington County, too, provides downpayment incentives through the Heart & Homestead Earned Down Payment Incentive. The Incentive offers qualifying individuals up to $20,000 in down payment incentive toward the purchase of an owner-occupied home purchased for under $420,000 anywhere in the County. Recipients of the program have 5 years after closing on their home to “earn” their incentive through volunteering with and donating to local nonprofit organizations participating in the program. Recipients, and anyone living in their household, can receive $25 in Incentive Earnings for every 1 hour volunteered and 70 cents in Incentive Earnings for every $1 donated. Given that homeownership occasionally comes with large, unexpected repair costs, communities could also consider implementing programs like the Rhode Island HomeSecure program, which provides a grant equal to three months of mortgage payments in the event of an emergency for the first three years after a homebuyer uses a mortgage from the Rhode Island Housing Finance Agency.