There is a lot of discussion today in Boston’s neighborhoods about middle-income housing, in particular homeownership opportunities. Sometimes referred to as workforce housing, the concept is to provide affordable homes for families and individuals being priced out by rising rents and home prices in Boston and who are not currently eligible for housing subsidies. Losing these folks would destabilize neighborhoods and drain talent from Boston’s economy. Keeping them would help grow the middle class in our communities. For Boston’s Roxbury neighborhood, retaining and attracting middle-income homebuyers could help close the city’s racial homeownership gap and racial wealth gap, as today 23% of Roxbury’s homes are owner-occupied compared to 34% for Boston.
To date no one has proposed a program for how to actually provide this middle-income homeownership. Here is a proposed 7-part recipe of the ingredients to produce successful middle-income homeownership in Boston.
Ingredient 1: Select the income range to be supported. The most logical target population would be the same middle-income households targeted for single-family home-buying by lenders like MassHousing and the Mass Housing Partnership, ranging from 80% of area median income (AMI) to 120% of AMI. This proposed range translates into incomes from $52,700 to $122,000 depending on household size. It would include Roxbury’s 2,974 households with annual incomes between $60,000 and $90,000.
Ingredient 2: Calculate what buyers can afford. Middle-income households cannot afford the $550,000 selling price for new construction single-family homes in Roxbury’s Fort Hill area, except in the unlikely event they have $100,000 or more in savings for a down payment. Table 1 below shows what households of three people within the middle-income range could afford to pay:
Ingredient 3: Determine the amount of subsidy needed. City and state programs could provide subsidies to write down prices below the cost of development and enable middle income families to buy a home. The amount of subsidy would be larger or smaller depending on the income category of the buyer, as Table 1 above indicates.
Ingredient 4: Identify construction lenders with no pre-sales requirement. Meeting the needs of the many middle-income households who want to buy homes inevitably requires multi-family housing development – condominium buildings. There’s just not enough land in Boston to build single-family homes to meet the demand. For market-rate condominium development, private lenders today require that at least 50% of the units be pre-sold before construction. This is a daunting, virtually impossible requirement in today’s economy; that difficulty is one reason why 95% of the 12,000 housing units under construction today in Boston are rentals. The MassHousing state finance agency is one construction lender who will not require pre-sales for buyers in the 80% to 120% range. Hopefully others can be identified.
Ingredient 5: Identify lenders with reasonable down payment requirements. Most lenders for condominium purchasers today require a minimum of 20% down, and sometimes more. This is an impossible amount for most middle-income buyers. However, buyers in the 80% to 120% AMI range can qualify for home loans underwritten by Federal Housing Agency standards, which require only a 3% down payment. Table 1 above reflects 3% down payments. A number of lenders, including MassHousing, will make loans to qualified buyers with FHA underwriting.
Ingredient 6: Create restrictions that allow for appreciation and wealth creation. The current homebuyer restrictions of the City of Boston have three basic provisions: the re-sale price can increase 3.0% a year; the new buyer must be in the same income category as the original buyer; and these restrictions last at least 30 years. Nuestra Comunidad believes that these restrictions will be acceptable to many middle-income buyers because they allow for significant wealth creation. For example, with the 3.0% cap, a purchaser of a $300,000 home would be allowed to re-sell it after ten years for $403,000 (assuming the market in ten years would support that re-sale price). This rate of appreciation may be less than market-rate housing but can compare favorably. For example, over the past 10 years, the median price of Boston homes increased by 2.2% a year, and in that same time median prices in Roxbury decreased each year by 0.4%. The City should retain the 3.0% appreciation cap, or increase it to 5.0%.
Ingredient 7: Inform and educate buyers. Homebuyers need to be able to assemble all of these ingredients and be aware of all the issues, risks, costs and liabilities involved in home buying. Fortunately, the City of Boston requires that first time homebuyers complete a certified homebuyer program in order to be eligible for down payment assistance, the best loan terms and subsidized sale prices.
If you would like to become a homebuyer in Boston, please contact the Nuestra Home Center, at 617-989-1222. If you would like to follow and join the advocacy effort to establish a City of Boston program for middle-income homeownership production, follow me on Twitter @NuestraDavid.
- Boston Redevelopment Authority, 2000 & 2010 census summary with Boston homeownership data http://urlin.it/568b6
- Boston Redevelopment Authority, ACS 2007-2011 census estimate with Roxbury homeownership data http://urlin.it/565e6
- Real Estate Trends 2012 and 1990-2009 home sales data, City of Boston’s Dept. of Neighborhood Development http://urlin.it/521a6
- Mari Gallagher Research & Consulting Group, grocery store market study with detailed Roxbury demographic analysis June 2013, commissioned by Nuestra Comunidad