A Homeownership Strategy for California
Eight principles and three pillars for a paradigm shift in who owns California
California Housing 6: Where We Go From Here 6
California’s electeds are talking about homeownership, and this could be great for all of California housing if we do it right - not just for new homeowners.
Hearings are being held to understand why our homeownership rate is the 3rd lowest in the United States, and why BIPOC homeownership is so far below White and API homeownership. Assemblymember Sharon Quirk-Silva has introduced a bill to create a Homeownership Task Force. Two ideas I wrote about previously - the California Dream for All plan, and the Lee/Carrillo Social Housing bill - have homeownership as a core component, and the Little Hoover Commission just endorsed homeownership as a core strategy for addressing California’s housing crisis.
I know that many folks in the housing justice community are skeptical about homeownership, for a slew of reasons. To address this, I’ve written an entire other essay, as part of the launch of my Bigger Ideas section.
I encourage anyone questioning homeownership as a strategy - fully understandable given its history - to read that piece first. It explains why as a housing justice advocate, I see homeownership as part of a spectrum that includes ‘alternative ownership’ programs like Community Land Trusts, and is a pathway for building a larger coalition around resident-controlled housing. I also argue why it’s so critical for those who focus on Affordable Housing, and those who center land use reregulation. For those who already see the value in homeownership, the essay may give you new tools to make your case.
This piece, in the now six-post-old California Housing tradition, is my wonkish, bullet-point heavy, very preliminary strategy - 8 principles + 3 pillars. So if you are already thinking homeownership matters, come with me down this path. This is a work in progress, as is every CH essay. Feedback is welcome, and I will edit the post after the fact.
Eight Guiding Principles for a CA Homeownership Strategy
California cannot (re)build homeownership based on narrow imaginations of what homeownership means, or what it could mean. We need a true 21st century Homeownership Plan that can actually deliver both racial and economic justice and make housing better. Here are 8 key principles that must define the plan.
Embrace a diverse spectrum of homeownership models and building types, and build allies between different types of homeowners. ‘Community or Alternative Ownership’ - from Community Land Trusts (CLTs) to Limited Equity Co-ops to Permanent Real Estate Cooperatives - is a form of homeownership. Multifamily homeownership - condos, co-ops, Tenancy-in-Commons, CLTs - is homeownership. Single-family homes can’t be our sole ideal, but they have to be part of the solution as well. Any hope of fixing our inequitable housing system relies on making peace across the homeownership spectrum, for the real opposite of homeownership is having your home owned by larger and larger and more powerful investors. This alliance can help drive housing benefits across tenures and across incomes, and be a major win for lower and middle income households alike. This is the heart of the Bigger Ideas essay.
Don’t imagine a plan that is based upon a radical reduction in house prices. It’s never happening, and it shouldn’t happen. It can’t happen politically - too many people are bought in at these crazy prices. If it happens economically, i.e. through a crash, it will disproportionately harm communities of color, who are more likely to have bought in at the high prices - remember 2008? - and it won’t reduce Prop 13-driven inequality. Price is also not the only issue - we have too many people competing for too few units, which impacts access even when you can afford something. Only a smart, long term plan that dramatically increases supply + effective demand from homeowners, and reduces demand from financiers, and does this all patiently and consistently over decades can bring prices closer to incomes.
Embrace and normalize mixed-tenure buildings. As I wrote about last post, one of the best parts of the current social housing bill is that it embraces mixed-tenure. We have to see 21st century homeownership as connected to renting, not its opposite. Mixed-tenure could be a smaller homeowner with an ADU as a permanent rental unit and a JADU as a short-term unit. It could be a fully condoed building with 20% of the units owned by a non-profit as affordable units, some owned by smaller investors as rentals, and a few run as short-term rentals - alongside owner-occupied units.
Build in strong financial and consumer protections from day one. One of the reasons we can’t have nice things is that we build programs that allow bad actors to exploit them. Sometimes these are legitimate if immoral actors doing bad things because they are underregulated or greedy, sometimes these are straight criminals using loopholes or weaknesses in the system. Since we are talking about billions of dollars, let's be smart and patient and be vigilant here. We can’t keep building systems that get immediately undermined and exploited.
Own our history. To advocate for homeownership in America is to accept and understand the full history - the good, the bad, and the racist. It’s not just that homeownership has been denied to so many, especially people of color. It is that homeownership is still made available to people of color under worse terms, and often ripped away through scams or exploitation or foreclosure. Anyone paying attention should be wary, and to restore faith in the possibility of the American Dream, we need to own the full truth of what has transpired in the name of homeownership.
We’re changing a whole industry, not just policy. This is a general theme in much of my work, something I will be writing about in a coming post (It’s part of my 2022 wishlist that got us started). Changing homeownership means changing how the industry works - and by industry I mean the full spectrum of actors, including the non-profit and policy parts of the industry. We can’t start over. There is no tabula rasa. We have organizations, dedicated professionals, machines, materials, know-how - this all has to be used and repurposed for a different housing and homeownership economy.
Smaller investors have to be part of the ownership solution. Large investors are part of the problem when they are majority owners of buildings (it’s fine if they own debt, or a share). Smaller investors, on the other hand, are essential to homeownership. Part of the value of owning is the control you have to move and rent your unit - this is essential to a functioning market. It’s also essential to rental housing supply. We’re even starting to appreciate the racial equity role of smaller, diverse landlords - both in terms of wealth building and tenant relations.
For-profit Developers need to build housing, not own it. We have to change the incentive structures in the industry. There is plenty of room for profit based on a job well done, based on completed buildings - not based on long term rents. Housers have a lot to learn from how public infrastructure gets built using a bidding system, albeit with a different ownership structure once the homes are build.
Turning Principles into Action: Three Pillars of a CA Homeownership Strategy
As this is a preliminary plan, I wanted to focus on three core areas. We need to increase production of housing that is designed to be resident-owned. We need to increase effective demand for resident ownership by building funding and other mechanisms to allow all manners of shared equity. And we need to create the largest tenure conversion program in history, to turn existing residents into resident owners.
Pillar 1: Increase Production of Resident-controlled Housing. California doesn’t just under-produce housing, it produces the wrong type of housing in the wrong place. Our housing market generally produces multi-family housing that is owned by wealthy investors, or single-family homes that are too far from job centers and have a huge climate impact (and are increasingly owned by wealthy investors). As part of new production goals, the State has to prioritize those types of units that will not be owned or held by large investors, and remove incentives to produce the wrong type of housing in the wrong place.
Ways to do this:
Reform condo defect laws and improve condo defect insurance to encourage condo development.
Change tax laws to discourage rental buildings owned entirely by investors, and encourage buildings where investors can own units in buildings.
Change tax laws to develop a program similar to France’s Loi Pinel, which offers tax incentives to individual households or non-profits to invest in rental housing units in condo-ized buildings.
Incentivize the production of supported and lower-risk forms resident-owned housing (i.e. Community Land Trusts, Limited Equity Co-ops, etc). Housing Choice Vouchers can be used to pay a mortgage. Non-profit housers can build more housing if they include their residents as equity partners.
Incentivize the production of 2-4 unit buildings on smaller lots that are purpose built as small scale, multi-family or extended-family homeownership opportunities.
Subsidize infrastructure for developments that will be sold to residents, but don’t pay for infrastructure for developments that will not be.
Existing Ideas that do parts of this:
California Dream for All has infrastructure financing, as do many of the ideas around conversion of commercial land and Enhanced Infrastructure Finance Districts.
The Social Housing bill is a production machine aimed at supporting 100% resident-controlled housing with mixed-tenure and shared equity.
Pillar 2: Increase Effective Demand Through Creative Approaches to Equity.1We must take support for new (and existing) homeowners to a new level. It used to be that 25k and some training and technical assistance could make a huge difference in helping people afford a home. Now many buyers need 250k. The gap is so large in most of the State that we can’t use public or private grants in the same way. Shared equity is also a model that can help with Tenant / Community Purchase, Community Land Trusts and other forms of resident-controlled housing, creating allies between prospective owners across the income spectrum.
Ways to do this:
Build large statewide funding mechanisms through CalHFA that will use state resources to guarantee private, low-cost capital to function as partners for prospective owners across the tenure spectrum.
Existing ideas that do this in part:
AC Boost in Alameda County is a first step in reaching the six-figure numbers that can make a difference.
California Dream for All is a shared equity deal that can take it to a new level.
The new Social Housing Bill includes a Limited Equity ownership arrangement.
Keys to making it work:
Make sure to use the existing financial infrastructure (minus the scam artists).
Mainline banks and the mortgage industry and the non-profit housing industry have to be part of this. We can’t recreate this.
Pillar 3: Create the Largest Tenure Conversion Program in History. We must find a way to convert some rented buildings safely into forms of homeownership, with different types of homeownership for different buildings, different communities and different people. We can do this safely without displacement, and without reducing rental opportunities - many of these newly condoized units will be rented - as will new construction discussed below - which is part of the plan, and one of the reasons to support this approach. Tenant and Community Purchase are key forms of homeownership, and a pathway to Acquisition/Rehab, TOPA/COPA, and many other housing justice goals. Non-profit and Affordable Housing - especially those buildings facing expiring use issues, can and should be part of this conversion.
How to do this:
Build a program for tenure Conversion in CalHFA or HCD, which can be a one-stop shop for local jurisdictions and non-profit networks
Develop clear criteria for conversions that are specific to buildings and situations
Older rent controlled buildings should only be allowed to convert through non-profit organizations in a TOPA arrangement with strict anti-displacement measures, long term affordability / shared equity and mixed tenure (i.e. some folks will stay as renters)
Newer underregulated buildings with higher income tenants can be converted into more standard condos
All programs can have strict anti-displacement measures
Develop a suite of programs to enable and encourage small-scale multi-family homeownership - i.e. two cousins or friends buying a home together, multi-generational families using trusts or LLCs to give everyone a share of the family home, unrelated people buying a single family home and using SB9 to convert it to multiple units
Change tax laws to give existing owners a pathway out. It doesn’t have to be a golden parachute, but it can’t be a lead one either.
Create carve outs in big new housing finance tools like California Dream for All and the Social Housing bill for conversions that meet the new criteria set by the Conversion program.
Reform Joint Powers Agency rules on housing bonds to prevent their current use (using public dollars to buy moderate income rentals), and instead allow JPAs to only use these dollars for tenure conversion, especially TOPA/COPA style programs.
AB 1850 is a start here, but can go further.
Make sure these programs can work at the speed of the market, and pair them with aggressive notification, right of first offer and refusal and other laws to create more parity with investors (who will be slowly disincentivized from buying)
California Homeownership Info
Things which need reading
Homekey lessons: Terner report on lessons from California’s historic Homekey program. My number one lesson is that public money buying buildings is a critical piece of the puzzle.
I am a huge fan of the Chron’s Lauren Hepler, and this is a great piece about struggling tenants and struggling landlords. This isn’t some “show both sides to be balanced” nonsense - this is the kind of work that shows that the ‘two sides’ narrative isn’t correct. See my Ownership matters piece.
The Little Hoover Commission just released a housing crisis report which has some interesting parts, including an endorsement of shared equity.