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«Mixed Messages on Mixed incoMes Volume 15, Number 2 • 2013 U.S. Department of Housing and Urban Development | Office of Policy Development and ...»

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This approach assumes that the effects of all other covariates on the outcomes are the same for higher and lower income households and households in different racial and ethnic groups. Yet, Chow tests confirm the substantial heterogeneity by income, race, and ethnicity and indicate that subgroups by income, by race, and by ethnicity should not be pooled.4 Pooling heterogeneous income, race, and ethnic groups into a single sample is problematic in any regression analysis but more so in IV models, because the first-stage model assumes linear effects (Murray, 2006; Terza et al., 2008).

Addressing Residential Stability On average, homeowners are more residentially stable than renters. Because child development and educational research suggests that residential stability is beneficial for developmental and academic outcomes, the role of homeownership in fostering stability has broad policy significance.

The analytic challenge is, again, a selection issue: disentangling the possible selection of stable households into homeownership from the effects of homeownership itself. Including a measure of residential stability as a righthand-side covariate in outcome models (for example, DiPasquale and Glaeser, 1999; Green et al., 2012) does not address the selection issue. Aaronson (2000) tests an IV measuring the family’s mobility before the child turned 5 along with a righthand-side control for mobility at older ages. Using this approach results in statistically insignificant effects of homeownership on remaining in school until age 17. This finding suggests that after residential stability is properly accounted for, the effects of homeownership disappear. The interpretation of this finding is that it is stability, not homeownership, that plays an important role. Holupka and Newman (2012) test the role of stability as mediating the effects of homeownership on child outcomes.

Although they find that homeownership has a significant positive effect on residential stability, no evidence confirms that the role of homeownership on outcomes is mediated by stability.

Discussion The invitation from Cityscape to write this commentary forced us to take a colder and harder look at the body of research on the effects of homeownership on children than we have before. Existing research has produced contradictory results. This research relies on the IV method to address selection;

typically pools all income, race, and ethnic groups in a single analysis; and varies in its approach to covariate controls, including those that are arguably endogenous. If future research continues on Results are available from authors on request.

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this same path, there is no reason to expect different results or, importantly, clearer insights into homeownership effects. Instead of doing more of the same, we advocate digging into the existing body of homeownership research to develop a clearer understanding of the sources of these differences. This approach should enable us to interpret existing results and to establish a stronger foundation for future research. More direct replications could also be illuminating (Satel, 2013).

Based on our admittedly cursory review, it seems clear that identifying even a single IV that meets the theoretical criteria and empirical standards of a strong instrument has proved elusive. Therefore, it is time to consider other methods that also support causal inference. Noteworthy in this regard are the two studies that use two other methods—an experiment (Engelhardt et al., 2010) and propensity score matching (Holupka and Newman, 2012). Both of these studies report no effects of homeownership on outcomes. Beyond the selection issue, we also recommend that the next generation of homeownership research recognize and address the heterogeneity of income, race, and ethnic groups and the confounding of homeownership and residential stability.

Authors Sandra J. Newman is a professor of policy studies in the graduate program in public policy and Director of the Center on Housing, Neighborhoods, and Communities at the Institute for Policy Studies at Johns Hopkins University.

C. Scott Holupka is a senior research associate in the Center on Housing, Neighborhoods, and Communities at the Institute for Policy Studies at Johns Hopkins University.

References Aaronson, Daniel. 2000. “A Note on the Benefits of Homeownership,” Journal of Urban Economics 47: 356–369.

DiPasquale, Denise, and Edward Glaeser. 1999. “Incentives and Social Capital: Are Homeowners Better Citizens?” Journal of Urban Economics 45: 345–384.

Engelhardt, Gary, Michael Eriksen, William Gale, and Gregory Mills. 2010. “What Are the Social Benefits of Homeownership? Experimental Evidence for Low-Income Households,” Journal of Urban Economics 67: 249–258.

Galster, George, Dave Marcotte, Marvin Mandell, Hal Wolman, and Nancy Augustine. 2007. “The Impact of Parental Homeownership on Children’s Outcomes During Early Adulthood,” Housing Policy Debate 18 (4): 785–827.

Green, Richard K., Gary D. Painter, and Michelle J. White. 2012. Measuring the Benefits of Homeowning: Effects on Children Redux. Research Institute for Housing America Special Report.

Washington, DC: Mortgage Bankers Association.

Green, Richard, and Michelle White. 1997. “Measuring the Benefits of Homeowning: Effects on Children,” Journal of Urban Economics 41: 441–461.

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Harkness, Joseph, and Sandra Newman. 2003. “Differential Effects of Homeownership on Children From Higher- and Lower-Income Families,” Journal of Housing Research 14 (1): 1–19.

Haurin, Donald, Toby Parcel, and R. Jean Haurin. 2002. “Does Homeownership Affect Child Outcomes?” Real Estate Economics 30 (4): 635–666.

Hilber, Christian. 2010. “New Housing Supply and the Dilution of Social Capital,” Journal of Urban Economics 67: 419–437.

Holupka, Scott, and Sandra Newman. 2012. “The Effects of Homeownership on Children’s Outcomes: Real Effects or Self-Selection?” Real Estate Economics 40 (3): 566–602.

Murray, Michael. 2006. “Avoiding Invalid Instruments and Coping With Weak Instruments,” Journal of Economic Perspectives 20 (4): 111–132.

Satel, Sally. 2013. “Primed for Controversy,” New York Times, February 24.

Terza, Joseph, Anirban Basu, and Paul Rathouz. 2008. “Two-Stage Residual Inclusion Estimation:

Addressing Endogeneity in Health Econometric Modeling,” Journal of Health Economics 27:


246 Point of Contention: Homeownership and Child Well-Being Policy Briefs The Policy Briefs department summarizes a change or trend in national policy that may have escaped the attention of researchers. The purpose is to stimulate the analysis of policy in the field while the policy is being implemented and thereafter.

The Federal Housing Administration and Long-Term Affordable Homeownership Programs Edwin Stromberg U.S. Department of Housing and Urban Development Brian Stromberg Rutgers University The views expressed in this article are those of the authors and do not represent the official positions or policies of the Office of Policy Development and Research or the U.S. Department of Housing and Urban Development.

Abstract This policy brief presents the results of a limited survey of housing and mortgage financing practitioners regarding the usage of Federal Housing Administration (FHA) homebuyer mortgage insurance in long-term affordable housing (LTAH) programs (which can also be called shared-equity homeownership). In so doing, the brief presents a description of (1) the various types of LTAH, (2) the U.S. Department of Housing and Urban Development’s (HUD’s) involvement in LTAH initiatives, (3) the major obstacles to greater involvement of LTAH in FHA and other HUD affordable homeownership programs, (4) arguments for and against changing FHA’s current policies, and (5) research that would address core issues regarding HUD’s general lack of knowledge about and engagement with LTAH models.

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Introduction Long-term affordable homeownership (LTAH)1 programs, as defined in this article, are designed to provide homeownership opportunities for low- to moderate-income households and keep those units affordable in perpetuity. As discussed below, these programs have been successful both in preserving affordability and in developing household wealth. Despite their success and stability, however, most LTAH programs have been unable to access mortgage products insured by the Federal Housing Administration (FHA) for their lower income homebuyers. This lack of access is largely because of several FHA regulations that conflict with the basic structure and mission of LTAH programs.

This article addresses the central issues around the FHA regulations, describes solutions suggested by LTAH sector advocates, and proposes several avenues of research that will improve the U.S.

Department of Housing and Urban Development’s (HUD’s) and the general public’s understanding of this particular form of affordable housing. The first section of this article discusses the basic characteristics, the scope, and the performance of these programs. The second section describes the limited engagement HUD has had with LTAH. The third section describes approval issues with FHA policies when underwriting LTAH mortgages. The fourth section reports on the small field research project we conducted, which was a survey of LTAH program staff, FHA administrators, and lenders. The article concludes with some thoughts about future policy research in this area.

The LTAH Sector: Basic Characteristics The LTAH2 sector is composed of three models of affordable housing that provide resale-restricted, owner-occupied housing for low- and moderate-income households. These three models are limited-equity housing cooperatives (LEHCs), community land trusts (CLTs), and deed-restricted houses and condominiums (Davis, 2006). In each model, a government agency or nonprofit organization subsidizes homeownership for low- and moderate-income homebuyers, investing public funds (or sometimes private donations) to reduce the purchase price of a house, townhouse, or condominium to an affordable level. In return for the assistance, homebuyers agree to certain limitations to preserve the affordability to future income-qualified families. Most often, these limitations are a restriction on the price for which they can sell the property (usually a certain percentage of any increase in value, plus the original cost of the property and any additions they have made) and a requirement to sell the property to certain households (usually other low- or Because of confusion about the term “shared-equity homeownership,” we decided to use the term “long-term affordable housing.” Shared-equity homeownership may be confused with “shared-appreciation mortgages” (SAMs), which are a first mortgage product used by private lenders or investors in which the homebuyer gives up a share of future price appreciation in return for a lowered or deferred interest rate. Homes encumbered with a SAM are resold at their fair market value. Unlike resale-restricted LTAH homes, homes financed with a SAM are not subject to any sort of contractual ceiling on the price for which they resell. The concept is being promoted as a way to address the postbubble problem of so-called “underwater” mortgages.

Other names for the concept are “durable homeownership,” “permanent homeownership,” “perpetual homeownership,” “homeownership in perpetuity,” and “permanently affordable homeownership.” 248 Policy Briefs The Federal Housing Administration and Long-Term Affordable Homeownership Programs moderate-income households). Although the upper income limits may be about 120 percent of Area Median Income (AMI), LTAH programs typically serve households with between 50 and 80 percent of AMI.3 The LTAH sector in its various forms has received support from the Ford Foundation, Habitat for Humanity International, NeighborWorks® America, the National Housing Conference+Center for Housing Policy, Fannie Mae, and others.4 LEHCs have a traditional cooperative (co-op) ownership structure but with a similar restriction placed on resale. The CLT model involves siting resale-restricted housing on land owned by the CLT, with resale restrictions enforced through a ground lease signed by the homeowner with the trust. The deed-restricted housing model typically involves resale-restricted homes developed through various local mandates or initiatives, such as inclusionary zoning. All these models have a commitment to balancing the dual goals of preserving housing affordability while offering lowand moderate-income households the opportunity to build equity through homeownership.

LTAH programs all involve some form of public investment. In many communities, this investment comes in the form of inclusionary housing or inclusionary zoning, in which communities mandate that developers of market-rate housing build a certain number of affordable housing units as part of the locality’s approval of the market-rate development; the public investment in this case is in the form of a reduced, affordable price for income-eligible homebuyers (Schwartz et al., 2012).

The rights, responsibilities, risks, and rewards of ownership are shared between an income-eligible household that buys the home for a below-market price and an organizational steward that protects the affordability, quality, and security of that home to ensure the home remains a lasting community asset (Davis, 2010a). In other instances, the public investment is more direct, such as the use of HOME Investment Partnerships Program (HOME) funds for downpayment assistance, or the sponsoring organization provides a “silent second” mortgage to reduce the cost of the unit.

The steward, which is a government agency or nonprofit organization, acts as a coinvestor with a low- to moderate-income homebuyer by providing public funds that reduce the purchase price of a home to make it affordable for the household. The steward also provides prepurchase and postpurchase education, financial counseling, and additional services to promote the success of the homeowners. In return for this assistance and to preserve affordability for future income-qualified homebuyers, homeowners agree to limit their financial returns when they sell their homes.

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