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Shared Equity and a New Dream of Homeownership with Tony Pickett · Building Better Cities

• Kate Gasparro: Home ownership used to be a straightforward promise. Work hard, save, buy a home, and let time build your wealth. That promise is getting harder to keep. The average first-time home buyer in this country is now pushing 40. Wages haven't kept pace with prices, and for a lot of families, the on-ramp to home ownership just isn't there anymore. So today I'm talking with Tony Pickett, CEO of Grounded Solutions Network, the leading national voice on shared equity home ownership. Community Land Trust and Inclusionary Housing. Tony spent 35 years in community development and he's now leading a 10-year push to bring a million new affordable homes into being. We get into how community land trusts actually work and the real numbers behind it. We also talk about homes for the future, grounded solutions answer to private equity buying up single-family rentals at scale, and why Tony thinks private developers are finally starting to take shared equity seriously. This is a conversation about building a third way between renting and ownership, one that doesn't ask families to choose between affordability today and wealth tomorrow. I'm Kate Gasparrow and this is Building Better Cities. I always like to sort of start with your ⁓ hero's journey, sort of your ⁓ through line throughout your career and look at all the different sectors that you've worked in, whether that's innovative finance for housing, community development. You spent some time in Atlanta, and now you're the executive director of the Granite Solutions Network. And you know, big picture. What are the experiences that have shaped how you think about housing and the role it should play in people's lives as you move through all those spaces? ⁓ the things that have most shaped my perspective around housing, as you say, I've done a lot of things in this life. I've been really blessed to have access to a lot of different opportunities that I've found meaningful. But ⁓ three things really stand out for me in terms of shaping my housing perspective. ⁓ my years that I spent working for the Atlanta Housing Authority, ⁓ implementing the big hope six revitalization efforts that the Housing Authority had undertaken in Atlanta. And ⁓ all of this was happening before Atlanta hosted the nineteen ninety six Olympics. And so really being involved in working in public housing communities. The only thing I knew about public housing before working for the housing authority was what I saw on television along with everyone else. And it was kind of shocking and appalling most of the time. They would always focus on, you know, the the the tragic events, the crime, ⁓ the the real challenges that folks were having. And there were never any real like positive stories about families and communities and the solidarity and some of their ⁓ experiences and really working for the housing authority, I got to know people who lived in public housing and they became human beings rather than just these images that I saw on television and I understood their struggles and I know what it was like for many of them who look like me to be living in the deep south and to be dealing with the kinds of barriers to opportunity that they were facing. So ⁓ that was a really big influence and being able to be a part of transforming some of that as complex as it was, yes, it was challenging to have people be told, Hey, this community that you've been living in and raised your children in is gonna be demolished and you're gonna be moved. So so that was one of the the the things that really kind of shaped my perspective and I came out of that saying it is possible to change the trajectory of people's lives. Not not in a single little five to to seven year span, but we're talking about people's children's futures. It's possible to change the trajectory of those futures from living in poverty to ⁓ having a a ⁓ really decent and quality life that anyone would would want to have. ⁓ that was one thing. And then ⁓ the other thing is when I became at one point the founding executive director of a nonprofit community land trust program that was starting up in Atlanta, the Atlanta Land Trust, and learning that there were alternatives to private ownership of homes and property and where some of those ideas originated in South Georgia with black African American farmers during the civil rights movement. It was a it was it opened my eyes to ⁓ a lot of the alternate history that is not often taught in the education ⁓ systems across this country and and really kind of fueled my enthusiasm and ⁓ passion for the work that I'm doing ⁓ now. Is that fair to say? Like how strong Of this understanding of like narrative around housing is your work now? ⁓ I I think that is more than fair to say. Even when I was thinking about sort of this sort of pivotal moments that really influenced me, it was clear to me those were connected. ⁓ and again, this this storytelling, this ⁓ sort of what are the stories that we choose to emphasize, celebrate, record and remember and changing it from this negative image of like what public housing in this country it was intended to be versus what what it has become. You know, there's this stigma almost that's been associated with it because of the narrative that has been told over time and we need to change that. there are so many things happening right now that have start started to make it clear, I think, to most of us that we can't continue on this wave of having winners and losers in the housing space. Everybody needs to be a winner in the housing space. That's a great point. And I'm curious how you define what a winner looks like in the housing space if that is the goal for everybody to partake in the profit value, ⁓ comfort that is a home slash house slash asset at the end of the day. Yeah, I think for a long time, and it's back to you've named it, this this narrative, this American dream that we have talked about and really instilled this longing for in multiple generations. ⁓ the idea that you're going to own a home and have a a decent life that comes with ⁓ having stable quality living arrangements and it's going to be in a neighborhood that has quality amenities, ⁓ great performing schools, a grocery store with healthy food options, a park for your children to play in. beyond the yard that that you will control as a homeowner. ⁓ all of those things have been baked into this American dream narrative that we have talked about for so long. And the idea of everyone having access to that. Everybody wins when they achieve the American dream. And we've instilled this work ethic behind it, but now it is more clear than ever. that just hard work is not sufficient to get to that dream of homeownership. The wages are not keeping pace with the costs of the housing. So ⁓ something has to fundamentally be changed in order for people to achieve the American dream. Mm-hmm. That's interesting that it's like how can we think about the American dream and the systems that have propped it up and maybe think differently about those systems. I'm curious, is there a part of your work where you think should we be reframing the American dream? I think so. even in sort of my current conversations and thoughts, ⁓ one thing that's really laying out and and really starts to influence my thinking about the future is the changing demographics of the population in this country. I saw ⁓ Just recently there was a statistic published that said the the average age of the first time home buyer in this country, it's approaching forty years old. So this idea that you you're a young adult and you're just starting out in your career and you want to get married and have children and buy a home, y you gotta put that off if the home is the main part of that equation until you're almost forty years old. So, ⁓ Something has to be changed in order to ⁓ shift that average first time home purchase age to a much lower number so that young adults have a chance to to do that. And ⁓ the idea that the home is going to appreciate in value, well, y you need several decades for that to happen. If you're just entering into home ownership at forty, ⁓ you're it's not long until you're at the end of your working life and you're trying to glean the equity that's built up in that home to make it through the retirement years, we've compressed all of that experience because we've delayed that entry into homeownership. The idea that a home is your retirement savings account ⁓ seems to be a foundational piece of the puzzle. of that original narrative of let's all own a home and that becomes the wealth that your family creates and is able to give to generation to generation. Other countries feel a little bit differently about that, where wealth isn't baked into an asset like a house. how much of your work in the space has been like learnings from these other places and taking from that learning to sort of help progress policy change? in financial systems change here in the US. Yeah, from the origin of the community land trust model that I talked about earlier, while the American version of that comes from the civil rights movement in the American South, those leaders actually studied models from other countries, ⁓ India, Israel, England, ⁓ any place that was challenging this notion that private land ownership was the sole path to ⁓ financial success and stability for ⁓ families. ⁓ this idea of communal land ownership emerged and that's been in different forms in different places all around the world. It's even ingrained in indigenous Native American culture that the land is not owned. You you are stewards of the land for the time that you ⁓ are using it and you need to use it wisely, but it doesn't belong to any one particular individual. we need to kind of bring bring that concept back into the mainstream ⁓ more so than ⁓ individual private ownership of land and housing has been in this country and and the system that we have, you're correct. It is built around reinforcing that private ownership of the land. And in fact, ⁓ I think that probably was heightened ⁓ with the baby boom population in the post World War Two era when ⁓ so many ⁓ young men were returning from the war and the government saw the need to shape the the mortgage system so that those folks would have access to buying homes for the first time, going to college, ⁓ getting a decent education via the GI bill. And all of that has fueled where we've ended up today. Those folks, ⁓ that large generational cadre of people in America got for the most part access to home ownership, ⁓ in a way that previous generations didn't have and people of color. never had. Even in that equation, people of color did not have equal access. But again, the vast majority did and the homes that they purchased escalated in value over time. And that's why today we see like folks who are ⁓ really reaping the reward of that government subsidized and structured entry into homeownership. That is so elegant Frequently put, you know, that it is not just a foundational structural piece of building wealth, but it's been subsidized for decades. That home ownership ⁓ is something that everyone should aim to attain. and it there are all these systems that are put in place to sort of enforce and allow that to happen. In in terms of how we think about communal land ownership, I would love for you sort of expand on the model that you've worked on in Atlanta. ⁓ how Grounded Solutions Network is helping to stand up different types of these communal land ownership programs, ⁓ and how it mechanically works differently than a private ownership pathway. Yeah. the model that I worked on in Atlanta, the community land trust, the traditional form of that is to separate ownership of land underneath housing and place the ownership of that land into a non-profit community governed entity ⁓ called a community land trust. The home itself is sold to an individual homeowner which has a mortgage on the home. But again, the mortgage does not ⁓ include the land. There is a ground lease between the homeowner and the community land trust nonprofit that governs the relationship between the land and the house. So they're linked together, but they're not the the the land underneath the house is ⁓ separately owned ⁓ by the community land trust. ⁓ also built into that ground piece is what we call a resale formula. So if the homeowner ever decides to sell the home, they can't take the full amount of equity that is built up in the home over time when they sell, they get back their initial investment plus some percentage of the equity that is agreed upon at the beginning. And ⁓ that can be simply ⁓ characterized as a percentage, 25%, let's say, or it can be linked to a percentage of the appraised value of the home or even the consumer price index increase over time. There's there's lots of different ways to approach it. But ⁓ the idea is that again, you don't get to reap the full amount of equity that is built up in the home. Instead, ⁓ you get that percentage, but the other majority portion of that equity is retained in the property and keeps it affordable for another family. who may be low moderate income ⁓ and not able to afford market rate ⁓ pricing in for the same home ⁓ that allows them to purchase the home at at an affordable w rate. So you're paying it forward, so to speak. Right. every subsequent homeowner ⁓ has to agree to that same ⁓ situation. One of the underlying ⁓ components of a C L T community land trust is the separation between land and building. And we actually just had someone come on the podcast to talk about land valuation, land value tax. And I would love to understand how much of the value of a property is in the land versus the house. And as you look at the appreciation of both of those over time, how much does one grow versus the other that could be recaptured by the homeowner who's selling ⁓ at that capped appreciation value for a CLT? The majority of the value is in the land. ⁓ there's no question about that, though as it is very ⁓ eloquently said in less sophisticated settings, God's not making any more land. ⁓ That's true. ⁓ So ⁓ that always ⁓ has a premium price and dependent upon ⁓ the upkeep and maintenance of the house, it's it's sort of ⁓ can fluctuate in terms of its value from time to time. You have to continue to invest in maintaining the actual ⁓ house or the improvements that that sit on the land. and so ⁓ again we recognize the majority of the value ⁓ sits within the land itself and and not ⁓ the the home and the improvements. That brings me to my next point about this inherent tension between affordability and wealth appreciation creation through real estate. And it seems like you're trying to ⁓ thread a a very tiny hole in terms of balancing those two. How do you give people affordable access to wealth creation, but also maintain that affordability for generations and future homeowners to come? So what are those conversations like? as you are introducing a potential homeowner to this model and their wealth creation potential ⁓ as opposed to other ⁓ points of access that they have to the housing market. You you're exactly right. We are balancing wealth creation with maintaining affordability over time. one of the most compelling pieces of our work at Grounded Solutions is a research study that we did ⁓ several years ago in conjunction with the Lincoln Institute of Land policy in Cambridge, Massachusetts, ⁓ looking at ⁓ about a sample of four thousand ⁓ shared equity homes across the country and determining what the average investment a family made in purchasing those shared equity homes was and I can tell you it was around eighteen hundred dollars. ⁓ and this is a thirty year study ⁓ pre-pandemic. so it goes back pretty far. and what was the length of tenure that a family occupied those homes? And it turns out that that was anywhere from about five to seven years ⁓ on average. And ⁓ when they decided to sell and there was no compelling reason From the land trust or the program perspective for them to sell the home. They chose to sell those homes. ⁓ those who did, the average return to them was fourteen thousand dollars, their share of limited equity, each individual family, fourteen thousand dollars. So in a five to seven year period, yeah, eighteen hundred dollars was what you put of your own money towards purchasing that home. And ⁓ you received on average fourteen thousand dollars. And no surprise, sixty percent of those families who sold and got that limited equity return went on to purchase an unsubsidized market rate home. Wow. That's amazing. Yes. Okay. How does this compare to the appreciation of a unsubsidized home in terms of factor of growth. ⁓ you you would get substantially more return from the unsubsidized home. But the way we talk about this, and again, you said it earlier, narrative is important. This shared equity approach is a stepping stone to unsubsidized market rate home ownership. If you can't make the the leap because your income is so limited to market rate housing, This at least gets you in the door and eventually with the amount of limited equity you're able to take out of your shared equity home, you could make the transition to market rate home ownership. At least that was true pre pandemic. We're doing an update to the study to figure out if the numbers confirm that that is still the case. I suspect they are. What are the types of resources that are needed to get one of these models to be established in a community? Are there different ⁓ markets in which a CLT is ⁓ better suited for? Could you sort of talk through identifying locales and market or product type and then also the resources needed to launch a CLT or a shared equity program. Yeah, let me say the resources needed to launch a communal interest are substantial. They're not to be underestimated. ⁓ you will undoubtedly need some type of philanthropic typically investment of ⁓ at least a million dollars or more to kind of get the program organized and ⁓ up and running. You have to hire people who are skilled enough and understand enough about real estate development and ⁓ the aspect of what we call stewardship. maintaining the relationship with the homeowners and making sure that they understand all of the limitations and benefits ⁓ that go along with ⁓ shared equity homeownership. ⁓ all of that ⁓ sort of has to be established up front. ⁓ but also ⁓ in addition to that philanthropic investment, there has to be access to land and homes. you know, ⁓ know, a million dollars doesn't go very far in terms of acquiring real estate for housing, ⁓ then often what that results in is some type of partnership, ⁓ probably with local government, but if not ⁓ county or state, ⁓ in in some cases who are ⁓ helping to subsidize the actual operations of ⁓ that community land trust to ⁓ make sure that ⁓ they actually have some access to some kind of land pipeline either through what they call a local land bank, ⁓ municipal land bank, which ⁓ takes vacant and abandoned properties and repositions them to come back to productive use. So ⁓ there are many different ways to partner with municipal governments and ⁓ non profit shared equity programs. ⁓ we're also seeing ⁓ existing nonprofits like Habitat for Humanity affiliates, ⁓ Laborworks organizations, ⁓ and other community-based nonprofits integrate shared equity into their ⁓ homeownership activities ⁓ successfully. I'm curious how are you able to think about scale and sort of think about that through the lens of homes for the future, which I would love for you to talk about. and the work that you've done thus far in Minneapolis and St. Paul to sort of launch that model ⁓ and get people access to home ownership through a shared equity approach. ⁓ several years ago, ⁓ Freddie Mack challenged us and others to come up with innovative approaches to increasing access to home ownership for low moderate income families. And ⁓ our proposal back to them, which they funded us to develop and model, ⁓ was an intervention in ⁓ the purchase of single family home portfolios that was happening at scale via private equity ⁓ investments that were that are much talked about today, ⁓ but we're were we were aware of but but just beginning to kind of take notice of ⁓ when we embarked on this work with Freddie Mack. And the result of that ⁓ was we modeled ⁓ being able to go out and ⁓ gain capital commitments from social impact investors and ⁓ assemble that capital and purchase portfolios of single family homes and keep them affordable. Those homes were occupied by renters. We assumed that in the modeling, and keep them affordable for those renters. And while we were helping a number of those renters prepare themselves for homeownership, which they could buy them from us directly, we would also ⁓ position some of those homes to be sold to local nonprofit programs that were within our network. ⁓ in the places that we decided to launch this intervention ⁓ to be maintained as shared equity homes and made affordable ⁓ to either those families or other ⁓ families, which depend upon the needs of whoever ⁓ was occupying the home at the time, and keep those homes affordable over time. ⁓ that ⁓ was something that ⁓ we ultimately ⁓ took as a concept and implemented ⁓ and together with some other partners, some foundations and other nonprofit partners, ⁓ we successfully purchased a over 280 single family home portfolio in Minneapolis, St. Paul about two and half years ago. And we are operating that portfolio, not us directly, but a a third party responsible manager who ⁓ I can tell you That's probably the most important part of this equation is finding the right property and miniature to help you because this is a scattered site ⁓ portfolio. They they're not all in one street neighborhood. ⁓ they're all over several jurisdictions across the Twin Cities region. ⁓ so they have to be really efficient and ⁓ very capable of responding to the needs and ⁓ concerns of families who are renting those homes, unlike sometimes ⁓ the the private equity ⁓ owners of those homes who ⁓ the the families may not even know how how to get in direct contact with the property management entity that's managing those. But we've solved ⁓ that problem. ⁓ but I'm happy to say ⁓ since we've owned that portfolio, we've been able to ⁓ transition a number of those homes already to ownership by the former renters ⁓ of those homes and we continue to have conversations with ⁓ local nonprofits about ⁓ taking ownership of some portion of that portfolio. one of the big things about this is ⁓ we're able to stabilize the rents of those homes so they're not ever increasing for the families that are occupying them. So that pressure is taken taken off of them. ⁓ but also we had modeled this for at least a ⁓ seven year hold period. So we knew we were gonna hold and operate this thing in some way, shape or form for for at least seven years. ⁓ but it also ⁓ as we say, ⁓ ownership gives us control and we could come back and recapitalize that deal or find additional investors or ⁓ retrade the terms of the ⁓ investments that are in those deals to ⁓ extend the life of this further if we need to. So it was in many ways ⁓ our response to ⁓ this sort of ⁓ intrusion, I'll call it, of private equity competing with individual ⁓ families who want to purchase these homes, they're often outbid because private equity already has the capital necessary. They don't they don't have to go get a mortgage. They already have assembled capital and they can act quickly to purchase those homes and they're using algorithms and technology to help them do that that private individuals don't have access to. In terms of the renter to home ownership pathway for these homes, can you sort of lay that out? It seems like Part of the model is to keep rents affordable and capped such that it makes it possible for families to accrue the savings needed to purchase that house that they're renting. Yes. They're also at the same time, ⁓ we're through our property management efforts and nonprofit partnerships, bringing ⁓ homeownership counseling to bear for those folks to help them figure out how they can best prepare to become homeowners. And this is something we don't impose on the families. ⁓ they have to elect and say, hey, yeah, I do want to eventually own ⁓ this particular home to us in order for that to happen. ⁓ and in some cases, ⁓ those families may just prefer to continue to rent and we're open to that as ⁓ an option for them as well. So there's no ⁓ you know, in some cases other programs have what they call a rent to own sort of agreement between the program and and the ⁓ family occupying the home. We don't have a a rent to own ⁓ agreement, so that's not really what we're doing. We're we're simply ⁓ acting as a responsible landlord, ⁓ but also saying we also recognize our nonprofit mission obligation to support those families in their endeavors to become homeowners and so we're ⁓ making that ⁓ effort as well as just being a responsible landlord. Hm. And so at the point in time that a renter says, Okay, I'm ready to purchase this home, what is its appraised value or an equation value such that it's affordable for renters to become homeowners? Yes. We will look at ⁓ what the appraised value of the home is and what our initial ⁓ investment to purchase the home was. And one thing I I didn't say is when we acquired that portfolio, it was from a private equity firm, ⁓ that gave us approximately a twenty percent discount to market, ⁓ at the time. And I will say, ⁓ it's not a secret. ⁓ they were under a a a bit of duress because ⁓ The attorney general for Minnesota was ⁓ taking legal action ⁓ against them for some of the property management issues ⁓ that were ⁓ had arisen. So ⁓ as part of the settlement to that, they sold us a portion of their holdings ⁓ at a 20% discount. So we're we're already ⁓ a bit below market in our purchase price. ⁓ so when we look at this, ⁓ we're also looking at Okay, well, ⁓ in addition to that, if there's down payment assistance that the local jurisdiction offers, if there are other ⁓ homeownership subsidy sources that we can tap into, we can bring those to bear in favor of the family who wants to make the purchase as well. as we're sort of wrapping up the conversation, we sort of went on this like long journey from your work starting in Atlanta to where you are now. And all the different models ⁓ that you've had the chance to work on, what gives you hope in terms of making sure that every family, every individual has access to the American dream or a new narrative around what wealth creation looks like in the United States for people to have security in their lives. Yeah. Kate Clama one of the things that ⁓ very optimistic about and it's been happening recently over the last six months or so. We're starting to see clown proactive interest and outreach from private market real estate developer, large ones ⁓ who are interested in integrating our approach into their master plan developments. ⁓ we have one ⁓ entity, Banbury Development in ⁓ Texas, who has completed ⁓ a master planned development with over seven hundred ⁓ shared equity homes incorporated into a much larger ⁓ master planned community called Mueller in the Austin, Texas ⁓ area. And that ⁓ shared equity home portfolio is stewarded and controlled by one of our members there in Austin, Texas. And through that relationship, ⁓ Banberry has come to us and executed a contract with us to help ⁓ integrate that kind of approach into a different new master planned community that's just s b beginning to be planned. And and so ⁓ my sort of hope is that we're gonna see ⁓ more adoption of this as part of the mainstream ⁓ real estate industry. ⁓ and that's what I think is necessary in order for this to begin to be a viable third option. Renter, renting, homeownership, shared equity, ⁓ ownership. we need some sort of middle ground ⁓ between renting and just private ownership and I I'm starting to see even the private sector start to take interest in that. What stays with me from this conversation is that number. A $14,000 back on an $1,800 investment in just five to seven years, with 60% of those families being able to afford an unsubsidized home. That's a new way to deliver the benefits of home ownership while keeping affordability intact. Home ownership versus renting has never been a choice between black and white. That's the narrative we've been told, though. And this model shows that there's a real range of options in between. And that range is what makes ownership viable for more people. And Tony's right that this can't stay siloed in the affordable and impact housing world. It needs real estate developers, lenders, legal community, and local governments all pulling in the same direction. And it finally sounds like it's happening. If this conversation gave you a new way to think about home ownership, share it with someone who find it useful. Take a second to subscribe and leave a review. It's really the best way to help others find the show. Thanks for listening and until next time, let's keep building better cities together.