Entry and exit affordability of shared equity homeownership: an international comparison

• DOI: https://doi.org/10.1108/IJHMA-06-2019-0059
• Pages: 737-752
• Date: 19 September 2019
• Published date: 19 September 2019
• Author: Ka Shing Cheung,Siu Kei Wong
• Subject Matter: Housing markets,Property management & built environment

Entry and exit af‌fordability of

shared equity homeownership:

an international comparison

Ka Shing Cheung

Department of Property, University of Auckland, Auckland, New Zealand, and

Siu Kei Wong

Department of Real Estate and Construction, University of Hong Kong,

Hong Kong, Hong Kong

Abstract

Purpose –Shared equity homeownershipis a form of subsidised, resale-restricted housing throughwhich

lower-income households can sustain their affordability. This paper aims to distinguish two types of

affordability withinshared equity homeownership: “entry affordability”indicates how affordable subsidised

housing is when a household f‌irst becomes a subsidised owner; while “exit affordability”means how

affordableprivate housing is after a household hasenjoyed subsidised homeownership for a periodof time.

Design/methodology/approach –Using price-to-incomeratios, this study compares the entry and exit

affordability of sharedequity homeownership programs in Australia, MainlandChina, Hong Kong, Norway,

the UK and the USA. Based on these international comparisons,this study generalises two distinct types of

shared equity homeownership models, namely, the models of “share-to-buy”and “share forever”. A new

model, “follow-as-you-go”, is further suggested to increase the elasticity of potential affordable housing

supply byproviding incentives for existing subsidisedhomeowners to move.

Findings –A key f‌inding of this study is thatwhile shared equity homeownership programs can improve

entry affordability,homeowners’exit affordability is weak when subsidised homeownershave to share their

capital gain with the government. While many housing policy discussions around the world that support

shared equityhomeownership focus only on the improvementof entry affordability, these discussionsusually

ignore the importanceof exit affordability. This study attempts to f‌ill the void in the understandingof these

two types of affordability.

Originality/value –Shared equity homeownership policy is not only about offering low-income

households but alsoan affordable housing option. It is also about facilitating well-offsubsidised homeowners

to move up the housing ladder so that the affordablehousing option can be freed up for others in need. In a

word, it is notonly entry affordability but also exit affordabilitythat matters.

Keywords Housing affordability, International comparison, Housing policy, Housing ladder,

Residential mobility, Shared equity homeownership

Paper type Research paper

1. Introduction

Owning a home, especially for the f‌irst time, signif‌ies a milestone in many people’s lives.

Homeownership is oftenassociated with family stability, quality of life and socialclass. It is

perceived as an opportunity for low-incomefamilies to advance to the middle class through

JEL classif‌ication –E21, R20, R31, R38, C21

The corresponding author gratefully acknowledges the f‌inancial support provided by the U.S.

Government’s Fulbright Program (IIE Grant no: PS00213217) for sponsoring his visit at UCLA.In addition,

this project was f‌inancially supported by the General Research Fund (Project Reference: HKU 17612017).

Shared equity

homeownership

737

Received11 June 2019

Revised28 July 2019

Accepted30 July 2019

InternationalJournal of Housing

Marketsand Analysis

Vol.13 No. 5, 2020

pp. 737-752

© Emerald Publishing Limited

1753-8270

DOI 10.1108/IJHMA-06-2019-0059

The current issue and full text archive of this journal is available on Emerald Insight at:

https://www.emerald.com/insight/1753-8270.htm

a“housing ladder”–“moves from renting to owneroccupancy with progression through the

life cycle”(Kendig, 1984, p. 282). Some governments, rather than just providing low-income

families with rental housing, choose to help them to climb up the ladder. To overcome the

down payment constraint, many subsidised homeownership programs around the world

adopt the shared equity approach[1], where a government agency contributes part of the

home purchase price in return for a stake in the ownership, usually in the form of exit

restrictions governing arrangementsfor when the assisted families re-sell the home and for

the sharing of the resale price with the governmentagency (Davis, 2006).

Shared equity homeownership is a formof resale-restricted, owner-occupied housing for

lower-income households that remains affordable in perpetuity (Thaden et al.,2013). Such

housing tenure has three def‌ining features,which served as the criteria we used in selecting

economies for this international comparative study. First, shared equity homeownership

requires an initial publicsubsidy to provide a shared equity home that allows a windfall for

the initial homebuyer, hence, improving entry affordability. Second, different contractual

arrangements are set to preserve affordability for prospective future homebuyers, e.g.

subsidised homeowners are required to resell their homes to another income-eligible

household using a pre-determined price formula. Finally, more importantly, such a shared

equity arrangement should have a clear policy objective of helping low-income families

progress on the housing ladder, hence, enabling the shared equity homeowners to f‌ind it

affordable to exit the programs. Given such def‌ining features of shared equity

homeownership, this paper will mainly focus on the shared equity homeownership

programs in Australia,China, Hong Kong, the UK, the USA and Norway[2].

Unless a shared equity homeownership program is intended to assist families for life,

there should be an “exit”mechanismenabling assisted families to move on to better housing

options through the housing ladder. In this study, “entry affordability”is used to describe

the ability of eligible families to become subsidised homeowners; while “exit affordability”

refers to the ability of these subsidised homeowners, after receiving assistance for a period

of time, to transition from subsidised housing to private housing. However, in the housing

literature, while many policy discussions that support shared equity homeownership focus

on the improvement of entry affordability, thesediscussions usually ignore the importance

of exit affordability. Understanding exit affordability provides important insight into the

dynamics of social mobilityon the lowest rungs of the housing ladder. In many cases, not all

exits from social housing represent upward social mobility and improved economic

circumstances. If private housing is only affordable at a margin, households exiting from

social housing may end up with lower f‌inancial resilience; for instance, getting a higher

chance to become negative equity homeowners in a falling market. Besides, when spatial

mismatches (e.g. long commute to work) trigger households to exit from social housing,

there is often a signif‌icant downgradingin terms of the quality and size of properties, which

represents a downwardrather than upward social mobility (Wiesel and Pawson,2015).

Further investigation into this topic would require a more explicit assessment of the housing

affordability on both entry to, and exit from, the social housing. In this research, we aim to

contribute to the housing literature by examining the beginning and the end of the subsidised

home purchase cycle, namely, the “entry affordability”and “exit affordability”of shared equity

homeownership programs. We attempt to develop metrics that will help evaluate and compare

the entry and exit affordability of such programs around the world. An international

comparison of shared equity homeownership can further provide us with an analytical

generalisation to develop appropriate strategies for addressing both forms of affordability.

The structure of this paper as follows. Section 2 provides an overview of the selected

shared equity homeownership programs. Section 3 uses price-to-income ratios (PIRs) to

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