Setting the Record Straight: Part 5

This is the last blog in our 5 part blog series, in which we set the record straight on affordable housing.

Theory 5: Homeownership should be restricted to those who can put 20 percent down.

Even though studies have shown that, on the average, owning a home is less expensive than renting, it is difficult for the working poor to accumulate enough money for a dow payment. Michael Sherraden writes that, “One of the constraints on homeownership as a wealth building vehicle for low- to moderate- income households is institutional barriers to credit… Liquidity constraints, stemming from the uncertainty of lenders, prevent the extension of credit even when the working poor might be a good risk.”

Since the mortgage lending crisis began in 2007, down payment requirements have come under scrutiny. In May of 2011, the FDIC and Federal Reserve even proposed a 20% down payment requirement. While this remains unsettled, down payment requirements have remained part of the debate over mortgage finance. Within this debate is the belief that all of the down payment money must come from the borrower himself.

However, loans in the Community Advantage Portfolio do not fit into this new prototype. “A down payment of 1 to 3% of the home price is not uncommon, nor is a minimum borrower contribution of $500.”  Furthermore, a substantial amount of CAP’s borrowers had help meeting their down payment requirements and closing costs.

Using data from 2003 to 2011, Allison Freeman and Janneke Ratcliffe found that “having received assistance toward one’s down payment and closing costs has no significant effect whatsoever on CAP homeowners’ mortgage performance.”

For a closer look at the study, click here.

In conclusion, this five part blog series has used information from the UNC Center for Community Capital to refute claims about homeownership for lower- income families. These findings are particularly interesting because they have held true through recent market turmoil. Michael Sherraden argues that, “Homeownership is an important component of a long- term asset building strategy: the accumulation of small amounts of savings in an IDA can be put toward a home, which in turn can allow owners to send children to college, start small businesses, or pass along wealth to the next generation.”

New Century IDA is proud to be a part of the asset uilding movement by helping low- to moderate- income working families in Forsyth County become first time homeowners!

This home was purchased by a New Century IDA graduate in 2009.

Setting the Record Straight: Part 4

This is the fourth blog in a series in which we refute common misconceptions about homeownership.


There has been a long- standing debate over whether it  makes more sense for lower- income people to rent rather than own, and this has gained even more traction since the housing crisis began in 2007. Some argue that renting is less expensive than owning, but this had not been analyzed for lower- income households.

Sarah Riley and Hong Yu Ru studied data from participants in the Community Advantage Program from 2003 to 2010 to put this theory to the test. They calculated costs of both owners and renters. For owners, the included mortgage payments (including property taxes and insurance), the opportunity cost of holding equity in the house, mortgage closing costs and origination fees, homeowners association fees, maintenance expenditures, annual depreciation, the observed net property appreciation, and the tax benefit received each year.

The results may surprise you. The study found that the median owners’ user cost was $36,000 from 2003 to 2010. The median cumulative equivalent cost for renters was $41,000. Riley and Ru found that “the initial period of house price appreciation was sufficient to offset the subsequent higher owners’ user costs as a whole.” They estimated that it was necessary for the house price to appreciate about 2% annually to ensure that owning was not more costly than renting for this time period.

It is important to remember that CAP borrowers all received fixed rate, fixed payment, and competitively priced mortgages. Another factor is the cost of renting, which has been increasing in recent years. As the cost of renting continues to rise, Riley and Ru suspect that “homeownership may actually be gaining relative financial advantage over renting.”

For more information, check out Riley and Ru's study, "The User Cost of Low- Income Homeownership: 2003- 2010."

Setting the Record Straight: Part 3

This is the third blog in a series in which we refute common misconceptions about homeownership.


Theory 3: Lower- income homeowners erode their equity gains through excessive borrowing.

Another criticism of homeownership as an investment is that lower income homeowners might diminish their wealth gains through excessive borrowing. For low- and moderate- income households to recognize the benefit of accruing equity, they must not borrow that money back for other uses. Allison Freeman and Janneke Ratcliffe from UNC’s Center for Community Capital used data from the Community Advantage Program (CAP) to determine whether or not low- and moderate- income homeowners increase their levels of borrowing because of the accumulation of home equity.

Freeman and Desmarais found that home equity of more than $150,000 corresponds to an average increase of $1,000 in credit card debt. However, “the accumulation of equity over time shows a smaller relationship to the accumulation of credit card debt.” Notable borrowing against the home occurred only when equity levels exceeded $100,00 and never reached a scale that would decimate equity based wealth.

The study concluded that while there appears to be some association between the accumulation of large amounts of equity (more than $150,000) and increased debt, “there is no evidence that debt accumulation by CAP homeowners offsets the wealth- building effect of home equity.”

For more information on this study, click here.

Setting the Record Straight: Part 2

This is the second blog in a series in which we refute common misconceptions about homeownership.


Theory 2: Homeownership crowds out other investments, while renting allows households to diversify their investments.

There is speculation that homeownership leaves some households with under-diversified and, therefore, riskier portfolios. If this is true, it would be particularly concerning for lower- income households who invest a greater portion of their net worth in housing.

Allison Freeman and Janneke Ratcliffe from UNC’s Center for Community Capital put this theory to the test. They used data from homeowners that participated in the Community Advantage Program (CAP) to determine whether or not they restricted their investments in other financial instruments as a result of having their investment concentrated in their home.

They found that when renters were given the same equity amounts as a matched set of homeowners in 2008, the simulated effect on their investment portfolios was a shift of less than one cent. They found no evidence that investments or savings suffer from having funds tied up in homeownership. Freeman and Ratcliffe concluded that affordable homeownership, “serves as an effective means for promoting stable wealth- building for low to moderate income households through the forced- savings mechanism of equity accumulation.”

For more information on this study from the UNC Center for Community Capital, click here.

This home was purchased by a New Century IDA graduate in 2007.

Setting the Record Straight: Part 1

This is the first blog in a series in which we refute common misconceptions about homeownership.

Theory 1: Homeownership is not a reliable wealth building strategy for lower- income families.

There has been debate about the wealth- building effects homeownership offers lower- income people. However, data from the Community Advantage Program shows that “when low- and moderate- income families purchase homes they can afford with mortgages that are sustainable, wealth happens.”

This is supported by the Community Action Program’s (CAP) rates of equity appreciation relative to other investments in which low- to moderate- income families could have put their down payment funds. Home equity gains are a primary factor of wealth building and give home owners an advantage over renters. As the foreclosure crisis was beginning to unfold from 2005 through 2010, homeowners saw an average gain in net worth of more than $11,000, while the matched sample of renters only gained an average of $742. It is also interesting to note that non- housing wealth grew faster for owners than for renters over this period, and there was no significant increase in liabilities for owners compared to renters.

It is also important to state that homeownership doesn’t just generate wealth, but it can also act as a buffer against losing wealth in tough economic times. Measuring from 2005 to 2010, home owners were able to retain greater net worth through the financial crisis.

CAP also found that homeownership has a significant beneficial effect on financial satisfaction and overall stress. The statistics show that homeownership truly is an effective means of long- term wealth building for working families, even in times of economic upheaval.

For more statistics from the UNC Center for Community Capital, click here.

Setting The Record Straight on Affordable Housing

Since Michael Sherraden’s groundbreaking book Assets and the Poor: A New American Welfare Policy, discussion around welfare policy has shifted from income and consumption to the promotion of savings and wealth generation. Sherraden advanced the use of individual development accounts (IDAs) and argued that IDAs should enable homeownership as a path towards economic mobility.

In the paper “Setting the Record Straight on Affordable Homeownership,” Allison Freeman and Janneke Ratcliffe argue that affordable, sustainable homeownership is one of the best ways to help lower income households build long- term wealth. A home has the added benefit of being a consumption good. Freeman and Ratcliffe say, “Essentially a home provides its owner with a place to live while simultaneously forcing the owner to save, and hopefully build wealth, through principal reduction and equity accumulation.”

However, the recent foreclosure crisis has caused some to question if homeownership had been pushed too far and made available to too many families. While proponents of homeownership acknowledge that it is not appropriate for everyone, it has been a successful route to economic security for working families who are asset poor.

The University of North Carolina’s Center for Community Capital conducted a study in which they tracked borrowers who participated in the Community Advantage Program (CAP), which includes a portfolio of over 46,000 home- purchase mortgages made to lower- income households. Using data from this study, Freeman and Ratcliffe refute five theories that have arisen since the foreclosure crisis.

The theories are:

1. Homeownership is not a reliable wealth building strategy for lower- income families
2. Homeownership crowds out other investments for lower- income borrowers.
3. Lower- income borrowers erode their equity through excessive borrowing.
4. Renting is a more affordable option for lower- income individuals.
5. Homeownership should be restricted to those who can afford a 20% down payment.

Next week, we will run a blog series in which each day of the week we share information to refute each of these theories. Be sure to check back each day to learn more about how homeownership helps low- income families achieve economic stability and why New Century IDA is so passionate about helping low- to moderate- income families become homeowners!

IDA Success Stories: Ms.T

Ms. T, a mother of three, was already enrolled in the IDA program when disaster struck. One afternoon she received a call that a fire had destroyed her apartment and all her belongings. To her get her family back in order, Ms. T was enrolled in the Self-Sufficiency Program through the Experiment in Self-Reliance. This program could assist with payment of utilities so she could focus on using her earned income for her IDA payment and rent. Ms. T was moved to another apartment and continued to work. Although the Self-Sufficiency Program was there to support her, Ms. T insisted on providing for her family with her own income.

Soon after her move, Ms. T lost her employment. Undaunted, she continued to search for an alternative. She was able to find employment cleaning homes, making just under $200 per month. Despite this hardship, she kept a positive attitude and continued to make her IDA deposit monthly. Ms. T was determined to find better employment, and applied for several jobs. After a number of interviews, she was offered and accepted a position with Bell South. With her increased income she was able to save above the $1,000 required by the IDA program.

After experiencing much heartache, Ms. T was able to achieve her dream on May 8^th, 2001. On that date, Ms T closed on her first house, and is looking forward to making it a home for her and her children.

An Interview with IDA Partner Sylvia Neely

What does the Housing Authority do for this community?

The Housing Authority of Winston-Salem’s (HAWS) mission is to create and maintain sustainable communities through partnership to benefit the residents of Winston-Salem. The vision of  HAWS is to create a self-sustaining affordable housing and real estate development organization.  The Section 8 Housing Choice Voucher Program is a subsidy assisted housing program that provides adequate, affordable, viable, quality housing, and community supportive services emphasizing self-sufficiency for low and moderate income families. 

What is your role with the organization?

My position at the Housing Authority of Winston-Salem is the Family Self-Sufficiency  (FSS) Coordinator.  My role is to coordinate resources and services for Section 8 Housing Choice Voucher Program families through the public and private sector to enable assisted families to achieve economic self-sufficiency.  The objective of the FSS Program is to reduce the dependency of low income families that are receiving public assistance such as welfare assistance, Section 8, or any other local rent or homeownership program.

The FSS Coordinator will try to provide the resources and services that are listed in the program family’s Individual Training and Service Plans by linking them to resources, services, and economic opportunities that will lead to employment, economic self-sufficiency and homeownership.  A Program Coordinating Committee is formed by the FSS Coordinator to obtain commitments from service providers who will perform the hand-on services to the FSS participating families.  The FSS Coordinator will monitor the progress of the participant’s plan, and establish an escrow account for them once they have obtained an increase in earned income while trying to complete all other goals listed in their Individual Training and Service Plan.   It is the FSS Coordinator’s responsibility to see that the family is paid the balance in the FSS escrow account upon successfully completing their Contract of Participation. 

Why did you become a part of the IDA Program?

Since 75% of the Section 8 FSS participants have a final goal of purchasing a home through the Section 8 HCV program or purchase homes on their own without Section 8 subsidy, HAWS has partnered with the New Century Individual Development Accounts Program to assistant in providing pre-post homeownership training, financial economics, and down payment assistance to our participants.  I highly recommend this program, even though it is optional for them to enroll in the IDA program.

How have you personally seen this program benefit people and the community?

I have personally seen the IDA Program benefit people and the community by providing a match of $3,000 or $2,000 to the client’s $1,000 saved out of pocket. It is required that the IDA clients save at least $1,500 in which it allows them to have some money left in reserve since most lenders require homeownership applicants to have money left in reserve, and they are not using all of their money for down payment.   Also, it benefits the low and moderate income community in purchasing a home, since most of them have a limited amount of income, and wouldn’t qualify on their own to purchase a home since they would have to come up with at least 3% - 5% in down payment assistance. The program also benefits clients in budgeting and credit repair.  The coaches, are beneficial in keeping clients on track of becoming mortgage ready.   If it wasn’t for the IDA program there will be less homeowners in the community.

The Housing Authority of Winston-Salem’s (HAWS) mission is to create and maintain sustainable communities through partnership to benefit the residents of Winston-Salem. The vision of  HAWS is to create a self-sustaining affordable housing and real estate development organization.  The Section 8 Housing Choice Voucher Program is a subsidy assisted housing program that provides adequate, affordable, viable, quality housing, and community supportive services emphasizing self-sufficiency for low and moderate income families. 

IDA Success Stories: Laura Bond

Unfortunately, I became disabled in 1995 at 35 years of age, and was forced to live in a housing assistant living apartment. After living there for seven years, I qualified for a Section 8 voucher and was so happy and thankful to get out of that apartment setting and get my own place again.

I never imagined being a home owner. I took the classes IDA offered, and welcomed the education. I learned I can be a homeowner. Although I was on a tight budget I learned ways to budget my money, pay off debt, save for a downpayment [for my home], and that there is home warrantee insurance available if things should break down. I am overwelmed with joy at the thought of having my own house. I couldn't be more proud and thankful for the program.

Sincere thanks for helping me take the steps to have such a blessed future.

Thanks again, Laura Bond