Partnership Plan Helps Home Builders, Buyers : Program in Massachusetts Encourages Supply of Lower-Priced Housing Units Through Concessions

Massachusetts Gov. Michael Dukakis was calling for a “national partnership for affordable housing” well before he began running for President in March, 1987. But now that he’s the Democrats’ choice to lead the nation, a lot more people are listening.

The governor has already launched two partnership programs in his home state. His Homeownership Opportunity Program, or HOP, has funded creation of 4,500 homes since the program’s inception two years ago. At least 30% of those have been earmarked for families earning between $20,000 and $33,000 annually.

More than 8,500 rental units have financed through a sister program designed in 1983 to spur private-sector construction of affordable rental units.

Dukakis is expected to launch similar programs on a nationwide basis if he is elected President.

Make Larger Profit

Amy S. Anthony, Massachussetts Cabinet Secretary and chief housing advisor to Dukakis, said a national version of HOP would probably work like this:

A home builder owns a lot with zoning that would allow construction of, say, five townhouses. The city could agree to speed up the approval process and let the builder construct 10 homes on the site if three of the homes would be sold at a discount to families with modest incomes.

If the builder agrees, he would make a larger profit because he could sell seven homes, not five, at market rate. He might also make a small profit from the sale of the three units to the moderate-income buyers.

On top of that, the city or state could offer low-interest loans to a portion of the buyers, which would make the homes sell faster and reduce the builder’s carrying costs. Anthony said the federal government could provide the funds for the cut-rate loans, pay for the project’s roads or sewers, or provide some other incentive.

People who buy a house through HOP would agree to a deed restriction that requires them to pass along their original discount when they sell. So, if a family bought a house at a 50% discount and decided to sell five years later, it would have to discount the new market price by 50%.

Dukakis sees several advantages in implementing a HOP-type program nationwide, Anthony said. The federal government would benefit because it could help create millions of affordable housing units at relatively little cost, and the deed restrictions would ensure that the homes would forever stay in the nation’s moderate-income housing stock.

The program would also relieve the federal government of the financial burden of maintaining the homes because upkeep and repair would be handled by the families who buy the houses.

State and local governments, meanwhile, would have more freedom to develop housing programs that fit their area’s special circumstances. For example, developers could be allowed to build on city-owned land if some of the units were reserved for moderate-income buyers.

Favor Local Residents

A community could also earmark a majority of its HOP units for local residents, which means most of the homes could go to young people who grew up in the area or to local workers who otherwise couldn’t afford to buy.

Dukakis believes a federalized HOP would draw more private-sector builders and lenders into the affordable-housing business, which he says would lead to better homes and more competitive pricing.

Massachusetts’ latest group of 1,426 HOP for-sale units will cost the state $5 million, or about $3,500 a unit. By comparison, rental units in some federal housing projects have cost more than $100,000 each.

“The point is that everybody--the communities, the builders, the federal government--would have to throw something into the pot before they could take anything out,” said Anthony.

A national partnership program would also open up more housing opportunities in the suburbs, she said, instead of keeping the government’s focus on densely populated urban cores.