Missing Middle Program Overview
A current item in the Legislature is the previously discussed “Missing Middle-Income Homeownership Development Program.” This program would be funded through ARPA dollars allocated to DCHD, and then managed by VHFA.
Putting fictitious numbers to it, let’s say a modest house is built and the construction cost is $400,000. Due to the realities of construction, labor, etc., when that house is appraised it may be deemed to only be worth (let’s say) $375,000. Part one of this program is to address this gap between the construction cost, and the value. In this case, it would mean providing a subsidy of $25,000 to the builder. So now, in effect, the construction cost is equal to what it’s worth.
There remains however an affordability issue. According to the numbers, this house is affordable for a family at 100% AMI at the price of $319,500. This creates a $55,500 affordability gap. Part two of the pilot program is a second subsidy that pays down that gap. That second subsidy remains with the property, providing some affordability in the longer term. Governed by a subsidy covenant, each time that house sells in the future it will be priced at $55,500 less than it otherwise would. So if the house is sold ten years later, and it is valued now at $425,000, it’s sale price would be $369,500. As we all know, $55,500 dollars could be worth something different 10 years from now, taking into account inflation. However, that dollar amount discount remains.
This is certainly different from the shared equity model. The program does not replace the shared equity model, rather it is another tool in the toolbox that works alongside it.
The buying and selling of homes is a significant way that wealth is developed and passed on in our country. This process allows for a great number of things as a family establishes itself and grows through the years. It allows opportunities to pay down a child’s college education. It can serve as a safety net for unforeseen health problems, or unexpected (and all too often expensive) crises beyond our control. This program allows first time home buyers and young families an opportunity to be a part of that reality. It allows communities that are disproportionately left out of this experience an opportunity they may otherwise not get. In short, it gives families options.
We all know someone who has been negatively impacted by the housing market. Currently I am a 40 year old unmarried man, and children are not part of my future planning. At this juncture in my own life, home ownership is a little ways off still. If at 50 years old I make the move to purchase a home, a shared equity model would make great sense to me.
I think of my 27 year old friend and his girlfriend who will soon marry. They are planning on starting a family, and being not too far from their own college experience, they are thinking about how seemingly impossible it will be to pay for their child’s college education. They may find this program to be the pathway that provides an opportunity for the development of intergenerational wealth that is better for them.
The program is about options for families building their futures, and opening doors of opportunity.
Initially, the program was put forward in the BAA for a $5M allocation. Some details were lacking at that point, and the legislature felt that the BAA was not the way to move forward with a new concept like this. The Governor included the program in his FY23 Budget at $10M. In the end, the program will likely end up a part of the Omnibus Housing Bill with the total allocation of $15M.