The HomeBridge program can help lower- and middle-income residents buy often modest homes, such as this one in North Cambridge visited in March 2019. (Photo: Marc Levy)

More than 500 lower-income residents own homes in Cambridge because they got city help to buy them, yet they haven’t received most of the benefit of skyrocketing property values and they can’t pass down their homes to heirs without city permission. Now the city is changing its affordable homeownership program to target these issues.

It’s a delicate task, because too much change could reduce the supply of affordable homes and increase the time that hundreds of people must spend on the waiting list for ownership subsidies. The city’s Affordable Housing Trust, which oversees the program, must walk a fine line between “wealth building [for owners] and maintaining this [affordable housing] resource for the community,” trust member James Stockard Jr. said at the trust’s Jan. 11 meeting.

The agency spent almost two years considering possible changes before trust members voted for a nuanced solution on Jan. 25. For wealth-building, the resale value of homes in the program will increase by 2.5 percent of the original city-aided price each year and owners can tack on up to $5,000 a year spent on improvements. That’s a modest increase, in most cases, from the current complicated resale formula based on a varying U.S. bond interest rate and up to $1,000 annually on improvements.

For the first time, owners can leave their home directly to family members and other people they’ve chosen, but only if the recipients meet income limits. Previously heirs had to get in line with everyone else as well as qualify financially, unless the city specifically approved a sale to an income-qualified heir.

A survey that brought responses from 127 of the 546 current owners showed that 70 percent agreed or strongly agreed that the new formula gave a fair return to program participants, but 44 percent strongly disagreed that it would let them sell and buy a market-rate home. Many owners who commented at a Jan. 11 trust meeting, and who submitted written comments to the trust, are not happy. They almost universally said they were grateful to the city for enabling them to own a home here and that 2.5 percent was better than the previous formula – but it wasn’t enough, and the inheritance rules would force their children to remain poor if they wanted to stay in their childhood homes.

A single mother who raised three children in her subsidized home after buying it 20 years ago said the new formula worked out to a resale price $600,000 below market value. “Unless you give people a fair value they will never leave, because they can’t afford to,” she said in a written comment. “Where could I afford to live after paying on this house for 20 years? There is no place in Massachusetts I could move for the sale price, even after the proposed increase to 2.5 percent.”

“I think it would be great if I could purchase something market price in this neighborhood and give this house to someone else to give them a chance to raise their children here too, but unfortunately with the current and proposed resale program I will never be able to move and I can only hope that my kids will stay poor so that way they can possibly be able to live in their childhood home under the proposed guidelines after I die in this place,” she said.

Trapped while aging

Some said they worried that they wouldn’t be able to care for themselves in old age because they wouldn’t have the money from a sale to finance care. Others spoke of living next door to condo owners whose units were worth hundreds of thousands of dollars and being burdened with expensive condominium association assessments that wealthier owners were willing to approve because they could afford to pay.

An owner who bought her condominium in 1996 praised the program and the process the trust went through to arrive at the changes. The new formula would “slightly” improve her return, she said. Still, “many people my age plan to use the resale value of their home as a basis for funding the costs of old age,” but she would not have enough even with the changes, she said in a written comment.

“My only option is to stay in my current unit, but for both personal and professional reasons, that is not feasible. Thus, my participation in the affordable homeownership program has left me in a quite vulnerable position as I approach old age,” she wrote.

Acknowledging disappointment

A comment from an owner whose affordable condo is in a two-unit building said the commenter’s neighbor “is a millionaire constantly pushing for major renovation expenditures” the commenter can’t afford. It makes sense for [the other owner,] as their return on investment will most likely double their investment when they sell,” the commenter said.

Trust member Elaine DeRosa responded to the disappointment with the resale formula, saying: “Most of the comments are about equity because homeownership in America is the golden ticket … It’s a disservice to the program to feel they’re getting gypped by someone next to them.”

Programs that allow lower-income families and individuals to buy homes usually try to strike a balance between allowing buyers to increase their wealth and preserving affordable housing, often with deed restrictions that limit the resale price of an affordable unit. The limit caps the equity that an owner can accumulate so the home remains affordable to the next buyer. That balance can change, as Cambridge illustrates.

Decision-making process

The trust began considering changes in spring 2022, according to minutes of that year’s March 24 meeting. The City Council had pressed for an examination, voting on May 3, 2021 to ask for changes, including promoting “generational wealth-building,” that would “better align with the city’s values, and promote racial equity and socioeconomic justice.” The council order noted that the current programs didn’t address  the impact of “historic racist housing policies” that had blocked people of color from buying homes and thus increasing their family wealth. Homeowners also pushed for changes in the resale formula and the right to bequeath their homes directly to heirs of their choice, without city approval of a sale.

At the March 24 meeting, the trust’s director of homeownership, Anna Dolmatch, presented examples of the amount an owner might gain from a resale based on the city’s byzantine formula. The total could vary widely depending on the kind of subsidy that the city’s different homeownership programs offered, including help with a down payment, a mortgage or lower purchase price. “Trust members commented that the formula doesn’t currently function as a tool to build wealth, but that the program supports other outcomes such as the opportunity for owners to stay in Cambridge and to stabilize owners’ housing costs. However, if a program goal is wealth building, the program is falling short for owners to transition to market-rate ownership,” the minutes said.

The decision-making process included an initial survey of homeowners in July 2022, another survey on the proposed changes in December and a number of “listening sessions” and feedback opportunities in 2022 and last year. The council’s Housing Committee also held a hearing in January 2023. The trust settled on the 2.5 percent increase, increased credit for improvements and direct inheritance changes last April but waited to formally adopt them until owners had a chance to comment. Current owners can choose whether to accept the new rules or keep the former formula.

Downsides to change

The changes will likely affect the cost of the city’s homeownership programs and could also affect the wait for a home, according to a presentation by trust staff. When an owner wants to sell, the trust often buys the home at the price allowed by the formula, then resells it to a qualified buyer on the waiting list at an affordable price, defined as an amount that will allow the buyer to pay no more than 30 percent of household income for housing expenses. Buyers must earn at least 50 percent and up to 100 percent of the area median income, or $74,200 to $149,300 for a family of four.

The trust subsidizes prices that exceed the affordable amount and may also pay for repairs. Subsidies have averaged about $20,000 per resale unit since 2008, but costs are increasing because of higher interest rates and other trends, according to the trust staff’s presentation Jan 11. The new formula could increase the need for subsidy, the staff said.

If the trust has to pay an average $50,000 more to buy back a home, its fund for resales will see reductions of an additional $600,000 a year, the presentation said. That could mean fewer new applicants getting a unit. Applicants could also wait longer because current owners can pass down their homes directly to heirs, bypassing the list.

Maintenance can be an issue

The modifications don’t address a problem mentioned by several owners who spoke at the trust meeting Jan. 11, the last one before the trust voted to approve new rules. Speakers said they struggled with maintenance issues in condominium buildings.”These condo buildings need support,” one said. “We get the gutters cleaned, then we have to get the roof fixed … Some trustees are in place for years because others can’t do things. Recently a property manager left us with little of our funds.”

“What are the expectations of assistance?” trust member Susan Schlesinger asked. “Are we talking clearly enough to people about what it means to be a homeowner in this program?”

“It’s on the next major project list,” Dolmatch replied.