The Case for Plan B

Housing professionals have spent so much time making homeownership attainable through subsidized payments, they've failed to see there's a better path to affordable homeownership.

Under the rubric of “shared-equity homeownership,” several Plan B programs and projects were featured in the Spring 2007 issue of Shelterforce. John Emmeus Davis, research fellow at the National Housing Institute, offered some insightful and powerfully important observations about these alternative approaches to affordable homeownership.

Davis notes how similar the featured alternative ownership housing models are at the micro (i.e., transactional) level, with their emphasis on affordable purchase and sale prices. He stresses the common barriers and strategic disadvantage that advocates and practitioners of these models face for lack of better communication among themselves about their shared emphasis on affordable prices. He argues that there is a persistent and “deep-seated bias against shared-equity homeownership” among those who design and administer first-time homebuyer programs that receive state or federal subsidies. Most important, Davis says that for these alternative homeownership models to thrive, “a deeper understanding of what works and what does not” is needed.

First, there should be no confusion about what does not work: that would be Plan A.

Second, it is instructive to ponder the fact that most housing advocates, policymakers, and funders still regard Plan B programs, their projects, and the ownership structures they use as “models.” Models sit on shelves and are usually most meaningful to the builder. Eventually they end up in the closet, out of sight. If they are particularly elegant, they may end up in a museum for others to admire.

Just as fee-simple ownership and the condominium way of achieving it are not models, shared-equity homeownership and the community land trust way of achieving it (or the housing cooperative way, or the deed-restricted housing way, etc.) are not models. Airplanes and helicopters don’t look the same on the ground, but they are both airworthy. Fee-simple ownership and shared-equity homeownership don’t look the same on paper, but from the front yard they both look and feel the same — they are groundworthy.

The programs and projects featured in the spring issue of Shelterforce are examples of Plan B up and running in hundreds of communities nationwide, as Davis points out. Some have been operating for 30+ years.

In each case, the underlying purchase-and-sale transaction makes homes initially and continuously affordable to a succession of buyers with only a fraction of the subsidy required to administer the development of a like number of Plan A’s affordable-ownership housing opportunities. For example, without changing any other of the specified program variables in the comparative analysis summarized in the chart, Plan B requires only $1,444,320 over a 25-year period (as compared to $2,655,000 for Plan A) in order to produce the same 97 affordable transactions.

Let’s be honest. The principal barrier to bringing Plan B to scale is a deep-seated bias against affordable prices. Those who design and administer state and/or federally funded first-time homebuyer programs are loath to consider changes to “the way we do it here”; seasoned bureaucrats point to the effort required to “turn the ship.” And let’s not forget the flat-out political and/or philosophical opposition from a large number of real-estate industry professionals (whether operating for profit or against it) whose livelihood depends on the status quo.

Plan A advocates, administrators, and practitioners routinely tolerate the allocation of scores, even hundreds of thousands of per-transaction subsidy dollars in order to close the ever-widening gap between the price that eligible households can afford and what it costs to build new or buy (and perhaps refurbish) existing homes. But the mere prospect that a Plan B, formula-determined resale price may result (and on occasion has resulted) in a housing payment that is not affordable — even by only a few dollars – is reason enough for hidebound Plan A advocates (or bureaucrats) to characterize Plan B as intrinsically flawed.

On first pass, this doesn’t seem entirely unreasonable. But on reflection, this conclusion not only fails to consider that only a small amount of additional subsidy may be all that is occasionally required to further reduce an already deeply discounted resale price in order to hit a specified affordability target; it fails to consider that most of the time no additional subsidy is required at all.

It is Plan A that is intrinsically flawed. In fact, measured against the “effective use of subsidy” objective, Plan A’s emphasis on affordable payments — to the exclusion of affordable prices — is flat-out absurd. Plain and simple.

Nothing is plain or simple, however, about the wealth-accumulation objective. Very little substantive discussion occurs regarding what constitutes enough, too much, or too little wealth-accumulation for eligible households. Nonetheless, many affordable-ownership housing advocates argue that wealth-accumulation — especially among minority households — is such an important objective that it should not only trump assurances of affordable-ownership housing for future households (including minority households) but also any concerns that program donors or taxpayers (including all eligible households) may have about effective use of subsidy.

Plan A’s elaborately constructed subordinate lien documents and loan transactions (the administrative burden of which is not reflected in the per-transaction costs reported in the data in the chart) require that loans be repaid in order that the recovered subsidy can be used to lower the total monthly payment associated with the purchase of unaffordable homes by subsequent borrowers. Yet many of those Plan A documents provide for a portion (if not all) of the loan to be forgiven to boost the borrower’s net sale proceeds when the home is sold — once again — at an unaffordable price. Such a plan fails to balance the importance of competing social goods in the name of privileging one above all others.

Under Plan A, not only are large allocations of subsidy routinely tolerated, but unaffordable prices are presumed necessary to produce the aforementioned “acceptable” but unspecified level of wealth accumulation.

There is no denying that most Plan A transactions will result in greater economic “betterment” for an eligible household, especially when net sale proceeds are considered. The outcomes of my analysis have it $57,323 for the Plan A homeowners vs. $37,532 for the Plan B homeowners. And when the compounded annual rate of return on cash down payment is considered, the Plan A homeowner also does better.

But look at these projected outcomes more closely. The Plan B homeowner can hardly be characterized as having made a poor investment for earning a compounded annual rate of return of 63.08 percent. And it turns out that bad matters are made worse for eligible households overall when affordable-housing professionals choose Plan A over Plan B. The chart illustrates that choosing Plan A effectively denies 182 households an opportunity to choose between net sale proceeds of $37,532 and $0 (the net they will enjoy for continuing to rent) in order that 97 households can choose between net sale proceeds of $57,323 and $37,532.

Who benefits from this? This is a tough question, which housing professionals in most communities circumvent by deciding to operate both plans concurrently. As a result, the Plan B program ends up either struggling on the margins or dead in the water.

Another barrier to bringing Plan B to scale is worry that an adequate supply of homes trading in a publicly and/or privately subsidized price-stabilized housing marketplace might lower property values in an open, unrestricted marketplace. But Plan B transactions are not done at arm’s length. Affordable prices are transparently offered in exchange for use, occupancy, income, and resale restrictions that benefit current and future homebuyers alike. Because of this quid-pro-quo arrangement, they cannot be used as comparables to establish the value of homes trading in the unrestricted, open marketplace. Accordingly, a price-stabilized ownership-housing marketplace exerts no influence on the prices at which property trades in an unrestricted marketplace.

In other words, price-stabilized marketplaces and open marketplaces are mutually exclusive. Access is denied to the one if income is too high (and/or the restrictions are not acceptable); access is denied to the other if income is too low.

Hundreds of thousands of households nationwide aspire to homeownership but must continue to rent for lack of homes selling at prices they can afford. Many affordable-housing professionals, however, presume that these households share a value system that views housing primarily as a wealth-creating opportunity and only secondarily as a secure, safe, and sound place to live and establish a legacy.

For those aspiring households, a lack of homes selling at affordable prices is a big problem. It’s also a big problem that professional affordable-ownership housing program administrators, practitioners, opinion leaders, and policymakers are not asked (let alone expected) to pursue a strategy that actually produces affordable-ownership housing. It is a breach of public trust for us to promote affordable-ownership housing payment programs as affordable-ownership housing programs when they are not. Ownership housing is affordable when the price is right.

I was thrilled to read the Spring 2007 issue of Shelterforce and see that, once again, Plan B may be poised to become the “next big thing” in the subsidized affordable-ownership housing industry. But I worry that the emerging momentum for Plan B will, once again, be stalled at the “model” stage, as the object of more study.

Let’s study this: No matter how simple, clever, unique, complex, or innovative the housing development project, the project financing scheme, or the purchase-and-sale transaction, Plan A does not produce affordable-ownership housing. No matter how many affordable-ownership housing programs use it and no matter how much money is spent on it, the only outcome possible from a strategy that seeks to make the payments affordable, but not the housing, is a plentiful supply of unaffordable ownership housing. Just look around.

It’s time to go to Plan B.

Tim McKenzie is an affordable-housing advocate and activist. He has 25 years of experience as a Plan B practitioner, consultant, and provider of technical support and assistance. For a complete copy of the comparative analysis discussed in this article, send an e-mail to with the words “comparative analysis” in the subject line.


  1. I just completed a relative analysis of foretasted Plan A and Plan B outcomes over a 25-year period in a theoretical jurisdiction using characteristic transaction details for each plan based on standard housing-development and affordability factors faced by communities everywhere.
    Hg Mould Spray ::


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