Visiting Scholar Q&A: Multi-Family Homeownership as a Strategy for Improving Regional Economic Participation in Low- and Moderate-Income Communities

July 6, 2023

Lack of access to affordable housing near jobs is a barrier to economic participation and resilience for low- and moderate-income communities in metropolitan regions. This challenge disproportionately impacts certain demographic groups, such as people of color and people with a high school degree or less, who are more likely to face housing cost burdens and to lack access to affordable, reliable transportation. Studying the underlying conditions that shape people’s access to economic opportunity is an important part of our community development work and supports the SF Fed’s mission to promote a sound and stable economy for all Americans.

Dr. Alex Schafran is a visiting scholar with the SF Fed’s Community Development team. He is a recognized expert in regional equity issues, including housing affordability. He currently works on urban development issues at the Institute for Metropolitan Studies at San Jose State University. He also consults with nonprofits and local governments on housing equity issues in California. Dr. Schafran’s previous work with the SF Fed Community Development team includes a working paper on rental-backed securitizations and a presentation about his book on the roots and impacts of regional inequality and housing displacement in the Bay Area. Elizabeth Mattiuzzi, senior researcher in Community Development, recently sat down with Dr. Schafran to talk about multi-family homeownership and its connection to regional equity and labor market participation.

Elizabeth Mattiuzzi (EM): What is multi-family homeownership (MHO)?

Alex Schafran (AS): Let’s look at each part: multi-family and homeownership. Most types of homeownership in some ways are or can become multi-family. People often only define multi-family housing in terms of the number of units, but I’m more focused on the number of families: where are families (or individuals) finding ways to access homeownership, even if it means multiple families in single-family homes? It requires a different type of legal agreement whether you’re talking two families or fifty, but both are different from single-family homeownership. And because they’re also different from each other, in a research context, it’s important to include both the larger versions and the smaller versions of multi-family homeownership (MHO).

I apply the same broad approach to understanding homeownership in the multi-family context. There are two main buckets of “formal” MHO: market and affordable. Market MHO includes things like condos, co-ops, and tenancies in common—all three versions allow for multiple families (or individuals) to access homeownership, but each can be fairly different in the way they are structured. Affordable MHO includes things like community land trusts or co-housing, which sometimes arise out of a desire to provide lower income housing, often with lower-income folks working with each other and sometimes with community organizations.

The other broad category I consider in my research is what I would call informal MHO, when two or more non-married people buy property together to reduce the cost of buying a home. Say for instance you have two siblings living together and co-owning a house. Whether or not there’s one or two units, this is multi-family ownership. It’s partly defined by how easy it is to get a loan together. If you are a married couple, you can more easily act as a single financial unit, but if you are two friends who want to buy a house together, that’s a more unusual situation that the market doesn’t recognize quite as much. Intergenerational housing—parents co-owning with adult children or grandchildren—is also a good example of informal MHO.

The key thing when it comes to defining MHO is that no single definition or set of buckets will be perfect. These definitions can and should evolve to work for research, policy, and finance, while also creating an inclusive definition of MHO, and, ultimately, what it means to be a homeowner.

EM: Why is multi-family homeownership important to economic opportunity for low- and moderate- income (LMI) populations? How does it relate to people’s participation in the workforce in a metropolitan area or regional job market?

AS: Multi-family structures have traditionally offered more affordable entry points to homeownership, especially for LMI buyers and buyers of color. If we’re able to create and support more diverse types of homeownership that enable LMI communities and communities of color to build wealth, have some control, and have better housing, we can do a lot for economic mobility. Housing stability impacts people’s ability to finish training programs, gain skills, and thrive in a 21st century environment that is so dependent on stable housing. MHO is fundamentally about diverse housing types that can provide a certain type of stability and also potentially help with housing mobility, or the ability to move when you need to for work or school.

Opportunity lives in different places. For instance, some people go live in the dorms at a university to further their education. In the contemporary economy, that’s not how everyone moves through the education system. For some, it’s short-term training, a month in one location. There are all these reasons to have a housing market that can support both. Multi-family homeowners, say with an accessory dwelling unit (ADU) or a duplex, can provide a lot of temporary space by being a homeowner and a landlord. People are still providing a value even as a short-term rental, say for people visiting a sick relative in a hospital.

MHO is important to economic mobility because it can make it possible for more people to live near their work if they want to. And when people have more control of their space, it enables more activities economically at home such as food production and working from home. Cities are increasingly legalizing home-based food businesses. In a stable home, people have more control over the use of their skills and their ability to participate in the labor market. Especially for people on the edge of the labor market or not working full time, as home-based work becomes more feasible, they are more able to participate and their economic mobility changes. Helping people who are on the margins of the labor market survive and thrive by finding more nooks and crannies on their property also ultimately provides more ways people can support family members who are less able to pay for housing.

EM: What are some of the barriers for LMI families to buying or hanging on to multi-family homes, especially in light of the growing interest and recent policies related to (ADUs) and duplexes?

AS: In general, we just don’t have enough units in multi-family buildings that are for sale. Let’s start with bigger buildings and then move to smaller ones to talk about why that is and what could change that.

There is not currently enough housing production in general, and most of it is single-family houses. The multi-family buildings that are built are less and less likely to offer MHO options like condos, for a variety of reasons. The Great Recession of 2008 severely impacted the condo market. Construction defect laws are seen by many as discouraging condo development by making it riskier for developers to build condos than rentals. For example, developers who rent out units in a newly-constructed building that they still own can make any needed repairs within the ten-year liability term in California (and are unlikely to sue themselves); in contrast, condo owners can choose to have a developer make repairs or take the developer to court for defects, the latter of which is a frequent, and expensive, outcome. Construction costs have increased due to labor and supply chain shortages and rising interest rates. Larger, multi-story, multi-family buildings can also cost more to build than single family homes due to the cost of steel and concrete construction.

Technically many of the rental buildings that have been built could become condos or any number of different types of MHO. Unfortunately, there isn’t a good system for converting them from rentals to ownership, especially affordable homeownership. In a lot of cities there are rules to discourage condo conversions – mostly to protect low-income tenants from displacement, which is an important goal. But –there are also options for turning many of those tenants into owners with different degrees of equity in the building. “Tenant opportunity to purchase” or “community opportunity to purchase” act (TOPA/COPA) programs are one way some cities, such as Washington, D.C. and San Francisco, are transforming their approach to tenure change, but there are ways these types of programs could go deeper and connect more directly with condo conversion rules. For example, they could include financing and technical assistance, and help create the conditions to make it in the financial interest of landlords to sell buildings to nonprofits or to tenants directly or to hybrid nonprofit/individual ownership models. What could a large condo conversion program to create MHO at scale look like? Financing for larger multi-family projects could come from state and local funds, philanthropy, or Community Reinvestment Act-motivated investors, and could be coordinated by regional housing finance agencies which are starting to emerge throughout California.

Now, what about smaller buildings? Say you and your cousin want to buy a house and turn it into a duplex. Or you and your neighbors want to buy out the landlord of your triplex. Maybe someone already owns a property, and they need to build more units to house family members. In general, it’s very hard to make this kind of housing happen. It’s harder to borrow money, and hard to find good and affordable advice on how to do it. A lot of people who have done what we call informal MHO have had to teach themselves, do it on their own, and find a way to finance it given that the system doesn’t generally support this.

There are professionals out there in both the nonprofit and for-profit housing worlds— homeownership counselors, realtors, land use attorneys, mortgage brokers, small builders and developers—who can help, but many only have expertise in parts of the puzzle. There are few places where you can just walk in and get quality, affordable assistance—especially if you have a low or moderate income to work with.

To help LMI families realize the potential of small-scale MHO, the public, philanthropic, and impact-driven private capital sectors could help grow a more supportive homeownership assistance system that combines access to legal services, financial assistance, lending, and advising. This would not only help those who want to build wealth and housing stability through MHO, but also support those intergenerational families and extended communities that are already living in informal MHO—just in more precarious ways and at risk of displacement and exploitation. Sadly, unscrupulous actors often exploit the vulnerabilities and complexities of our property ownership system, and often people get hurt when they reach out to get help. No matter who you are, you need accessible, honest, and supportive technical assistance that you can afford if you want to own property safely and securely. There are too many stories of unscrupulous actors exploiting a death in the family, a financial crisis, or just the lack of information or knowledge, and causing a person to lose their home.

Multi-family homeownership is only an opportunity if we use it to build a different kind of homeownership system. The good news is that we have most of the parts of the system already.

EM: What research are you doing on multi-family homeownership as a visiting scholar at the SF Fed?

AS: I’m really excited to be a visiting scholar at the SF Fed. My project with you and Alex Ramiller from UC Berkeley is about mapping what MHO looks like in the nine western states and territories in the 12th Federal Reserve District. We’re trying to get a more accurate picture of what housing tenure looks like in these places by quantifying the scope and characteristics of different types of MHO. My recent report with California Community Builders surfaced the idea that available data is often focused on homeownership versus renting and doesn’t tell you enough about MHO.1 With the research that I’m working on at the SF Fed, we’re hoping to be able to give policymakers and lenders a more accurate, data-driven picture of what housing tenure really looks like, how much MHO is part of the landscape, and what different types look like. For example, we’re learning that Hawaiʻi has a different housing landscape with more condos. We’ve known this, but it’s important and useful to understand what the lessons might be for the continent. We’re hoping that people will be able to see housing tenure and homeownership in a different way with a better understanding of race and geography and who is living in multi-family ownership properties and where.

EM: How will the data on MHO in the western US be useful to community development practitioners?

AS: MHO is partly about how people are already living, but also the range of housing options between single-family homeownership and multi-family rentals that has largely been ignored by researchers and policymakers. I’m hoping that by showing people a more accurate picture about this diversity of tenure, it will help break housing discussions out of the trap of rental versus homeownership and silos around particular tenure types. In making this data available, we are aiming to enable community development practitioners to use it to tell their own stories about housing tenure and think creatively about how they’re approaching their work.

Then we can get down to the hard work many practitioners are already engaged with on a daily basis: making these different tenure and loan structures easier to understand and easier to navigate.

Elizabeth Mattiuzzi, PhD is a senior researcher in Community Development at the Federal Reserve Bank of San Francisco.

You may also be interested in:

1. Schafran, Alex and Adam Briones. 2023. “Multifamily Homeownership: Pathways to Addressing the California Housing Crisis.” [Report]. Oakland: California Community Builders.

The views expressed here do not necessarily reflect the views of the management of the Federal Reserve Bank of San Francisco or of the Board of Governors of the Federal Reserve System.