A sharing solution to California's housing crisis

It was late August and Fidel Mora, a bilingual math teacher in San Mateo County, felt the familiar sense of anticipation as a new school year approached. But this year there was something else he was excitedly looking forward to: Mora and his wife Carol Yoo, an English teacher, were preparing to move into their very first home.

As the San Francisco Bay Area and other cities grapple with a shortage of affordable housing, Mora is the face of a new experiment designed to help critical workers, such as teachers, buy homes near the communities they serve.

See also: Cisco pledges $50 million to end homelessness in Santa Clara County

Skyrocketing housing costs have created nightmarish commutes for many teachers, firefighters and other essential workers in the Bay Area trying to get by on non-tech salaries.  In one dire example, a math teacher at a San Francisco high school ended up sleeping in homeless shelters and hostels. Others have opted to move on, leaving schools and other employers scrambling for workers. For some schools, recruiting good teachers has become their number one challenge.

Mora and Yoo were able to buy the home thanks to a jumpstart on their down payment provided by Landed, a Silicon Valley startup that is one of a new crop of ventures taking a fresh twist on the affordable housing challenge.

Landed tackles one of the biggest obstacles to home ownership: coming up with enough money to make a down payment. For qualified buyers like Mora and Yoo, Landed puts down 10 percent of a down payment, and the buyer puts down another 10 percent. In return, Landed receives 25 percent of the appreciation of the home (in addition to the principal investment) when it is sold or refinanced.  If the home loses value, Landed shares in the loss.

Patient capital

Home buyers must pay Landed back within 30 years. Given the long time frame, Landed works with sources of patient capital, such as foundations, to create funds that can finance down payments in school districts and cities. The Chan Zuckerberg Foundation, for example, granted Landed $5 million to support down payments for teachers in five Bay Area school districts. These foundations, says Alex Lofton, Landed cofounder & head of growth, “are interested in the outcome as well as catalyzing this as an investment product.”

Mora and Yoo, both the children of immigrants, had almost given up hope of ever owning their own home. Although they made decent salaries, lenders laughed at the notion of them saving up a down payment. Then they heard about Landed. “It sounded like a fantastic opportunity,” says Mora, whose parents came to the U.S. from Mexico and is one of five siblings out of ten that became educators. 

When they moved into their home last September, a squat house in San Francisco’s Twin Peaks neighborhood, they were among Landed’s first clients. Less than a year later, the company has helped 65 essential employees become homeowners. The Y Combinator alum is now operating in 70 school districts in California and Colorado, and will soon launch in Seattle.

While Landed focuses on educators for now, other ventures, including Unison, Patch Homes and Point Digital Solutions, are pursuing similar shared appreciation models for the broader public.

Lessons in sharing

The shared appreciation model is not entirely new, at least in California. Its first usage dates back to the dot-com boom, which helped drive up real estate costs in the Bay Area and tech enclaves to the south. That was when Lick-Wilmerding High School in San Francisco became concerned that its teachers could not afford housing. The school explored ways it might assist, including buying properties and offering rental assistance, but discovered teachers were most interested in home ownership. So the school earmarked $1 million from its endowment for a program that provided half of the down payment on faculty-bought homes, in return for a share of the appreciated value.

About a dozen teachers participated in the program. Other schools, including Stanford University, also offer mortgage assistance programs for faculty.

For most organizations, however, these programs are difficult to administer. Landed draws from these earlier programs but takes the burden off of organizations, handling homebuyer education, lender and realtor partnerships, and back end administration so they don’t have to. (Landed makes money by charging a small fee and taking a cut of the profits when a home is sold or refinanced).

A housing crisis

Of course, Landed is just a tiny piece of the puzzle. Without a supply of affordable housing and a coordinated policy effort, concepts like Landed’s will have little impact, as Lofton readily acknowledges.

A recent report by the California Housing Partnership outlines the alarming dimensions of the problem. New housing is falling far short of demand, and wages are not keeping pace with the rise in housing costs. California’s lowest income workers spend 66 percent of their income on rent. In San Mateo County, workers need to earn more than $65.29 an hour—nearly 6 times state minimum wage—to afford the median monthly asking rent of $3,395.

Yet home ownership is out of reach for many workers. The median home price in San Francisco hit a staggering $1.6 million in 2018—double the median price just five years ago. Homelessness, not surprisingly, is on the rise.

Affordable housing is being tackled from many angles. Some tech giants are building campuses for their employees, while others are working with nonprofits to address the issues. In March, Cisco committed $50 million over the next five years to tackle homelessness, via Destination: Home, a public-private partnership serving as the backbone organization for collective impact strategies to end homelessness in Santa Clara County, which has the third-highest rate of chronic homelessness in the U.S.  It has also invested in Housing Trust Silicon Valley, which makes loans to developers of affordable housing.

“There’s a fundamental structural problem,” says Lofton. “We need to move on solving transportation and housing gridlock.” Still, he’s encouraged by the creative solutions he sees cropping up to address the crisis.

Meanwhile, for teachers and other wage earners such as Mora and Yoo, Landed and its ilk offer a chance to grasp the American Dream. When they got the keys to the house, the pair posed for photos with Yoo’s parents, Korean immigrants who had never themselves owned a house. “It’s still hard to believe,” says Yoo.

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