Could The UK's Concept Of Government-Backed Shared Ownership Be The Answer To Solving America's Affordability Crisis?

If you have scrolled through UK property listings recently, you might have been surprised to see stunning brand-new condos in prime London locations for as low as £100,000 ($126,000). With a 10% down payment, the home could be yours for as little as $12,600 out of pocket (not including closing costs). It almost seems too good to be true.

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A closer look at the fine print will alert you to the term “shared ownership.” What exactly does that mean? That you’ll be living with roommates who own a piece of your home? Thankfully, no. The other owner in question is the local city authority and the shared ownership concept allows new buyers to get a foothold on the UK property ladder without a high down payment. So why has the US yet to adopt this scheme and what are the downsides, if any? 

‘Rent to Own’ On Steroids

The concept works similarly to a ‘rent to own’ model that many real estate investors use privately in the US to allow their tenants to buy their homes one day. However, it is less widespread than the government-backed scheme in the UK. In London, a £125,000 purchase price displayed on listing sites is not the full cost of the home but rather a percentage of ownership, usually 25%. So, the full cost of the home would be £500,000, of which the buyer owns £125,000. But what about the other £375,000? The local housing authority owns that percentage and the owner pays them rent aside from the mortgage payment they make on the percentage they own.

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A Staircase To Full Ownership

A homeowner can buy increasing percentages of the home from their landlord in as little as 1% increments, a process called “staircasing.” According to the UK government website, there are two ways to “staircase”:

• Gradual staircasing: buying shares of 1% each year
• Standard staircasing: buying shares of 5% or more

Beyond these two amounts, there are no in-between percentages for staircases and strict guidelines govern how your home is evaluated when you wish to buy a greater ownership stake.

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The Downside: Increased Costs 

Although “shared ownership” has been celebrated as a low-cost means of home ownership, recently, owners have complained about soaring service charges (management/maintenance, comparable with condo/HOA charges in the US), which have increased by as much as 40%, according to an investigation by the UK’s Observer. These charges have become more expensive than the rental portion of the owner’s monthly bills. 

“There is absolutely no clarity on what people are being charged for,” Labour MP Clive Betts, chair of the Levelling Up, Housing and Communities committee, told the Guardian. “These are not affordable homes and there is a lack of proper advice about shared ownership.”

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Would A Shared Ownership Scheme Work In The US?

Certain programs run by non-profits in the US are very similar to the UK shared ownership program. These shared equity homeownership programs have income caps and are limited to first-time owner-occupants — the same as in the UK. Also, fractional ownership is popular, again on an individual basis — not through the government — in vacation homes, resorts and commercial buildings. 

Generally, the model for personal residences is not as widespread as in the UK, as states differ markedly in their approach to housing. Sharing equity in property has not caught on nationwide in the US as a means to home ownership. However, as the affordability crisis deepens in the US, creative concepts such as shared ownership could become more widespread.

Currently, America has various affordable housing initiatives, such as government-backed financing through FHA mortgages (allowing homeowners to put as little as 3.5% as a down payment even with a low credit score). No-interest second mortgages are available to cover down payment and closing costs ranging from $2,000 to $6,000 and special loans for essential workers are also common in many expensive cities. Additionally, in the US, homeowners can deduct mortgage interest on personal residences from their taxes, which is not the case in the UK.

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