A 'Bank-Of-Mom-And-Dad' Stair Step Up To Workforce Homeownership

[Editor's note: Ivory Innovations House Party, a podcast series hosted by Ivory Innovations Chief Innovation and Strategy Officer Jenna Louie, is presented in here partnership with The Builder's Daily. The weekly series of episodes dive deep with entrepreneurs, researchers and practitioners in the community, striving to shine a light on housing affordability solutions. In this third episode, Jenna goes one-to-one with Alex Lofton, co-founder and CEO of Landed, a 2019 Ivory Prize winner in the Finance category. You can access the podcast episode here.]

Housing's affordability crisis hits mid-moderate earners in the United States – the ones whose take-home pay hovers roughly in the 100% range of area median incomes – among the hardest of all.

They're working, after all. Ironically many of their jobs are ones communities and jurisdictions and localities around the nation regard as essential to those places' capacity to function as their citizens expect: school teachers, first-responders, sanitation workers, health care and public works employees.

It's just that their access to ground-up residential development in this day and age is a non-starter, and their "dream" of a path of economic mobility with homeownership as part of their solution is often like walking on a treadmill, going nowhere.

If relative homeownership affordability for America's 80% to 120% AMI population – one that fluctuates, but is estimated to be 30% to 40% of all U.S. households, and includes a huge percentage of the nation's essential-worker population – were to be envisioned in 2023 as a critical path project, at leasts three critical path dependencies stand in the way of completing it successfully.

In other words the path from where we are now to a reasonable, doable solution has challenges that – if they're not each resolved – foil the project.

• Improved construction productivity, efficiency, and scalability, and innovative new design
• Transformed land-use and zoning policy
• New capital investment models and instruments that strike new appreciation and equity balances and reduce wealth inequality

It's an all-or-nothing challenge. Those who've made strides in any single one of these domains runs into the inescapable inter-dependence of the other two to move ahead on the critical path.

How can those on that critical path help educators and essential  workers afford homes in the communities where they work? While some school districts are building housing for their teachers, new models such as shared appreciation down payment programs enable essential workers to buy homes by reducing the down payment savings barrier and increasing their buying power. Hear now from Alex Lofton at Landed, the first and only organization making these types of programs easier for institutions like schools, hospitals, and governments to deploy for their workers.

Landed, a 2015 housing finance start-up platform that partners with employers, providing their public sector employees up to 50% of a home’s down payment in exchange for a 25% share of the appreciation of the home’s value at the time of sale.

What is Landed?

Landed sets up down payment programs for institutions that want to offer homeownership or housing as a benefit to the populations they care about," Landed co-founder and ceo Alex Lofton explains to House Party host Jenna Louie, Ivory Innovations Chief Innovation and Strategy Office. "It can be employees that could be a specific demographic of people, they want to help buy a home and we help them set up a shared appreciation downpayment program."

What is Shared-Appreciation?

You can think of it as a co-investment in somebody's home to get them started in homeownership," says Lofton. "That arrangement or that investment is bought out in the future when the homebuyers ready to do that. Unlike debt, where you're borrowing money and have to pay interest on that borrowed money on a regular basis – which basically is your mortgage – shared-appreciation gives cash upfront for helping a downpayment investment in the home. Then, when a home appreciates in the future, part of that share change in value is shared back to the investors who invested in the home alongside with the original investment that was that was given. It's kind of like a 'bank of mom and dad.' But it's not a free pick up; you're sharing in the investment. The idea is that you get some capital upfront to get you started."

Where Does Technology Fit Into the Model?

Technology organizes and transmits information we call data. Data can be in the  form of words and numbers. It can be in the form of dollars. There's all sorts of ways that data shows up. But it's basically technologies allows you to more efficiently kind of transfer that and move in range and rearrange. The outcome you're going for you're striving for can be achieved with less friction. And so in housing and home-buying especially, it's one of the one of the most old school industries that still is around. There's just a whole heck of a lot of layers in different parts of the process to purchasing a home from financing a home to getting paid. All these pieces mean that there's a bits of information in many different parts. Some are on a computer, some are not on a computer, some are on different systems.What the dawn or age of technology allows is for those all those different players to coordinate much faster, much quicker with a lot less friction. That means you need fewer humans to serve more and consumers, which means the cost goes down, which means that you can basically do more with less. Anytime you can do more with less you're talking about scale. And that means that you know what would have been cost-prohibitive for a small university in the past to offer a boutique bespoke program now can plug into a basically a system that is replicable and is in is leveraging economies of scale to deliver the same value to their own people that they you know, for much much for a fraction of the costs. And so that's what our job has been."

What's In The Pipeline?

For Landed, you're gonna see this full transition into a utility for some of the biggest institutions in our country who are at the heart of solving trying to help solve this question of how do people afford to live near where they work. How do how do you it, with kind of the recruitment and retention crisis that so many institutions have faced with talent? A big component of that is housing. You'll see that this kind of b2b partnership between these institutions and an organization like Landed. Helping schools and universities and governments deliver to their employees and our constituents, shared-appreciation as a benefit. That is the honestly the tipping point for scale for this type of financial tool. And the more this becomes embedded into the way people purchase homes,  the more diversified the set of people who will be buying homes is and that's gonna be really exciting. We'll be on our way to being able to deliver on the mission we've always been trying to deliver on -- to democratize who has access to, to the homeownership."