Realtors and Private Developers Oppose Affordable Housing Finance Strategy

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May 4, 2011; Source: Wall Street Journal | It is a debate between former HUD Secretary Henry Cisneros – currently with an affordable housing builder called CityView – and the National Association of Realtors, the American Land Title Association, and other members of the Coalition to Stop Wall Street Home Resale Fees. Cisneros supposedly supports and the Coalition opposes an affordable housing financing scheme promoted by a firm called Freehold Capital Partners.

The idea in question is private transfer frees on the sales of new homes, dubbed “capital recovery fees” on Freehold’s website. The notion is reasonably simple. A homebuilder – for-profit or nonprofit – would create a covenant that goes along with the homes that are constructed. Each time a home is sold with one of these covenants, the buyer would pay a 1 percent fee back to the builder. A portion of that fee might be used to pay for infrastructure costs associated with the development and a portion would go to the developer, in the case of a nonprofit developer, for its general operations.

Because the covenant could run for as long as 99 years, the homebuilder can estimate a future revenue stream from these transfer fees and securitize them in sales to investors, generating a cash flow for the nonprofit. Freehold is marketing the structure of the transfer fees and making itself available for securitization of the fees.

It is a creative approach to financing, in Freehold’s and Cisneros’s vision. Assuming a 99 year covenant during which a home sells somewhere between 8 and 10 times, securitizing and selling the future income from the 1 percent (or less) transfer fee generates up-front capital that nonprofit developers desperately need for their operations and for investment in additional developments.

The opponents believe that homebuyers will force realtors to “eat” or pay the fee, so that they, not the homebuyers, will be providing the future income stream. Others besides Cisneros have also weighed in, in support of the transfer fee, including economists and nonprofit developers such as Housing California.

Cisneros has backtracked against charges that he has a business relationship with Freehold, claiming that his office mistakenly issued the statement about transfer fees without his knowledge. Come on! It looks like the for-profit memberships of NAR and ALTA are fighting against a financing scheme that would simply provide a new source of capital to affordable housing developers that might just be nonprofits.—Rick Cohen

  • Keith Bender

    Some adjustment to our method of operating seems appropriate but the idea put forth here by whomever put it forth is an insult to Affordable Housing .

    Your Privilege just stepped on my Rights the wrong way. Welcome to Wall Streets attempt again at creating a quasi taxation.

    In this case Wealth redistribution by taxation is justified by our Rights long neglected . Rights retained by the People for the People. That translates to “by the 99% for the 99 %”.

    But to Trust Wall Street or any Developer ,successor and or assigns with this Right is purely wrong.

  • Kurt Novak

    This looks to me like another fee that would create long term profits for developers, but certainly will make these properties much less attractive to buyers.

    A 1% fee on a sale is a huge extra cost. It will clearly come from the realtor or the seller, not from the buyer. Why would someone be interested in paying such a fee 99 years after the property was built? Would the non-profit or the developer even exist at that time?

    This does not make any sense. Sounds like another “tax” that will slow the real estate market.