A Brighter Future: Equity Program Helps Renters Build Wealth

September 30, 2008

Landscaping at St. Anthony Village in the Over-the-Rhine neighborhood of Cincinnati is maintained by residents.

Safe and affordable housing is a pressing issue for many residents in the Over-the-Rhine neighborhood of Cincinnati. The low-income community has more than its fair share of neglected and vacant buildings. One organization, Cornerstone Corp. for Shared Equity, is not only providing single-family housing, but much-needed rental units—with a twist.

Cornerstone was established in 1986 as a community development loan fund. The socially responsible loan fund attracts investments from individuals and organizations, pools the funds and then make loans to nonprofit community-based housing developers.

Over the last 20 years, Cornerstone has helped 30 nonprofit organizations develop more than 300 housing units—both for sale and for rent-for low-income households. Although the loan fund has been successful in producing affordable housing units, Margery Spinney, executive director of Cornerstone, recognized that not all low-income renters want to be homeowners. She also recognized that renters still deserve safe, decent and affordable housing and opportunities to accumulate assets. As such, she developed an innovative concept called Renter Equity, a program that enhances the financial security of low-income renters.

The Cornerstone Renter Equity program started in 2002 in the Over-the-Rhine neighborhood. It is a unique model in which low-income renters build wealth, develop ownership skills and help stabilize their community. In addition, property owners benefit from the Renter Equity program because it helps increase property values, attracts more stable residents and generates greater interest in the property and neighborhood.

So what is Renter Equity? Each month that residents participating in the program fulfill the requirements of their lease agreement, which includes paying their rent on time, attending monthly resident meetings and maintaining designated common areas on the property, they earn "equity credits" toward a cash payment.

Carol Smith, Cornerstone Renter Equity coordinator, says finding residents to participate in the program is not difficult. "It's not about changing people, but about providing an opportunity for individuals who have always done what is required in the Renter Equity program," she says.

Each equity credit earned has an equivalent cash value. For example, the first month's credit has a value of $57.78. Twelve months of credits have a cumulative value of $715.98, and 24 months of credits have a cumulative value of $1,483.73. After five years, residents are vested, and the credits can be converted to a cash payment through Cornerstone. "Most of the residents average about $3,500 in Renter Equity credits in five years," Spinney says.

Funding for Renter Equity comes from a variety of sources, such as developers fees, management fees, grants and reserves saved by keeping the occupancy rate high.

Although Cornerstone does not stipulate in the lease agreement what residents can purchase with their earned equity, the company encourages residents to use the money in ways that will improve their lives, such as making a down payment on a house, starting a business, continuing their education, paying off debt or just continuing to save. Residents can accumulate as much as $10,000 in equity credits over 10 years.

Another innovative component of the Renter Equity program is the ability for residents to borrow against their credits, even before they are fully vested. The concept is similar to a home equity loan. Equity credits are used as collateral. In the first year of residency, households can borrow the equivalent of one month's rent at a zero percent interest rate with a 12-month repayment schedule. In years two through five, households can borrow up to two months of their rent. Residents who are fully vested can borrow up to 80 percent of their earned equity credits.

Sharon Jones, a six-year resident, said the Renter Equity program "has been a dream come true." Jones has borrowed against her equity credits for her daughter's college tuition. Other typical uses of the loans are for short-term emergencies, such as medical expenses, car repairs, new appliances and as an alternative to high-cost payday lenders.

Currently, Cornerstone Corp. for Shared Equity has two Renter Equity communities and is developing a third community. They are all located in the Over-the-Rhine neighborhood.

The first Renter Equity community, St. Anthony Village, was completed in 2002 and reached the five-year milestone in June 2007. It offers 22 two- and three-bedroom apartments. Residents of St. Anthony Village have earned almost $40,000 in financial equity.

The second Renter Equity community, Community Views, was completed in 2005. It has 14 apartment units, which were occupied as soon as construction was completed.

The third community, Friars' Court, is under construction, with a target completion date of June 2009. Friars' Court will add 26 units to the Renter Equity program. As the owner and developer of Friars' Court, Cornerstone is continuing its revitalization efforts in Over-the-Rhine but with another new twist: The company is employing and training residents from the community. The trainees are learning carpentry, dry walling, painting and other basic skills necessary to obtain employment with other construction companies once the Friars' Court project is complete.

For more information on the Renter Equity program, visit www.cornerstoneloanfund.org or send an e-mail to info@cornerstoneloanfund.org.

About the Author
Lisa J. Locke

Lisa J. Locke is a community development advisor at the St. Louis Fed, specializing in the Bank On National Data Hub. Read more about Lisa's work.

Lisa J. Locke

Lisa J. Locke is a community development advisor at the St. Louis Fed, specializing in the Bank On National Data Hub. Read more about Lisa's work.

Bridges is a regular review of regional community and economic development issues. Views expressed are not necessarily those of the St. Louis Fed or Federal Reserve System.

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