Building Equity in Small Multifamily Ownership

Homeownership is one of the most effective ways for a family to build wealth; the typical homeowner has 36 times more wealth than a renter. Discriminatory policies and practices – such as redlining, racial covenants, restrictive zoning, and predatory lending– have made it difficult for people of color, and especially Black and Indigenous families, to build wealth as homeowners. Nationally, white households have ten times the wealth of Black households. In Minnesota, 40% of households of color and just 24% of Black Minnesotans own their homes, compared to 76% of white households. This 52-point difference between Black-white households in Minnesota is one of the worst homeownership gaps in the country.

Small multifamily (duplex, triplex, and fourplex) ownership offers a meaningful opportunity to close our racial disparities in wealth. Since they use the same conventional mortgage lending as single-family homes, these properties represent an affordable entry to real estate investment. When a first-time buyer purchases a 2-4 unit building, they can earn additional income from rent, additional mortgage paydown, and additional appreciation. They also have the option to provide housing to their family, friends, and community if they so choose.

But the limited supply of these buildings, frequent repair needs, lack of support for new landlords, and historic wealth gaps make it difficult for low-income households of color to take advantage of this wealth building opportunity. That is why we are piloting a comprehensive strategy to address these barriers, creating a regional model that can inform national practices. 

We are realigning systems to help long-time community residents build wealth as owner-occupant landlords of 2-4 unit buildings in their communities with a two-pronged approach:

1. Address the constrained supply and high competition for 2-4 unit properties.

• Provide acquisition and construction loans to increase the supply of 2-4 unit buildings. Prioritize loans to local developers of color to help them build their businesses.
• Provide rehab loans to local developers of color to ensure the existing stock is in good repair before new homeowners purchase/move in.
• Facilitate sales to homebuyers with the help of community partners.

2. Ensure first-time buyers have access to capital and training so they can become successful homeowners and responsible landlords.

• Provide credit enhancement to reduce risk for mortgage lenders.
• Supplement local down payment assistance resources.
• Develop a new mortgage product that includes an escrow for future repairs. Provide 0% interest loans for repairs in the early years of ownership.
• Develop owner-occupant training alongside homeownership education. Work with community partners to deliver training and build a pipeline of homebuyers and sellers.

By focusing our efforts in neighborhoods of color with low homeownership rates and by partnering with community-based organizations, this program will serve first-time homebuyers of color with low to moderate incomes. We recognize that many of these neighborhoods in Minneapolis and Saint Paul experienced significant damage during the unrest that followed George Floyd’s murder; this program will complement commercial rebuilding efforts in the coming months and years by expanding access to affordable homeownership and wealth building opportunities in these neighborhoods.

We are grateful to have an amazing core group of partners who helped us develop this concept and make this work possible: Hope Community, Land Bank Twin Cities, Greater Minnesota Housing Fund, Minnesota Home Ownership Center, and HousingLink. We look forward to building partnerships with more community organizations, local developers, lenders, financial educators, and municipal partners to advance this strategy and help us scale this work to the broader metro region. Please contact Sarah Berke to learn more about partnering with us!

We are grateful to have received a three-year, $4 million grant from JPMorgan Chase to pilot this strategy in the cultural districts within Minneapolis. We are working with a local evaluator to help measure our impact and will report back to the community on an annual basis.

This program in the news

• JPMorgan Chase celebrates new community branch, $4 million grant for affordable housing (Star Tribune, 9/21/2020)
• Chase Bank opens branch aimed at helping south Minneapolis community (FOX9, 9/21/20)
• Minneapolis group awarded $4M for equity efforts (Finance & Commerce, 9/22/20)
• Join the conversation with #BuildEquityMSP and help us create a more equitable Twin Cities region!

Download this one-page overview of this program and share!