From an NYT blog post,

With the right financial vehicle, Mr. Rampell said, such a fund could invest to co-own houses in, say, pricey Palo Alto, Calif., making it easier for prospective home buyers to make down payments and reduce their mortgage burden. “They could own 10 percent or 15 percent of your house, so you don’t have to borrow as much,” Mr. Rampell said. “I think there’s a lot of room for more of those kind of new asset classes.”

Pointer from Tyler Cowen.

1. This is not the first time someone has proposed such an idea. In the early 1980s, with sky-high interest rates, somebody came up with the Shared Appreciation Mortgage, where you would get a lower interest rate from the lender in exchange for which the lender would get a percentage of the appreciation in 10 years or when you sold your home, whichever came first.

2. So what is the asset, exactly? I think of it as a second mortgage, with a variable interest rate that depends on the rate of appreciation of the property and on the size of what I would call the “discount,” because the third-party owner is going to pay less than $10,000 for a 10 percent share of a $100,000 house. Why? Because the third party does not get to live in the house and enjoy the implicit rental income. In the extreme case where a third party has 100 percent of the equity but for some reason pays the full $100,000 price. In that case, in exchange for giving up all the equity, the “buyer” would be living in the house rent-free!

3. There are no magic tricks in mortgage finance that make housing affordable to people who cannot save enough for a reasonable down payment. The only way to make housing affordable is for the price of homes to come down to where people can afford them. That’s true even in California, although folks there go through periodic episodes where they refuse to believe it.