Housing Mutual Equity Shares (HOMES) : a residential appreciation investment vehicle

Abstract

This thesis attempts to answer, "how can investment in the equity appreciation of owner occupied real estate occur on a market-wide basis?" Using financial engineering, the author introduces a new security design to overcome the hurdles and restrictions that prevent widespread capital market investment in owner-occupied residences. Named Housing Mutual Equity Shares (HOMES), this new investment vehicle resolves housing affordability issues for potential homeowners and provides attractive risk-adjusted rates of return for investors. The reader is first given an in-depth analysis of the demand for housing space and residential finance. Second the HOMES vehicle is introduced, hypothetical returns for 1975 through 1995 are calculated, and then analyzed and adjusted for risk. Third, the author explores the economic value of the HOMES vehicle, addressing concerns of homeowners, investors, lenders, and agents. Fourth, a comparative case study juxtaposes HOMES and a similar, but failed, product from the late seventies, Shared Appreciation Mortgages (SAMs). Finally, the author identifies a few questions for further research.