Prime Property Institutions for a Subprime Era: Toward Innovative Models of Homeownership

Amnon Lehavi, Interdisciplinary Center (IDC) Herzliya
Benito Arrunada, Pompeu Fabra University

Abstract

This Essay breaks new ground toward contractual and institutional innovation in models of homeownership, equity building, and mortgage enforcement. Inspired by recent developments in the affordable housing sector and in other types of public financing schemes, this Essay suggests extending institutional and financial strategies such as time- and place-based division of property rights, conditional subsidies, and credit mediation to alleviate the systemic risks of mortgage foreclosure. It proposes two new solutions. Alongside a for-profit shared equity scheme that would be led by local governments, the Essay also outlines a private market shared equity model, one of “bootstrapping home buying with purchase options.” The Essay thus offers a broad theoretical basis for major developments in the key economic and legal institution of homeownership.