Tenants typically haven’t been able to build wealth through the homes they rent. A spate of experiments aim to change that with shared-equity models that give tenants a stake in the properties’ appreciation.
Tenant equity could help renters participate in real estate appreciation, without the obstacles to traditional homeownership. And by aligning tenant incentives with property performance, proponents say, renter equity models could also boost occupancy and retention while improving long-term returns for property owners and their investors.
Buying a home has been the primary path to wealth-building for most middle-class households in the US. The median US homeowner holds roughly 40 times the wealth of the median renter.
“As more people rent for longer and homeownership isn’t a realistic near-term path, we need to think more expansively about how people build wealth,” says Catherine Toner of Gary Community Ventures, a hybrid family office and private foundation in Denver. “Renters’ wealth models open an important new door by recognizing the role renters play in creating housing value and offering a pathway to financial stability.”
Gary incubated the tenant equity vehicle, now called Colorado Renter Rewards, under Proposition 123, a state ballot initiative that has set aside 0.1% of Colorado’s income tax revenue each year — about $300 million — for affordable housing programs. As part of their financing packages, affordable housing developers agree to reward renters with monthly cash back on rent and a share of property appreciation.
Gary spearheaded the campaign for Prop. 123, which also includes down-payment assistance for first-time homebuyers and rental assistance for the formerly homeless. “Embedding financial structures into policy was our primary drive,” says Toner.
Gary’s case study, “Tenant Equity Vehicle: A pioneering approach to renter wealth creation,” produced with the Aspen Institute Financial Security Program, has lessons for other states able to tap public funding streams to support affordable housing that also helps renters build wealth.
The new National Renter Wealth Coalition, convened by Lafayette Square Institute, will bring together investors, developers, policymakers and other housing innovators in Washington, DC this week to create a legislative framework to allow renters to participate in shared ownership of multifamily housing at scale.
“The wealth-building tools we take for granted today — from the 30-year mortgage to the 401(k) — were invented by policy and scaled by markets,” says Lafayette’s Katie Deal. “We’re launching the NRWC to make renting the next pathway for millions of families to build wealth.”
The Colorado Renter Rewards program draws on key elements from other tenant shared-equity models, like Enterprise Community Partners’ Renter Wealth Creation Fund, which co-invests in affordable housing with nonprofit and for-profit emerging developers that rewards renters with monthly cash back on rental payments and equity in the property.
The private equity real estate fund is backed with $112 million from a mix of impact investors and family offices, high-net-worth individuals, donor-advised funds and foundations including Gary and the Robert Wood Johnson Foundation. The fund is structured to provide a 4% return for investors. Once that threshold is met, 80% of additional profits will go to residents.
Enterprise’s fund has delivered $327,238 in cashback on monthly payments for renters since 2023 across five properties in Denver, Los Angeles, New York, Austin, Newark and other cities. The long-term goal is to create $37.6 million of equity wealth for renters throughout the entire fund’s portfolio.
“Part of our thesis is that this fund will actually perform better than other funds because of the wealth-building mechanics of the property,” says Enterprise’s Rob Bachmann. “And that is because tenants will be happier, and that translates to higher occupancy, which translates to greater net operating income, which translates to happier investors, landlords and tenants.”
Renter Equity Club
Developers are testing other tenant equity models across the US. In Washington state’s Columbia and Walla Walla counties, Common Roots Housing Trust is developing permanently affordable housing for families who are priced out of the traditional housing market. The nonprofit community land trust has built a cooperative model that allows renters to build equity by participating in the upkeep and governance of their housing communities.
Through its model, Common Roots estimates that renters might earn about $4,000 after five years or $10,000 after 10 years of participation.
In San Diego, Cornerstone Communities, a nonprofit affordable housing developer, sets aside a portion of its property’s operating income towards its “Renter Equity Club” that rewards timely rent payments, community meetings attendance and social networking with other renters. Tenants can earn up to $155 monthly or $2,000 annually through the renter equity club, the nonprofit says.
Under the Enterprise fund’s shared-equity ownership structure, long-term tenants could walk away with tens of thousands of dollars. “We project up to $45,000 at the higher range in our current projects,” Bachmann says. “Tenants are eligible for a greater share with each increasing year of residency.”
Early indicators, such as net operating income growth and high occupancy, have been promising, according to Bachmann. “The hope is that we have a meaningful outcome here that says, ‘Look, this model is showing that these properties are seeing higher occupancy, higher operating revenue,’” he says. “And the field will say, ‘Maybe we should consider this in all of our properties.’”
New York-based Esusu last year raised $50 million to expand its work with landlords to ensure that rent payments are reported to financial institutions. Unlike homeowners making mortgage payments, renters every year make some $1.4 trillion in payments each year that don’t get tracked.
Esusu’s service covers more than 5 million rental units encompassing $100 billion in annual rent payments. They company says it has helped renters unlock some $30 billion in mortgages.
https://impactalpha.com/esusu-raises-50-million-to-help-renters-build-credit-history/
Colorado model
The Colorado Renter Rewards program builds on the principles of employee ownership — that workers who drive the value of companies should share in that value. Both efforts “take the same set of tools that created wealth disparities over generations, and flipping those tools on their head to point wealth toward the folks that have been marginalized and not included in the wealth economy,” Toner says.
Renter Rewards draws some features from the Colorado Housing Accelerator Initiative, or CHAI, an impact-first fund launched in 2020 by Denver-based Weave Social Finance to attract private investment in affordable housing for low- and middle-income renters in Colorado without relying on the federal Low-Income Housing Tax Credit.
CHAI provides debt and equity funding for rental properties that offer tenants cash back on timely rent payments and a share of profits at the end of each year.
The new Colorado Renter Rewards program, launched this year, has been implemented at two properties: a 66-unit converted resort property in Colorado’s Estes Park and a 120-unit multifamily housing development in Idaho Springs.
The program, operated by the Colorado Housing and Finance Authority, or CHFA, offers residents 2% cash back on rents paid on time and a 2% savings match. Stake, a US fintech company, will house the funds on behalf of renters.
A key part of the implementation is “to galvanize a level of trust with tenants that this is real and not a scam, which is completely understandable in today’s day and age,” says Toner.
The housing and finance authority will provide concessionary debt and equity to nonprofit and for-profit developers to build and preserve multifamily rental housing for low- and middle-income families. Most of the funding will prioritize mixed-income housing built with environmental sustainability features. Developers who receive from CHFA will be required to participate in the Colorado Renter Rewards program.
“Over time, as these properties are sold or refinanced according to the parameters of the program, the upside that would otherwise go to a private developer, or in this case the state as the quasi-equity holder in the property, renters get to participate in that upside,” Toner says.
In the Colorado rewards program, residents become eligible for a share of profits after a full year of residency at a CHFA-backed property. Residents are able to withdraw funds at any time, or defer funds for a period of time to avoid adverse effects on their own public assistance.
The income-tax revenue source enables Colorado to establish a financial structure that wouldn’t otherwise exist in the marketplace, Toner said.
“It does so very intentionally to have the sustainability of a private-market mechanism embedded in public infrastructure with public funding,” she said. “Our hope is to collaborate with other states to implement that structure.”
