Spring House Hunt: There’s no incentive here for rent-to-own, experts say

An exorbitantly high-cost housing market like Boston can’t let any affordable housing tool go unused.

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April 6, 2021

3 minutes to read

An exorbitantly high-cost housing market like Boston can’t let any affordable housing tool go unused.

But rent-to-own agreements, typically a pathway to homeownership for people with low credit or not enough money for a down payment, aren’t usually found in the city’s affordable housing toolkit alongside measures such as inclusionary development and financial assistance for first-time home buyers.

Greater Boston’s home prices, among the highest in the United States, are a major reason why.

“It’s definitely an on-ramp to homeownership, although probably not in Boston,’’ said Laurie Goodman, vice president of housing finance policy at the Urban Institute, a think tank in Washington, D.C.

Rent-to-own doesn’t happen unless there is an incentive for the landlord to pursue such a deal. These arrangements are structured so that the potential buyer locks in a set price for the home and pays a premium on top of the rent, but landlords in Greater Boston aren’t as motivated to accept these arrangements because home prices here can rise as much as 6 percent in a single year.

“The economics don’t make sense in a high-cost market like Boston, because the cost of renting is so much lower than the cost of owning,’’ Goodman said. “Ideally, you want a situation where your rental payment is close to the mortgage payment or even where your mortgage payment is lower than your rental payment.’’

There are certainly merits to modern rent-to-own programs, especially as more millennials carry student loan debt and other financial burdens that make it more difficult to save for a down payment.

There are even companies like Home Partners of America and Trio that work as rent-to-own landlords that purchase a home in an approved market and rent it to the potential buyer. That buyer then has the right to buy the home at the end of a set period or walk away. But neither company operates in Boston.

“Trio’s approach to affordable homeownership is very different. We partner with federal, state, or local government to implement programs that assist local communities bridge eligible households into homeownership,’’ said Trio CEO Darryl Lewis. “Through public-private partnerships, we utilize lease-to-own or home loan programs to provide 100 percent financing for first-time buyers, such as small-business owners and others that need assistance to bridge from renting to ownership. Unlike other mortgage alternatives, Trio is affordable and available to any level of household income and home price. We have no reservations about offering the Trio program in the Boston area. We simply have not been contacted.’’

“Home Partners’ Lease Purchase program is available in more than 70 markets across the US, and we are always looking to expand and reach new markets,’’ the company said in a statement. “We’ve seen growth in consumers’ interest in the Lease Purchase Program in markets of all sizes including Atlanta, Denver, and the DC area, among many others.’’

There are historic drawbacks to the rent-to-own practice, especially with individual landlords instead of more formal corporate entities like Home Partners. Some of the contract terms can be murky and even seen as predatory, particularly to people of color.

Fashion legend André Leon Talley says his ongoing eviction dispute in White Plains, N.Y., with George Malkemus, the former head of Manolo Blahnik USA, is a result of Malkemus and his husband bailing on an informal rent-to-own agreement.

“It’s a great concept, but it’s not the best thing for renters,’’ said Alexander Jean-Baptiste, a real estate agent with the Massachusetts Affordable Housing Alliance. “You’re getting into a contract for a future action that is nowhere near guaranteed to happen. If you don’t have the right agreement, it can get really funky.’’

Cameron Sperance can be reached at [email protected]. Subscribe to the Globe’s free real estate newsletter — our weekly digest on buying, selling, and design — at pages.email.bostonglobe.com/AddressSignUp. Follow us on Facebook, Instagram, and Twitter @globehomes.