What is an LEHC?
"Limited equity" is a situation in which the amount of growth in property value is limited by certain rules and agreements, such as a restriction on resale prices, to ensure continued affordability for the next family.
A limited equity housing co-op creates bylaws that limit the maximum resale prices of co-op units, which limits each unit's equity appreciation. Typically, this strategy is employed in order to maintain long-term co-op housing affordability and retain the value of any public subsidy that may have been used in financing the creation of the co-op. Because of their potential for offering long-term affordable housing, limited equity co-ops are attractive recipients for government and non-profit grants and loans.
When a member-owner sells a unit in a limited equity co-op, any return on the sale is limited by a pre-determined formula. Each limited-equity co-op has its own formula, contained in the co-op's bylaws. For example, the maximum re-sale price may be set as the sum of the original share price plus an amount equal to the annual increase in the consumer price index (CPI) which may be anywhere between 0% to 5%, depending on inflation. Consumer Price Index is a percentage that represents the change in the average price of consumer goods and services purchased by households. The CPI is calculated annually by national agencies and used as one measure of inflation.