When Paul E. Fallon purchased a Victorian four-family in Cambridge nearly 30 years ago, he wasn’t angling to become a minor real estate tycoon. But he wanted to raise his children in the city, and a single-family home was, even then, more than he could afford. “I bought it when a four-family house in Cambridge was a pariah because it was under rent control,’’ Fallon said. “There was no crystal ball in 1992 that told me this house was going to make me rich.’’
But it did. Fallon lived in one unit and rented out the others, first under rent control, then at fair market rents. Now a single man in his mid-60s, the writer and retired architect owns his property outright, like many retirees, but in just one generation, his home in what had long been a middle-class neighborhood of plumbers and electricians has become a multimillion-dollar asset.
That makes Fallon uncomfortable as he sees young families, especially people of color, unable to plant the kind of roots in Cambridge he did. His own children, despite being well-launched in good careers, he said, could never afford to buy the house they grew up in now. “Cambridge’s vanishing middle class makes my city a less diverse, less dynamic place to live,’’ he said.
So when he turned 65 last year, and started getting inundated with brochures about Medicare, retirement, and estate planning, Fallon realized he wanted to do something very different with his property. He decided to leave his house to a local nonprofit when he dies.
The goal is to create not just affordable housing, but long-term generational homeownership opportunities for four Cambridge households. “I don’t have the kind of wealth to alleviate my city’s affordable housing crisis, but I can do something transformative for four families: make them homeowners,’’ Fallon said.
“The difference between the haves and have-nots in the United States is largely a matter of who owns their house,’’ Fallon added, and he has a point. A study by the national brokerage Redfin found that the median Boston-area homeowner accrued $252,000 in home equity between 2012 and 2019. That $1.73 billion in housing wealth mostly benefited white households, who are about twice as likely to own their home as Black or Latino households in Massachusetts, according to Census American Community Survey data.
“I have to be honest with you, when I started, I didn’t really think it was that far outside the box,’’ Fallon said. “I feel like if we’re going to be serious about creating a more equitable world, then those of us who have more than we need have to spread our wealth. We can’t just talk about it.’’ But while many people leave generous contributions to charitable organizations in their wills, it’s less often that they donate their homes — even though wealth is increasingly home-shaped.
“In this area, real estate makes up the largest percentage of a person’s portfolio, and it’s been that way for quite some time — but even more so in recent years,’’ said Gregory Pearce, the Cambridge lawyer who assisted Fallon with his estate plan. “I have a lot of clients who will come to me that have million-dollar-plus estates, and the majority of that wealth is tied up in their real estate, with little or no mortgage.’’
Fallon first wanted to make sure his two adult children were on board with his idea, even though it meant they would be losing out on a significant portion of their inheritance. But that, too, was part of his plan. “My house is worth so much money that if my children inherited it, they would be living on Easy Street. And I’ve never met anyone who inherited wealth that wasn’t changed for the worse as a result,’’ Fallon said. Gratefully, his kids understood where he was coming from. “They’ve spent their whole lives around me — they were not surprised,’’ he said.
He then sent letters to eight Cambridge nonprofits explaining his still-nebulous idea in vague terms — big on concept, short on logistics. After interviewing a handful of them, Fallon landed on Just-A-Start, a 53-year-old Cambridge organization that develops and manages affordable housing and offers youth programs, job training, and other economic advancement services.
“Just-A-Start really got it,’’ Fallon said. Their goals aligned with his, and he felt confident they would still be around when the time comes to implement his vision. “They understood that what I’m trying to do is to help Cambridge be a more diverse place, a more equitable place,’’ he said. “Cambridge in 2021 is not the city I came to in 1973 … and in many ways, it is less diverse, it is less interesting, and I want to do whatever I can to try to put the brakes on that.’’
When Just-A-Start executive director Carl Nagy-Koechlin received the inquiry, he recognized Fallon’s name; they had worked together on an affordable housing development in Somerville a few years prior. He also realized that Fallon’s explicit instructions — that the house be used for homeownership opportunities — would help fill a key gap in the city’s affordable housing stock. “Most of the housing we’ve developed is rental housing, and that’s because it’s needed — but also because the financing sources for affordable housing are skewed in that direction,’’ he said.
Nagy-Koechlin also told Fallon about a secondary way his donation could promote sustained opportunity in the city. As part of the nationwide YouthBuild program, Just-A-Start helps young people develop trade skills while working toward their high school equivalency degree. “It gets them back on track, using construction as kind of a vehicle to get them to work in teams, to show up on time, to develop work habits,’’ Nagy-Koechlin said. So in addition to creating homes for moderate-income home buyers, he explained to Fallon, “we could use these condos as opportunities to train young people in home renovation skills’’ during the initial turnover.
Fallon and Nagy-Koechlin spent a few months hammering out the details into a memorandum of understanding, which Fallon then brought to Pearce, the estate lawyer, to review. “All the heavy lifting was done before it got to me,’’ Pearce said. “All I really had to do was to make sure that the plan is actually going to happen upon Paul’s death.’’ That meant establishing an estate plan and selecting a reliable trustee to make sure Fallon’s wishes are faithfully carried out.
As the contours of the agreement took firmer form, here’s what emerged: When Fallon dies or becomes incapacitated, his property will be bequeathed to Just-A-Start. His children then have six months to purchase the property back at 90 percent of its appraised value, using a down payment from their direct inheritance, should they wish to live in their childhood home. In that event, Just-A-Start would receive a few million dollars to invest in affordable housing development.
If Fallon’s children don’t exercise that option, Just-A-Start can renovate the property as needed and initiate a homeownership program for moderate-income buyers selected through the city’s affordable homeownership lottery system. “Either [Just a Start] will get a big chunk of change, or they will get a house earmarked for four families,’’ Fallon said.
“In Paul’s case, he’s not leaving his entire estate to Just-A-Start Corporation, but he’s leaving enough of it that there’s going to be virtually no tax, no death tax,’’ Pearce said.
‘Cambridge in 2021 is not the city I came to in 1973.’ — Paul E. Fallon
Two unique provisions make it a particularly powerful opportunity. Where most affordable homeownership programs are more focused on housing security than the wealth-building aspects of real estate, these owners will be able to build equity more quickly than in a typical city-run homeownership program — up to 6 percent a year, versus the standard 2 percent. That means an owner could keep a substantial amount of the home equity gained should he or she decide to sell 10 years later.
Even more unique, the homes are not destined to be a permanent piece of the city’s affordable housing stock. An owner who stays in the home and pays down the mortgage over 30 years would own the condo outright and could hand it down to her or his own children. Fallon hopes that arrangement can create an opportunity for intergenerational wealth that has been unavailable to so many families, and also incentivize long-term homeownership and community stability.
“I don’t just want to give people a secure place to live; I want to give the opportunity for people to be in the middle class, to accrue equity, to be able to pass the house down to their own children if they want to … to really build wealth,’’ Fallon said. “Four families I will never know or meet — their lives will be changed,’’ he said, getting choked up.
At the very least, Fallon hopes to interrupt the market forces that would work against his goal of a more equitable Cambridge. A realtor told him the best economic use of the property would be to convert the four modest units into two luxury town houses that would sell for several million dollars apiece, thereby worsening the city’s housing shortage and exacerbating its economic stratification.
Fallon recognizes that, against the systemic inequality plaguing our country, his actions are both too little and — with hope, should he live another 20 or 30 years — too late. But, he said, it’s one tangible step and one that others could potentially follow.
Indeed, he’s not seeking praise in sharing his story, but trying to create a blueprint that others can replicate — especially the millions of baby boomers who own their homes without a mortgage. “The default action in any estate plan — leave our property to our children — further stratifies wealth,’’ Fallon said. “If we want to create a more equitable world, the work falls upon us, the propertied class whom fortune has blessed.’’
Jon Gorey blogs about homes at HouseandHammer.com. Send comments to [email protected]. Follow him on Twitter at @jongorey. Subscribe to our free real estate newsletter at pages.email.bostonglobe.com/AddressSignUp.