Home-Buying, Harvard Style

Say you're a Harvard professor and you want to buy a home in Cambridge. Do you go to the bank and ask for a mortgage that will cost you 15 per cent?

Not a chance. You go to Harvard and ask them to finance the purchase at a rather generous 6 per cent.

Put into effect two years ago, the Cambridge Option Plan was designed to attract faculty to the Cambridge area where they would be closer to students. "It has also been a great recruiting incentive," Sally Zeckhauser, president of Harvard Real Estate (HRE), explains, luring staff to an area where housing costs can be prohibitively expensive.

Since the option plan went into effect in December 1978, deed records show that 22 faculty members have purchased homes with Harvard's help, and there are more deals in the works. Although the 6 per cent figure only applied to the first $100,000 of the purchase, the average home bought with University assistance has cost $133,000, and one home went for $269,500.

But if the plan has made life less expensive for Harvard employees, it has made some city officials positively apoplectic. The option plan has earned more criticism than any other real estate move the University has made in the last two years.

Opponents cite three flaws in the plan. First, they say, it drives up prices for other potential home owners by allowing Harvard professors to spend more. "It seems only logical--the higher these prices go, the higher other prices will go," City Councilor David Sullivan explains.

But Robin Schmidt, vice-president for government and community relations, says University officials aren't at all sure the plan escalates prices and they have commissioned a study to find out. "That view assumes that Harvard professors, because they have access to easier financing, are offering more. I'm not sure that they are that bad at bargaining," Schmidt contends.

The next problems with the low-interest mortgages, Sullivan explains, is that they create more capital for the type of buyer who would purchase a condominium, thus "accelerating the trend toward condominium conversion" that city leaders fear will kill Cambridge's diverse neighborhoods. A breakdown of the 22 purchases under the program show that 12 of the units purchased have been condominiums or co-ops; city regulations limiting new condominium conversion, however, may make that less of a problem in the future.

The final, most obvious, problem with the low interest mortgages is that they give some in the market an overwhelming advantage over others, including longtime Cambridge residents who are looking for new housing.

Schmidt compares the mortgages to "any other benefit--health care for example." But, Sullivan responds, giving an employee health insurance doesn't deprive others of similar care. The same may not be true of housing in a market as tight as Cambridge's, he contends. "We all know there are lots of people who would like to live in Cambridge. We need to protect those who are being unfarily prevented from moving in," he adds.

And the more the plan helps Harvard, the more it harms others, Sullivan says. "For everyone that moves here on those mortgages, a certain portion would not have come without the low cost money," he argues. "To the extent that it is effective, it also hurts people."

"Whoever said an economic market was fair?" Schmidt responds. "As long as economics dictates its workings, it is not going to be a perfectly fair system."