Am I Dreaming? Community Land Trust Model Could Be Part Of Housing Solution

Broadly, housing policies must concentrate on allowing the production of housing for-profit to meet as much demand as possible. Then, at those levels of income that still find they can’t manage housing costs along with other costs of living, the best solution is direct cash subsidies for the difference between the normative standard for rent, 30% of gross monthly income and actual costs. What about home ownership? Is there a model that can address the problem of people who are working, but who still can’t manage a down payment or a monthly mortgage payment? I am cautiously optimistic that a comprehensive and market driven housing policy could include the community land trust (CLT) model, a mechanism of securing land in trust, then subsidizing ownership of a house on trust land.

The Community Land Trust (CLT) model is an innovative strategy to capture the value of land and housing and make it available to working families with low and moderate incomes. Through the acquisition of land, CLTs can provide the opportunity to purchase housing below market price in exchange for realizing less of a return for the appreciation of the house. The homeowner signs a long-term lease with the CLT which continues to own the land with the improvement of the house owned by the family. The CLT model has the effect of removing the value of the house from the market, allowing the price to be set for purchase by families with household incomes of 50 to 80 percent of Area Median Income (AMI). When the house is sold, the lease limits the value capture of the sale, passing on the savings to the next family.

There are multiple advantages of CLT housing for families and the wider housing economy.

• Ownership opportunity for people who are working but earn less – People can work for years to build up financial momentum to buy a home and still come up short; CLTs help give an extra push into ownership.
• Building credit – Credit is still an important measure of financial acuity; CLTs can help a household build and expand the ability to borrow wisely.
• Stability – Owning a home can allow children to attend the same schools through graduation and encourage engagement and involvement in the community.
• The benefit of increasing asset equity – As their home asset increases over time, families can capture that value for the future.
• Prevents speculative pressures on owners – When a CLT home is out of the market, there is no pressure to sell when asset values climb.
• While returns on the investment are limited, they create generational wealth – Even though the benefits of sales are capped, there is incentive for a family to manage their investment well through the end of the loan or sale.
• Allows families with limited income opportunity to save – When housing costs are less, a family can capture savings for other uses including child care, education, and building cash reserves.

The benefit to the wider to the economy is that families that would otherwise remain in cheaper multifamily units can move into ownership, freeing up those units for other families. There is a potential for CLTs to help build a housing ladder perhaps beginning with vouchers and direct assistance, to a rental unit, and finally ownership. Ownership through a CLT allows families become more invested in their local neighborhood and communities, and for those communities and neighborhoods to invest in them. Homeownership opportunity created by the CLT model can allow families to put down roots and become influencers economically and politically.

And this model can facilitate multifamily housing as well. In Seattle, Homestead Community Land Trust is building 38 condominium units at two different sites, one donated and the other on surplus City land. The model for ownership is the same as single-family homes. In some ways, condominiums are the most logical use of the model since market rate condos are embedded in a commonly held asset. The donation of surplus City land is especially important since this is common across the country; cities and other local governments often have pieces of land that can’t be used for their original purpose but could be activated as housing.

There are other possibilities for the CLT model to be applied. Many communities are allowing backyard cottages, sub division, and “missing middle” housing and opportunities to expand rental housing supply with additional density. The problem with this liberalization of zoning is lack of financing for most families to take advantage of increased density in single-family neighborhoods. A CLT could buy a subdivided lot, build two homes on it, and sell the homes a lower price. This would benefit the original homeowner, and create two new homeowners on what was once a single parcel. California recently passed legislation that won’t result in much density in single-family zones, but the CLT model might help achieve that goal.

Most families, especially families who might own a home but still be paying a mortgage, simply don’t have the cash for this kind of construction project. Banks have been brittle on financing these projects only offering Home Equity Lines of Credit (HELOC), an instrument that is intimidating and often infeasible for families. Community land trusts could break this impasse with a tested financing model.

Some advocates have urged policies to support tenant acquisition of rental property. Again, the problem here is financing. For example, where do tenants in a down market property in need of maintenance and facing a pending sale get the cash to purchase their building or rental house? The CLT model is viewed favorably by most policy makers, and using the advantages of this model to solve some of these challenges is an interesting opportunity.

One idea might be to purchase a small, down-market property and then use the CLT model to create condos at a reduced price that could be purchased by the existing tenants with favorable financing while the CLT owns the land and leases to a Home Owners Association. This would allow tenants to stay in place while giving them a path to ownership.

What’s the catch with CLTs? I’m still thinking about it. But the country would be far better off if subsidy dollars went toward buying land for CLTs than pricey Low Income Housing Tax Credit (LIHTC) projects, now rising in cost to $1 million per rental unit. Imagine all that money getting people on a sustainable path toward ownership. Are there problems with ownership? Yes, and I’ve discussed that.

But the CLT is different. The model allows people who are working and struggling a chance to buy into the existing housing market in a financially sustainable way. Perhaps the idea could be used to transition renters in non-profit LIHTC rental units into ownership. We’ll see. What I like is the idea that CLT runs toward the reality of supply and demand not from it; the model acknowledges land speculation and doesn’t complain about it but instead creates a safe harbor from it and creates a way in for people with less money. I’m sure I’ll find a fatal flaw, but until I do, I’m going to celebrate the model as another positive step for housing.