Affordable Housing Institute : US

Land is a critical driver in housing prices.  And, since land’s value is itself the residue of developed value minus development cost, when economies get hot, land prices shoot up:

 

 

Logically, therefore, affordability will be greater if land is contributed at little cost, co-developed by a public body, or explicitly reserved for affordable use, as surveyed in a recent article by Rosalind Greenstein and Yesim Sungu-Eryilmaz::

 

Many of the factors that contribute to land value increases are due to the economic expansion that occurs in metropolitan areas.  In strong markets the pace of value increases in land exceeds that of structures.  Thus, if the land is excluded from the price of housing, affordability ought to be assured over time.

 

But if land is going to remain out of the equation, it must be held in a vehicle such as a community land trust, a recent (mid-1960’s) innovation highlighted in a recent issue of Land Lines from the Lincoln Institute of Land Policy:

 

 

The CLT model has evolved in the United States over the last 40 years (ICE 1991). Currently there are approximately 160 CLTs operating in every region of the country and in 38 out of the 50 states and the District of Columbia.  These CLTs are nonprofit, community-based organizations whose mission is to provide affordable housing in perpetuity [Good luck! -- Ed.] by owning land and leasing it to those who live in houses built on that land.

 

Complementing their status as nonprofit corporations, as defined in the U.S. tax code, and their formal rights and responsibilities codified in the ground lease, CLTs are governed by a board of directors with membership from the community.

 

In the classic CLT model, membership is comprised of adults who live in the leased housing (leaseholders); adults who live in the targeted area (community members); and local representatives from government, funding agencies and the nonprofit sector (public interest) (Burlington Associates 2003).

Even though the land is held in a trust, property on that land may be privately owned, but subject to the underlying ground lease:

The CLT and the homeowner agree to a long-term ground lease agreement (typically 99 years) that spells out the rights and responsibilities of both parties.

 

Among the homeowner’s rights are the rights to privacy, the exclusive use of the property, and the right to bequeath the property and the leasehold.

 

Long ground leases are nothing new:

 

They were used in downtown Honolulu: the famous Queen Liliuokalani Trust that owns 10 square miles of enormously valuable land.

 

… including 16 acres of Waikiki

 

and central London: Mayfair and Belgravia, 300 acres of which is owned by the sixth Duke of Westminster, including the US Embassy and the Connaught Hotel.

 

Owned by Gerald Grosvenor, sixth Duke of Westminster, Britain’s richest man

 

The goals of those ground leases were principally economic: reap income, and preserve ownership in the reversionary interest.  In a Community Land Trust, the goal is specifically to recoup reversionary and redeploy it into future affordability:

 

The CLT has the right to purchase the house when and if the owner wants to sell.

Ask the alert reader, At what price?

 

The ground lease also includes a resale formula intended to balance the interests of present homeowners with the long-term goals of the CLT.  The intent of affordability in perpetuity is in conflict with the desire of most owner-occupants in the U.S. to reap real estate gains.

 

Every homeowner everywhere wants to reap real estate gains if he or she can.

 

Thus, the resale formula is designed to balance the interest of individual homeowners to benefit from the use of their home as a real estate investment and the interest of the CLT to provide affordable housing for future homeowners.

Better design carefully:

 

However, the resale formula varies among CLTs.  Outcomes also will vary with real estate cycles in particular cities and regions.

 

Lowering land cost to zero (or equivalent) helps, but deep affordability requires soft debt and soft equity:

 

In most cases, CLT housing requires subsidies for the purchase of land and/or house construction. Grants typically come from government sources or private foundations. One of the premises of the CLT model is that these subsidies are recycled later to reclaim the value of the subsidies and to benefit future homebuyers. Public subsidies are no longer needed when a CLT house is sold under the resale formula. However, it is not known how efficient subsidies are when used to develop CLT housing and how the subsidy capture mechanisms work.

 

So far, community land trusts are mainly theoretical, but there is some body of practice:

 

There is great variation in CLTs across the country. The largest, Burlington Community Land Trust in Vermont, has 370 single-family homes and condominiums and 270 rental apartment leases; other CLTs may have just a handful of units available for lease. Some CLTs have been able to grow significantly while others have not, and some have ceased operation altogether.

 

Indeed, because the land trust itself is an asset holder, it becomes a logical property developer:

 

Sawmill Community Land Trust (SCLT) is located near downtown Albuquerque, New Mexico, adjacent to Historic Old Town, which has become a leading tourist attraction. Gentrification has increased the housing prices in the Sawmill neighborhood.

Founded in 1996, SCLT evolved from existing community organizations that had been working for years to protect the character of the ethnically diverse Sawmill community and address environmental and pollution problems caused by a particleboard factory on the site.  SCLT’s main focus has been to create a permanent stock of affordable housing in the neighborhood.

In partnership with the City of Albuquerque, which acquired the 27-acre former industrial site, SCLT developed plans for 196 housing units of various types (live-work lofts, single-family detached houses, townhouses, duplexes, senior apartments and condos) as well as a plaza, park, community center, commercial space and open space connected with trails.  All of the 26 homes built in the first phase of development have been sold, and construction of a second housing phase will begin soon.

 

Interesting idea, worthy of piloting more broadly.

 

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