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Community land trusts and lasting home affordability

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How Separating Land From the Home Keeps Housing Affordable for the Next Family

This article serves abundance and problems in living. A community land trust is a practical way to turn one round of public or charitable housing money into homes that stay affordable for many families in a row, so the supply of affordable homes grows instead of shrinking every time a house is resold.

The surprising idea: give up most of the gain

Most housing help works like a one time gift. A family receives a grant, buys a home, and later sells at the full market price. The grant leaves with the seller, and the program must find new money for the next family.

A community land trust (CLT) reverses that design on purpose. A nonprofit keeps ownership of the land, or keeps a legal claim on the home, and the family owns the house. The family agrees to a resale formula that caps how much of the future price increase it can keep. The surprising finding from the best studied case is that owners still did well, and the public money did far more work than it would in a grant program.

How the arrangement works

The Lincoln Institute of Land Policy describes CLTs as nonprofits that use public and private funds to provide affordable homeownership, usually to households with incomes below 80 percent of the area median. The trust typically buys and keeps title to the land under a house, a townhouse, or a condominium building. Residents hold a deed to their own home and lease the land. Some trusts use deed covenants or second mortgages instead of a land lease.

In exchange for a lower purchase price, homeowners accept limits on the resale price and on the equity they can take out.

The Urban Institute studied the largest well known example, the Champlain Housing Trust in Burlington, Vermont. Its resale formula for condominiums gives the seller 25 percent of any rise in appraised market value. The report works through an example for a single family home. A buyer pays $100,000 for a home appraised at $200,000, which is a 50 percent share of the value. The home later appraises at $300,000. The owner may sell for $100,000 plus 50 percent of 25 percent of the $100,000 increase, which is $112,500. Owners also keep all equity built by paying down the mortgage.

What the numbers show

The Urban Institute report covers Champlain Housing Trust through December 2009. These figures come from that report and describe that one program in that period.

  • The trust had 435 resale restricted homes and had helped 683 families buy, because 233 homes were resold to a new income eligible family.
  • Median household income of buyers was $36,660, which was 52.3 percent of the area median family income. About 92 percent were first time buyers.
  • The median buyer paid $104,908 for a home appraised at $141,626, with $2,749 down including closing costs.
  • The income needed to buy a home at resale, measured as a share of area median income, rose by a median of only 0.9 percentage points between the first sale and the resale.
  • Owners who resold earned a median internal rate of return of 30.8 percent on their small initial investment. The report estimates that an S&P 500 index fund would have returned a median 8.5 percent and 10 year Treasury bonds 6.0 percent over the same holding periods. About a quarter of owners would have done better with stocks or bonds, so this is a typical result and not a guarantee.
  • The report estimates that a traditional grant program with no resale limit would have cost $20.4 million for the same homes, against $13.7 million for the trust model.

The reason is simple. The trust model recycles the subsidy. The discount stays in the home, so the next buyer receives it too. A grant program would have served 233 fewer households with the same homes.

A later summary from the trust itself reports 679 homes in its shared equity portfolio and 1,322 total sales as of February 2024. It also reports a Shelburne home bought into the program in 1991 for $109,000, with $22,000 from the trust. When it resold in 2019 at a market value of $275,000, the trust provided a $115,000 subsidy and the net price was $160,000. These are figures from the trust itself, so read them as a program report.

A stability benefit for people in hard times

A lost home disrupts work, schooling, and health. A 2010 Lincoln Institute article by Emily Thaden and Greg Rosenberg surveyed 42 CLTs with 2,173 mortgaged homes. At the end of 2009, 0.56 percent of CLT mortgages were in the foreclosure process, compared with 4.58 percent of all loans in the Mortgage Bankers Association survey, and 1.62 percent of CLT mortgages were seriously delinquent, compared with 7.01 percent of prime loans. The authors point to stewardship as a likely cause: buyer education, review of any refinancing, early contact when a payment is late, and rescue funds or a negotiated sale when an owner cannot continue.

The Urban Institute study adds that an estimated 91.8 percent of first time buyers were still homeowners five years later, in the same home or another one. It cites earlier research finding that roughly half of low income buyers fail to stay owners that long.

Where the idea came from

The model was built for people shut out of land ownership. Accounts from the International Center for Community Land Trusts and from New Communities Inc. describe how leaders of the Albany Movement in Georgia, including Slater King and Charles Sherrod, traveled to Israel in 1968 with Robert Swann to study how the Jewish National Fund leased land. They wanted to secure land for Black farmers who were being pushed off farms by mechanization and by retaliation for registering to vote. New Communities Inc. was incorporated in 1969 as a nonprofit to hold land in perpetual trust, and it bought 5,735 acres in Georgia.

The first CLT lost that land. According to New Communities Inc., the governor vetoed a federal planning grant, a long fight followed, and the land was foreclosed in 1985 and sold for about one fifth of its value. The organization later won a settlement in the Pigford class action against the USDA and bought a 1,638 acre property in 2011. A land trust protects residents from market pressure but still needs capital, legal support, and political protection.

Limits and honest tradeoffs

  • Owners give up part of the gain from a rising market. The Champlain studies show high returns on a small down payment, but an owner who lives in a very fast appreciating market keeps less than an unrestricted owner would.
  • Stewardship needs money. Only about one third of surveyed CLTs received foreclosure prevention funding in 2009.
  • The trust still needs an initial subsidy for land, construction, and financing. It makes that subsidy last.
  • Most studies cited here date from 2009 and 2010 and cover a mature program, so newer or smaller trusts may differ.

Why this fits the larger goal

Housing is one of the areas where prices rise while the price of many goods falls. A land trust adds a different lever: separate the value of land and location, which rises with a whole community, from the home a family lives in and maintains. The community holds the first and the family owns the second. The design fits with lower cost construction methods and with community finance tools such as credit unions and savings circles. The Champlain Housing Trust also reports that all residents of its homes are members and that members elect a 15 person board with equal seats for residents, nearby community members, and local governments.

  • If a family gives up most of the price gain on its home but keeps all of the equity it builds by paying the mortgage, is that a fair trade, and what evidence would settle the question?
  • What would a land trust need in order to protect residents during a long political and financial fight, given what happened to New Communities Inc. in Georgia?
  • Which parts of the Champlain Housing Trust results come from the resale formula, and which come from education and rescue help, and how could a researcher separate them?
  • What would a fair resale formula look like in a market where prices double in ten years, and in one where prices stay flat?

Sources

See also

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