Colin Blochⁱ

What is a Community Land Trust and why would you be interested in this "third sector" type of housing? Someone you know is already or may soon be living in a CLT, or CHT (Community Housing Trust) home in your local area. Having doubled in numbers over the last 10 years to approximately 6,000 today, the number of CLT homes will double again in the next 3-5 years as those working in the field of affordable housing create sustainable forms of home ownership, rental and coop housing. The growth of Community Land Trusts (CLT's) in the US is accelerating as supporters from all corners gravitate to this unique housing model that offers benefits across the full spectrum of community.

Permanent affordability is the central and guiding principle of CLT's and a concept that is contrary to much of what we know about ownership of real estate property. Perhaps more familiar to people new to CLT's is the idea of shared ownership for a common benefit. This is how condominiums or homeowner associations function, but is also illustrated in public facilities, institutions and infrastructure. A Community Housing Trust acts as steward of a public resource much in the same way that local government maintains streets, schools, libraries, sewer and water, police and fire departments.

While permanently affordably housing is a relatively new concept, the idea that a group or community of individuals can own land to be used collectively is as old as recorded history. Native Americans were certainly comfortable in their stewardship role, understanding that the land was a gift from nature and to be used responsibly while shared with other human travelers as well as the plants and animals for whom the land was home.

There are many biblical references to shared ownership and to the concept that we, as stewards, are graced with the privilege of using the land, but that no one person or entity can truly own something that belongs to all humanity. In the broad analysis, land, as a commodity is a fairly radical idea; whereas crops grown or resources extracted may be traded, bought, sold, and consumed, the land itself will remain for the benefit of future generations. To control in private hands large tracts of land often runs counter to principles of social and economic justice. The earth exists as a resource to nurture those that live upon it and the rights of sustenance and shelter are among the most basic that we ascribe to in civil society.

The Community Land Trust concept was formed out of the underlying principle, which has been accepted by most people throughout most of history:

Land and its Resources are Nature given to all of us. Thus, it might be said to be owned by all of us in common.

"Land belongs to a vast family of which many are dead, few are living and countless members are still unborn"
-- A Nigerian tribal saying

"Men did not make the earth... It is the value of the improvement only, and not the earth itself, that is individual property...Every proprietor owes to the community a ground rent for the land which he holds."
--Thomas Paine

The Nigerian saying is one that few might argue with, yet our friend Mr. Paine describes a view that is more political, though no less relevant some 200 years later. The statement describes the basic premise of what CLT's are built upon, that is taking the land cost or value out of the equation of owning property. Through the community ownership of land, local groups create the ability to democratically manage a vital resource for maximum and efficient benefit.

Described by some as "third sector" housing, the CLT or Community Housing Trust (CHT) is at most basic an approach, which provides the greatest sustainable yield for a given investment of resources. This efficiency is created using restrictive covenants and renewable ground leases that guarantee permanent affordability. The federal definition of a CLT describes a tri-partite board of directors made up of 1/3 CLT resident members (typically leaseholders, but often renters also) 1/3 general members of the CLT who are not resident members and 1/3 public members representing a category defined by the CLT. This balanced governance structure provides for inherent checks and balances ensuring that no one interest group can override the concerns of the other without mutual consent.

The democratic approach to governance, which defines CLT's, provides for a balanced governance structure with the ability to create nimble and flexible, locally controlled organizations that can respond to the unique conditions of individual communities. While CLT's adhere to common principles in the governance structure, the operational profiles are often as diverse as the communities in which they work. Regardless of the specific constructs and program responsibilities, CLT's provide immense value for generations of beneficiaries reaching well beyond those who live in resale-restricted homes.

The typical CLT model calls for sharing any appreciation that may accrue to a property over the time, in exchange for the benefit of purchasing the home for less than the market value. The owner share of appreciation varies by CLT and is determined by the governing structure, taking into account a wide variety of factors. One method used by the Burlington Community Land Trust calls for 25% of any appreciation to be retained by the seller.

The value of any principal reduction (payments made toward decreasing the amount borrowed for the home, separate from the interest) plus the value of any improvements added to the home during the tenure of ownership, are added to the 25% of appreciation to calculate the option price to owner at time of sale. Sellers of CLT homes are able upon sale to use their proceeds to purchase market rate housing, typically of equal or greater value than the CLT home. Owners of CLT homes are also permitted to purchase another permanently affordable home if that is their preference and they meet eligibility requirements.ⁱⁱ

Households served by the CLT model represent a broad cross section of society, but it is those who are most challenged in their ability to purchase homes that can often derive the greatest benefit. The ability to own your home and to build assets through home ownership is one of the central tenets of middle class wealth creation. Contrary to the oft-heard critique that resale-restricted ownership traps those most vulnerable in a cycle of poverty, the data tells a very different story.

In a study of the first 100 homes sold by CLT owners, John Davis and Amy Demetrowitz provided incontrovertible evidence that sellers receive a fair and equitable return that in fact dramatically outpaces other investment vehicles. Regardless of how the rates of return compare, the fact remains that owners of CLT homes leave with sufficient equity to migrate to unrestricted, market type housing options in impressive numbers. Shared appreciation will always result in a smaller return than unrestricted sales methods, however since CLT buyers often could not purchase as much home in the open market or simply not purchase at all, the 25% of something is infinitely better than 100% of nothing.

The ability to buy more home than otherwise possible or to purchase a home at all versus renting provides many other benefits that offset the required sharing of appreciation. Families are able to free up money otherwise spent on monthly housing expense when utilizing the down payment assistance of the CLT. Stability, control, location and physical condition of housing are important factors contributing to the benefits of CLT ownership. When families can determine the timing of purchase and sales and make improvements to their homes as well as live with more predictable housing costs, all the while spending a smaller percentage of their income for that housing, they are able to focus more time and energy on family and community.

With housing choices in closer proximity to employment, CLT owners not only save money on transportation, but are potentially freed from lengthy commutes to participate more fully in other activities, such as school or civic type engagements if inclined and at minimum more personal time for family or other pursuits. The implications for families and community are profound when we consider the aggregate benefits of more physical and emotional energy as well as greater breathing room in household budgets for efforts other than commute time and increased housing costs

Some of the customers benefiting from CLT purchases include disabled persons who have gained a measure of independence and financial stability previously out of reach. Examples have included individuals with both mental and physical disabilities who have purchased CLT homes, in some cases with accommodations for care givers. Some of these owners have further leveraged their purchase power by combining the CLT down payment assistance with a Section 8 Housing Choice voucher for home ownership.

The Section 8 voucher program is a tool that can be particularly powerful for disabled individuals as well as customers meeting the eligibility criteria for Section 8 assistance. The voucher payments are used to lower mortgage payments and with annual recertification, are adjusted annually based on family size and household income. For beneficiaries over 55 or disabled customers, the voucher benefit is guaranteed for the life of their mortgage loan.

In summary, the CLT model of permanent affordability is one that provides a lasting benefit to direct recipients as well as the general community in exchange for a one-time infusion of capital. Using this initial investment, the CLT as steward maintains or often increases housing affordability over time, recycling this one time investment of capital for an efficient leveraging of resources. Creating a pool of permanently affordable housing stock is emerging as a focused priority for ever more communities as they come to understand that access to affordable housing is key to a sustainable economic development policy.

A commitment to affordable housing as key infrastructure, just as we create and support other types such as roads, utilities, public safety, education and health care is a theme that is being endorsed by communities across the land. Increasingly, we as a society must make the absolute most effective use of our resources for public benefit and the Community Land Trust offers solutions to do just that.

For more information on permanently affordable housing visit
www.bclt.net
www.getahome.org
www.burlingtonassociates.com

i Colin has worked in the field of permanently affordable housing for 8 years, all with the Burlington Community Land Trust, starting in the HomeOwnership Center doing a year of Americorps service. As Director of HomeOwnership for BCLT, Colin is charged with overseeing activities in Chittenden, Franklin and Grand Isle Counties including the managerial responsibility for 2 NeighborWorks® HomeOwnership Centers; the management of BCLT's owner occupied portfolio consisting of 390 homes; growing this program by 10-15% annually; grant writing; technical assistance and a department of 13 staff and 2 Americorps members. Colin serves as the Northeast representative on the Board of Directors for the National CLT Network. Prior to his work at BCLT, Colin was the owner/ operator of a small construction company specializing in light commercial and intensive residential finish out and renovation. After 18 years in the trades, he can still count to 10 and see out of both eyes.

Colin lives in Burlington with his wife Vivian Esparza and their 3 daughters.

ii CLT Financing Issues: The "net purchase" price created by the CLT, the down payment contribution is typically at least 20% less than the market, or appraised value. In addition to lowering the total acquisition cost, the CLT down payment eliminates the need for Private Mortgage Insurance (PMI) when the Loan To Value (LTV) is 80% or less; or when the down payment is greater than 20%. This gap amount or subsidy constitutes the contribution by the CLT as steward and which may come from a variety of sources.

The initial down payment amount may come in the form of discounted or donated land, cash from private or governmental sources or from the CLT itself. Once the initial down payment gap is created, the CLT is able to maintain and often increase over time the difference between market value and "net purchase" for subsequent generations of buyers. The inherent efficiency of the CLT model is derived from this recycling of capital for future buyers without additional infusions. New capital or land is used to grow the portfolio of permanently affordable homes creating a growing and more stable asset for the local community.

When real estate markets appreciate, the CLT model works very well and the greater the rate of appreciation, the greater the effectiveness. When markets stagnate or actually depreciate, the CLT will experience challenges not unlike those in the broader market. As CLT's mature and their portfolio consists of larger numbers of homes bought during a variety of market conditions and representing a range of housing types spread throughout different geographic locations, the threat of market fluctuation is muted.

Young organizations with little diversity faced with a sudden down turn in values are most vulnerable, especially if the amount of initial down payment is less substantial. Faced with selling homes of similar type with small down payment assistance yet still requiring resale restrictions, soft markets pose significant risk for CLT's. The emphasis on quality housing in desirable locations with substantial down payment assistance will help to offset inevitable market fluctuations.