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Affordable HousingCommunity Land Trusts: An Alternative Model for Protecting Land, Preserving Housing Affordability, and Creating Wealth Helena, MT February 7 and S, 2007 Allison Handler, Executive Director Portland Community Land Trust PCL1 Who's i the room.., • Lenders? Realtors? • Home builders? • Others? I know CLTS; you know Montana. • You're the experts. • I have seven years experience working with two CLTs (Missoula and Portland). • I lived in Montana for seven years. • That means I can share information about the CLT tool, and you decide if it fits your needs. The next 90 minutes or so: • Overview of Community Land Trusts • Benefits of Community Land Trust homeownership • Financial analysis of subsidy delivery programs • Could this work for communities in Montana? Q&A What is a Community Land Trust'?, • Non-profit corporation • Democratically- structured • Membership -based community organization • Holds land in trust for the entire community, for variety of Purposes —environmental, gardens, commercial, housing. We'll focus on housing'. • The model has historic roots, but in U.S. dates to 1960s Where did the idea of holding land "in trust" f? come rom • The Bible • Founding Fathers of the American Revolution (1700s) • Henry George, "Progress and Poverty" (1800s) Ebenezer Howard and the Garden Cities Movement in England (turn of the century, 1900s) • Gandhi and the Gramdan Movement (19 3 0 s) • Indigenous Rights Movements • US Peace Movement (1960s) • US Civil Rights movement (1950s and 60s) A Web of Influences on CLT Development. Thinkers, Activists, & Practitioners Communtty Bob Swan E.F. School of Land Schumacher Living John Stuart Association (New York) Mill (Tennessee) Institute for Community Marie Community Loan Fund C#rilto Economics Coalition Mahatma Gandhi Ebenezer Henry Howard George Community Call Equity Trust, Services, Inca coalition Inc. U.S Civil Rights Movement Garden E.F. National Cities Schumacher 'U.S Peace Comm.unity, .Society Movement Capital Association International Celo Independence Community Institute (North Carolina) Arthur Chuck Eltie Morgan Matthei Kastanopolous Ralph Single Tax Borsodi Movement New Vinoba Covenant CLT cammunities, Bahva (Maine) Inc. Sr, Lucy Gramdan Jewish Poulin ...Movement I4910r7al Fend Rev. Morris (India) (Israel) MacCrackin Bryn Gweled Slater Community Opportunity Homesteads King Land Finance (Pennsylvania) Cooperative of i letwork Cincinnati ` A Web of Influences on CLT Development.- Thinkers, Activists, & Practitioners Community ob Swan E.F. Schoolof Land Schumacher Living John Stuart Association (New York) Mill (Tennessee) Institute for Community Marie Community. Loan Fund CIri1Io Economics Coalition Mahatma Gandhi Eberle" Henry Howard George Community CDFI Equity Trust, Services, In Coalition Inc. U.S Civil Rights Movement Garden E.F. National Cities humacher -y U. Peace Community Society Movement Capital Association International Celo Independence Community Institute (North Carolina) ur hu Ellie Morgan Mattt ei Kastanopolous Ralph Single Tax Borsodi Movement New Vinoba Covenant CLT Communities, Shave (Maine) Inc. Sr. Lucy Gramdan Jewish Poulin Movement National Fund Rev.:Maurice (India) (Israel) MacCrackin Bryn Gweled Slater Community Opportunity Homesteads King Land Finance (Pennsylvania) Cooperative of Network Cincinnati Common Threads • Local control of land and capital resources • Sustainable local economies • Rethinking "ownership" of land and housing • Benefits shared between individuals and the community as a whole What Housing CLT . S Do • Take land out of the housing equation • Make homes affordable to families who can't yet or will not be able to afford market -rate housing • Create stability and wealth for families • Attempt to balance theinterests of communities with the interests of individuals • Ensure a stock of affordable homes • Help create balanced communities that contain income -diverse neighborhoods What does a CLT home look like? Your house. My house. Randy's house. (that's Randy with Michael, his service dog.) Yes.* Gardens, dogs, kids, barbecues, swing -sets; room -mates; kitchen remodels; wealth creation. No: Activities not allowed by zoning/health codes; absenteeism; windfall profits. So how's it different? Split ownership: land trust owns the land, fami mly owns house,'or perpetual deed restriction with resale provisions Land trust is responsible for ongoing land stewardship; safeguards affordability of homes ,. Leased land.* 99-year renewable, inheritable lease Lease fee: monthly nominal charge paid to the CLT Owner occupied: "most" of the time Income eligibility: low- and moderate -income families And, a CLT is locally controlled "Classic" CLT: community -based membership Democratically structured: board of directors elected by membership Lessee -homeowners = 1/3 of the board Membership vote required for changes to by-laws or resale formula Membership vote required for sale of land from the trust ./ We'll talk about the benefits and drawbacks of membership in a later session Finally, CL homes are resale - restricted for permanent affordability Lease contains resale provisions to guarantee house remains affordable for future buyers. "Appraisal -based" formulas (for example, 25% share of appreciation) "Indexed" formulas (tied to CPI or to "what's C%C% affordable for 80% AMI") "Itemized" formulas (tied to maintenance/ repairs, value of home improvements, depreciation, inflation factor) Summary of defining characteristics • Nonprofit, tax-exempt corporation • Dual ownership • Leased land • Perpetual affordability • Perpetual responsibility • Community base • Resident control • Tripartite governance • Active, ongoing acquisition • Flexible development Homeowner Concerns • Affordability • Stability • Security • Legacy for heirs • Wealth building Community Concerns • Maintenance of the house • Ensure owner occupancy • Stewardship • Retention of affordability 99-year lease defines homeowner and CLT rights & responsibilities • Lease is renewable, inheritable (stability, security, legacy) • Lease requires house to be maintained, insured • Post -purchase homeowner support • First right of refusal (both directions) • No income "recertification" • Resale formula keeps home affordable for next family while offering a chance to build wealth • CLT homeowners pay property taxes like anyone else, though their taxes may be reduced Locking the subsidy in • CLTs are permanent subsidy programs • Once subsidy is attached to the. property (purchases the land), it is locked in -fo rever • Land trust homeowners trade future windfall for present day affordability and reasonable return on investment Is this a good deal?,. Arepermanent subsidy homeownership programs, such as Community Land Trusts, a good investment for families and for the community? Families of modest means benefit • Homeownership at an affordable price • Individual wealth building through asset ownership A Likely entry in market -rate homeownership. In the largest study of CLT resales, 74% of families moved to market -rate homeownership • Tax deductions for mortgage interest and property taxes • Stability of housing costs • Pride of place; secure investment • Legacy for heirs Neighborhoods benefit • Quiets prices in gentrifying neighborhoods • Protects working class neighborhoods and their culture from price increases • Prevents displacement of long-term residents • Locks the subsidy in so homes stay off the market The community's investment stays in place • Permanently improves housing stock Preserves mined -income, diverse neighborhoods. When do CLTs make sense? • Rapid run-up in housing prices places homeownership out of reach of working, families • Communities want to ensure and retain affordable ownership housing for future generations That's true in many places in Montana: • Median home price in Helena: upwards of $240,000 • A family of four needs to earn �$80,000—almost 160% of the median family income here —to afford the median home • Other communities are also feeling the pinch of rising land and housing prices ki We've got a problem. • Ordinary working families can't buy a home in this hot market. • We need an investment from the community. $60, 000frorn PCLT helped Maria buy this house in Northeast Portland. Different ways the community could invest to make homes affordable Affordable financing programs: Use public and private subsidy. Reduce the monthly payments on a house to affordable payments.. (second mortgages) v Permanent subsIdy programs: Use public and private subsidy. Reduce the purchase price of the house to an affordable price. (CLIs, limited equity co-ops, perpetual deed restrictions) Affordable Financing Programs • Enable buyers of moderate income to make affordable payments on a home that is not affordably priced • Subsidy funds a second mortgage so the buyer's first mortgage is smaller • Sometimes, interest is charged and the loan is amortized; sometimes the appreciation is shared • Sometimes, the loan is silent • When the home is) re -sold the second mortgage is paid back Permanent Subsidy Programs • Reduce market price to an affordable price • Provide access to homeownership for buyers with moderate incomes, at a price they can afford • Buyer agrees to limit price at which home will be resold • At resale, homeowner receives what she paid for the house plus a fair share of the appreciation • Home resells at an affordable price to next buyer, with no added subsidy As permanent subsidy programs, CLTs promise too 0 0 • Ensure affordable home purchase options for future buyers, by creating a stock of permanently affordable homes • Build wealth for families precluded from market rate ownership, by providing stability and asset ownership A few key questions: • How well does the CLT deliver on its promises?. • How do CLTs stack up against other subsidy programs like affordable financing programs? • Given declining subsyidand rising development prices, what i's the most effective use of public subsidy in creating affordable home ownership? Let's look at some numbers The Affordability Gap • People's incomes rise—COLAis2to3% • But housing prices rise, faster —in. some locations, it's been 10 to 20% per • Even modest housing increases of 5%still outpace wage increases. Is • This creates an affordability gap between what people earn and what they pay for housing., Let's say • A married couple, both teachers, is raising a child. • Their household income is $45,000 per year. • Their gross monthly income is $3,750. If they spent a third of their gross monthly income on housing, they would have $1,250 for housing. Example from. www.burlingtonassociates.com How much house can they afford? • If they wanted to buy a house and pay $1,250 on their mortgage, they could afford a house that cost something like $150,000 (depending on interest rates, etc.; we'll assume about 6.5% interest here) "fir Imagine, five years later .. . • Another family, both teachers, wants to buy the same house. • Teacher salaries have gone up modestly (about 3% per year), so the family can afford a slightly higher mortgage. (The family earns $52,000 and can afford a payment of $1,450 per month —or a house,that costs about $175,000, given the same interest rate,.) • But housing prices have gone up even faster (about 6% per year), and the same house now costs $2000000 More expensive monthly cost • The next family would have a much higher monthly payment • which would be a higher percentage of their monthly 10 income • if they could'even qualify for a loan that high at the bank. The CLT provides a solution • By removing the land cost from the housing equation • and protecting the resale price of the home so it stays affordable for future families • the CLT makes it possible for a succession of moderate -income homebuyers to own the same home over the life of the structure. pal How would that work i*n this example? • Under PCLT's appraisal -based resale formula, the house in the previous example would have sold, and would re -sell, in this way:0 • Original appraised value: $1501000 • Original sale price: $100,000 (house only) • New appraised value: $200,000 (5 Yrs later) • Gain in value: $50,000 • Seller's, 25% share of gain: $12,500 • Price to next buyer: $1621500 Overall, the CLT is a good tool,, • It serves families. who wouldn't otherwise be able to own a home • It provides stable, affordable ownership housing • It keeps those homes affordable • It requires only a one-ti*me investment from the community —land trust homes do. not need to be re - subsidized when the homes. resell Detractors of CLT homeownership.. • May mean larger initial public investment • Smaller homeowner equity gains- (as compared with many commonly used affordable financing programs) • Concept of- land ownership by land trust may deter potential homebuyers • Requires more education for lenders, escrow officers, realtors, and buyers 0 Some facts and figures from Burlington CLT (VT) • 97 resales • Average home affordable to 62% AMI at initial sale, and to 57% AMI at resale (homes became more affordable over time) • Total value initial public subsidies put into those BOLT homes was $1.525 million; total value of those retained subsidies was $2.1 million. • 95% of the BCLT homes remained affordable. • Annualized rate of return on for, homeowners was 17%; average BLOT homeowner .reselling after 5 years recouped her 10 original down payment and then realized a net gain in equity of $6,184, 60 sellers bought market -rate homes; 4 bought another BOLT home; 16 became renters, 1 died. (16 left the state) • With Permanen't subsidy programs such as Community Land Trusts, communities can create a stock of affordably priced homes • There's no " expiring use" concern, no end to the affordability period M A few conclusions about Community and Trusts • Homeownership at an affordable price • A likely entry into market -rate homeownership • Fair return on investment to the homeowner • Fiscally sound use'.of limited subsidies for a permanent stock of homes • Powerful anti- displacement tool in gentrifying neighborhoods • Help create balanced and income -diverse communities • Opportunity to make good use of publicly -owned land So, you still want to start a CLIT? We'll look at some issues you'll need to consider. • Rationale,: why a CLT? • Service area: how big? • Sponsorship: who's founding the CLT? • Educating others about CLTs: whose conerns need to be addressed? • Development strategies: how to bring land into trust? • Sources of CLT funding: how to fund operations and land acquisition? • Political will: is there community support? a And, because you WILL hit a snag.. . IN CASE OF EMERGENCY Questions, diatribes, laundry lists? Contact: Allison L. Handler, Executive Director Portland, Community Land Trust 3109B NE Broadway Portland, OR 97232 503-493-0293 www.pclt.org allison@pclt.org Want more? Check out: www.burlingtonassoci*ates.com