Community Land Trusts and Housing Affordability

The U.S. government housing programs for assisting low-income families are administered largely at the state and local levels, and they include the Section 8 (Housing Choice Voucher) program, Section 202 program (for the elderly), Section 811 program (for the disabled), Community Development Block Grant funds, and HOME Investment Partnership Act funds. With the exception of the last two funds, most programs focus mainly on rental housing subsidies.

A “third sector” approach that has existed for a long time but only recently has attracted attention is the community land trust (CLT). In chapter 13, Steven C. Bourassa provides a detailed analysis of the potential of this affordable-housing scheme. Under a CLT, homeowners pay for, and thus own, only the buildings they occupy, not the land. The idea underlying this arrangement is that the increase in property prices in some major U.S. cities is largely caused by the rise in land values (or zoning tax). By retaining land ownership, a CLT retains the most rapidly appreciating element of housing while selling only the structure to a household. This scheme allows CLTs to provide subsequent owners with affordable housing because the escalating land value is not part of the housing cost to the household. Under this arrangement, a CLT homeowner realizes any capital gain only from an increase in the value of the structure, which is normally a fraction of the total price increase. Meanwhile, that same homeowner enjoys the flow of full housing services (land and building) while paying only for part of it. As Bourassa contends, CLTs provide access to shared-equity home ownership for households that might otherwise be unable to buy a home in the private housing market. The scheme is, at least in principle, the preferred choice for households that want to build up equity and that otherwise would rent.

Indeed, Bourassa calculates that when mortgage interest rates are low and the appreciation rate of housing values is high relative to the return on alternative investment, owning a CLT home is preferable to renting. Conversely, owning a CLT home is not preferable to renting in a declining property market with high mortgage interest rates. High property tax rates and maintenance costs also could reduce the financial benefits afforded by CLT home ownership. In short, Bourassa finds that CLT ownership is not always advantageous and will depend on market conditions. A detailed cost-benefit analysis of varied scenarios based on different mortgage rates, housing value appreciation rates, and resale formulas is also presented.

This paper was presented at the Lincoln Institute’s annual Land Policy Conference in 2006 and is Chapter 13 of the book Land Policies and Their Outcomes.