Community Land Trusts

CommunityCommunity Land TrustsCommunityCommunity Land Trusts

and the Future of Housing Financeand the Future of Housing Finance

Community Land Trusts, 2008Community Land Trusts, 2008

Burlington Associates in Community DevelopmentBurlington Associates in Community Development

Community Land Trusts and the Future of Housing FinanceCommunity Land Trusts and the Future of Housing Finance


Number of CLTs in the USNumber of CLTs in the US


CLT Organizational StructureCLT Organizational Structure

Typically, CLTs are nonprofit, 501(c)(3) community-based organizations

Variations include CLTs structured as subsidiaries of established nonprofit community organizations or programs operated within the corporate structure and governance of these organizations

The mission, charter and business plan for CLTs are focused on long-term operations and sustainability

Typically, CLTs are nonprofit, 501(c)(3) community-based organizations

Variations include CLTs structured as subsidiaries of established nonprofit community organizations or programs operated within the corporate structure and governance of these organizations

The mission, charter and business plan for CLTs are focused on long-term operations and sustainability



CLT Governance StructureCLT Governance Structure

LeaseholdersLeaseholders CommunityMembersCommunityMembers

Public Interest RepresentativesPublic Interest Representatives



CLT Board of DirectorsCLT Board of Directors

CLT Mission and OperationsCLT Mission and Operations

CLTs acquire land through donation or purchase

removing this land from speculative market

placing long-term control of this land in the hands of the local community

allowing community to control long-term use, disposition and affordability of buildings located on CLT-owned land

CLTs acquire land through donation or purchase

removing this land from speculative market

placing long-term control of this land in the hands of the local community

allowing community to control long-term use, disposition and affordability of buildings located on CLT-owned land



HOMEHOME LANDLAND

CLT Separates Ownership of Land From HomeCLT Separates Ownership of Land From HomeCLT retains ownership of landCLT retains ownership of land

Homebuyer buys - and owns - her homeHomebuyer buys - and owns - her homeCLT leases land to homeownerCLT leases land to homeowner



CLT Ground LeaseCLT Ground Lease99-year, inheritable and renewable

Essential functions:

Conveys to homeowner exclusive, durable, enforceable leasehold interest in land

Prescribes mutual accountability between CLT and homeowner

Stipulates restrictions on homeowner’s use, occupancy and transfer of leasehold estate

99-year, inheritable and renewable

Essential functions:

Conveys to homeowner exclusive, durable, enforceable leasehold interest in land

Prescribes mutual accountability between CLT and homeowner

Stipulates restrictions on homeowner’s use, occupancy and transfer of leasehold estate



Major Contribution #1: Permanent Housing Affordability

Major Contribution #1: Permanent Housing Affordability

Subsidy is structured neither as grant nor as a subordinate “soft second” debt to homebuyer

Subsidy is used to write down purchase price of home to limited-income homebuyer

Subsidy is locked into the home by limiting the price for which homeowner can sell her home

through resale formula in ground lease

Subsidy is structured neither as grant nor as a subordinate “soft second” debt to homebuyer

Subsidy is used to write down purchase price of home to limited-income homebuyer

Subsidy is locked into the home by limiting the price for which homeowner can sell her home

through resale formula in ground lease



$25,000$25,000

$50,000$50,000

Growing Affordability GapsGrowing Affordability Gaps$$$$

TimeTime

Market Price$200,000

Market Price$200,000

Affordable Price$175,000




require growing levels of subsidy require growing levels of subsidy

Market PriceMarket Price

Affordable PriceAffordable Price

Subsidy RecaptureSubsidy Recapture

$$$$

TimeTime





still leaves growing gapsstill leaves growing gaps

$50,000$50,000

$50,000$50,000

$40,000$40,000

$90,000$90,000

$90,000$90,000

New subsidy requiredfor each buyerNew subsidy requiredfor each buyer



Subsidy RetentionSubsidy Retention

$$$$

TimeTime



creates permanently affordable housingcreates permanently affordable housing

$50,000$50,000

Resale priceremains affordablewithout any new subsidy

Resale priceremains affordablewithout any new subsidy



CLT Resale Formula: ExampleCLT Resale Formula: Example



Original appraised value (land & improvements) $200,000

Minus affordability subsidy ($50,000)

Original CLT purchase price $150,000

CLT homeowner’s share of appreciation 25%

Appraised value (land & improvements) at resale $300,000

Increase in value during ownership ($300,000 - $200,000) $100,000

Seller’s share of appreciation ($100,000 x 25%) $25,000

Resale price to next CLT homebuyer ($150,000 + $25,000) $175,000

Outcomes: CLT HomeownershipOutcomes: CLT Homeownership

Limited-income households are able to purchase homes and build equity

Affordability is assured for subsequent homebuyers - without additional subsidy

Public/private subsidy is protected and leveraged

Favorable loan-to-value ratios for mortgage lenders, as CLT affordability subsidy is structured as equity

Limited-income households are able to purchase homes and build equity

Affordability is assured for subsequent homebuyers - without additional subsidy

Public/private subsidy is protected and leveraged

Favorable loan-to-value ratios for mortgage lenders, as CLT affordability subsidy is structured as equity



Major Contribution #2: Backstopping CLT Homeowners

Major Contribution #2: Backstopping CLT Homeowners

Unlike typical nonprofit homeownership efforts, the work of CLTs work is not finished when homeowner moves in

Ground lease contractually obligates a long-term, mutually-accountable relationship between CLTs and their homeowners

CLTs commit to providing ongoing backstopping assistance to their homeowners

Unlike typical nonprofit homeownership efforts, the work of CLTs work is not finished when homeowner moves in

Ground lease contractually obligates a long-term, mutually-accountable relationship between CLTs and their homeowners

CLTs commit to providing ongoing backstopping assistance to their homeowners



Backstopping CLT HomeownersBackstopping CLT Homeowners

Monitor and enforce lease compliance

Monitor and support homeowner progress and success

approve all mortgage financing

collect ground lease fees

reserve right to step in and cure mortgage default on part of borrower

Provide additional support and assistance

Monitor and enforce lease compliance

Monitor and support homeowner progress and success

approve all mortgage financing

collect ground lease fees

reserve right to step in and cure mortgage default on part of borrower

Provide additional support and assistance



Outcomes: CLT Backstopping Outcomes: CLT Backstopping

There has been literally no fallout from the subprime crisis among CLT portfolios

According to Mortgage Bankers Association, 2008 nationwide foreclosure rate was 3.3%

Nationwide CLT survey showed that 2008 foreclosure rate among CLT homeowners was 0.52%

There has been literally no fallout from the subprime crisis among CLT portfolios

According to Mortgage Bankers Association, 2008 nationwide foreclosure rate was 3.3%

Nationwide CLT survey showed that 2008 foreclosure rate among CLT homeowners was 0.52%



Benefits of CLT Homeownership for Mortgage Lenders

Benefits of CLT Homeownership for Mortgage Lenders

Standardized ground leases and other documentation among CLTs

Favorable loan-to-value ratios

Backstopping support by CLTs for CLT homeowner/mortgagee dramatically decreases likelihood of foreclosure

Standardized ground leases and other documentation among CLTs

Favorable loan-to-value ratios

Backstopping support by CLTs for CLT homeowner/mortgagee dramatically decreases likelihood of foreclosure



CommunityCommunity Land TrustsCommunityCommunity Land Trusts

and the Future of Housing Financeand the Future of Housing Finance

Michael BrownBurlington Associateswww.burlingtonassociates.com

Documents

Community Land Trusts