Frequently Asked Questions
About Community Land Trusts
What is a community land trust?
A community land trust (CLT) is a nonprofit, community-based corporation committed to the permanent stewardship of land and the permanent affordability of housing and other buildings located upon its land. Most CLTs target their programs and resources toward charitable activities like redeveloping blighted neighborhoods or providing housing for lower-income people, allowing the organization to qualify for a 501(c)(3) tax exemption from the IRS. Land acquired by a CLT is never resold. It is retained by the CLT and held in trust for the community. Although a CLT never resells its land, it provides for the exclusive use of its land by leasing out separate parcels to individual homeowners, cooperative housing corporation(s), nonprofit developers of rental housing, or other nonprofit, governmental, or for-profit entities. These ground leases last for a very long time, typically 99 years. Any residential or commercial buildings already located on lands acquired by a CLT or any buildings later constructed on these lands are not retained by the CLT. They are sold off to organizations or individuals who are leasing the CLT’s land. The owner of a house, a condominium, or a multi-unit residential or commercial building located on a CLT’s land holds a deed for the building and a lease for the underlying land. The CLT retains an option to repurchase these buildings, should their owners ever choose to sell. The resale price is determined by a formula contained in the ground lease. This formula, which usually yields a resale price that is lower than the building’s market value, is designed to give the seller a fair return for his/her investment, while giving subsequent buyers/air access to a home or commercial space at an affordable price. By design and by intent, the CLT is committed to preserving the affordability of housing (and other structures) – one owner after another, in perpetuity.
How is a CLT governed?
Are all CLTs structured this way?
How does a CLT acquire land?
How does housing get built on a CLT's land?
What types of housing are developed on a CL T's land?
How fast does a CLT typically grow?
How does a CLT cover the cost of its own operations?
Who is eligible to purchase a CLT home?
How do individuals who want to buy CLT housing obtain financing?
What happens if a CLT homeowner defaults on his/her mortgage?
What happens if CLT homeowners want to resell their homes and move away?
What keeps a CLT home affordable for low-income homebuyers in the future?
“indexed formula” or a “shared appreciation formula.” In the first, the resale price of a CLT home increases at a rate that is pegged to annual changes in area median income, blue collar wages, consumer prices, or some other index. In the second, the resale price of a CLT home is determined by adding to the price initially paid by the homeowner a percentage of the home’s appreciated market value. For example, if the home appreciates in value by $40,000 between the time of initial purchase and the time of eventual resale, the seller might be paid $4,000, $10,000, or $20,000 over and above the price she originally paid when purchasing the home, depending on whether the share of appreciation specified in the CLT’s resale formula is 10%, 25%, or 50%. Regardless of the formula that is used, the CLT is usually able to repurchase the home for a price that is lower than the home’s market value. This below-market price is passed on to the next homebuyer, maintaining the relative affordability of the CL T home, one resale after another.
Can the buyers of CLT homes become absentee owners, subletting for a profit?
Who pays the property taxes?
What happens if CLT homeowners stop making repairs on their homes?
Can CLT homeowners make major improvements after purchasing their homes?
Why are local governments choosing to start or to support a CLT?
In some places, the initiative for establishing a CLT has come from municipal government, as in Burlington, VT, Portland, OR, Chicago, IL, Sarasota, FL, and Irvine, CA. In many other places, CLTs have been made favored recipients of a municipality’s financial and regulatory largess. Especially in jurisdictions with inclusionary housing programs, where regulatory mandates or financial incentives have induced private developers to create affordably priced housing for lower-income homebuyers, CLTs are being used to preserve the homeownership gains that a local government has worked so hard to create. What accounts for this growth in municipal interest and municipal support? Why are a growing number of local governments investing their scarce resources in nurturing the development of CLTs? Six reasons are given again and again:
- Developing Communities without Displacing People
A CLT has the ability to revitalize low-income neighborhoods without displacing the low income people who have long lived there. A local CLT can also complement smart growth policies at the regional level. When established in an inner-city neighborhood or an innerring suburb, the CLT can serve as a bulwark against rising prices and speculative pressures that often mount when anti-sprawl measures redirect investment toward the urban core instead of the suburban periphery.
- Perpetuating the Affordability of Publicly-assisted, Privately Owned Housing
Housing that is made affordable initially through public subsidies or regulatory measures like inclusionary zoning can be kept affordable continually. The ground lease used by the CLT is an effective, enforceable, and durable mechanism for ensuring that future generations of low-income and moderate-income households will have access to the same opportunity for affordable housing that is being created for these targeted populations today. Furthermore, the administrative systems that a CLT establishes to monitor and enforce the affordability, occupancy, and eligibility controls that are built into its ground lease may be used to monitor and to enforce similar controls that are incorporated into the deed covenants of housing that is not on leased land. The CLT can serve as the long-term steward for any type or tenure of housing which a public agency has helped to create.
- Retaining the Public’s Investment in Affordable Housing
Whenever public (or private) funds are used to subsidize the initial affordability of residential units (single-family houses, condos, etc.), those scarce subsidies are protected and recycled in those units forever. In contrast to policies and programs where subsidies are either claimed by the property’s owner at resale (subsidy removal) or re-claimed by the public agency that invested them (subsidy recapture), the CLT is committed to locking those subsidies in place (subsidy retention). When assisted homes are resold, an additional infusion of public or private monies will usually not be needed.
- Protecting the Occupancy, Use, Condition & Design of Affordable Housing
The CLT provides a durable mechanism not only for preserving the affordability of housing, but for preserving the occupancy, use, condition, and design of that housing as well. Embedded in the ground lease – or embedded in the deed covenant, if the CLT is serving as the steward for deed-restricted housing – are provisions that: (a) require the housing to be continually occupied as the owner’s principal residence; (b) restrict the housing’s use as a subleased rental property; (c) require the housing to be kept in good repair; and (d) require the housing to be maintained in compliance with local building and zoning codes.
- Enabling the Mobility of Low-income People
Every CLT inserts at least one new rung into a locality’s housing tenure ladder, bridging the gap that has opened up in many parts of the country between market-priced rentals and market-priced homeownership. Some CLTs fill this gap with multiple rungs, developing not only detached, owner-occupied houses on lands that are leased from the CLT, but developing duplexes, triplexes, limited equity condominiums, and limited equity cooperatives as well.(Some CLTs also develop and manage rental housing.) By multiplying the choices available to people when they seek to change the type and tenure of their housing, CLTs allow persons of modest means to move more easily from one form of tenure to another, improving their housing in smaller, more manageable steps. As an increasing number of CLTs expand their service areas, creating affordable housing on a regional basis, mobility can also assume a geographic dimension. Low-income households are given both a choice of housing and a choice of place. CLTs create an opportunity for economic mobility too. Despite the limit imposed on the resale price of a CLT home, the assets of CLT homeowners are enlarged. Most of these first-time homeowners build wealth, as they occupy a CLT home and when they resell.
- Backstopping the Security of First-time Homeowners
Too many first-time homeowners, especially those of limited income, fragile health, or physical or mental disability, eventually find they cannot bear the burden of owning a traditional, market-rate home – at least not by themselves. Too many of them eventually fail in maintaining and retaining the homes that were theirs, with disastrous results for the surrounding community and for the households who default and fall back into renting. By contrast, when a CLT puts low-income households into homeownership situations, usually with the help of public subsidies, these first-time homeowners are not forced to go it alone. The CLT protects their homes in times of trouble, intervening to cure defaults and prevent foreclosures. The housing is protected. The households are protected. The lenders are protected. And the public’s investment is protected. A CLT remains permanently responsible for the homeownership opportunity it helped to create, safeguarding everyone’s stake in a successful outcome.
How do CLTs respond to common concerns?
Given the relative unfamiliarity of this new approach to affordable housing and community development, it is not surprising that people have questions, confusions, and concerns. The most common of these are reviewed below.
“A CLT will remove land from the market and just sit on it.” CLTs acquire land specifically for the purpose of developing housing, services, and facilities that are needed by a community. CLTs are not land conservation organizations. CLT neither remove land from the development process nor exclude individuals from using the land for residential, commercial, or recreational purposes.
“A CLT will remove land and buildings from local tax rolls.” Community land trusts and CLT homeowner/leaseholders pay property taxes. There are few jurisdictions where CLTs have been offered – or where CLTs have accepted – an exemption from local property taxes for the lands that are owned by the CL T. There is no jurisdiction where the resale restricted, owner-occupied homes that are located on a CLT’s land have been entirely removed from local tax rolls. There are jurisdictions, however, where the value of these lands and/ or the value of these homes have been deemed to be lower than the market value of similar properties not encumbered with long-term leases and permanent controls over their affordability.
“A CLT will develop housing at a higher density than is acceptable.” Allowing greater density is a matter of public policy. A CLT may sometimes ask to build at a higher density than has been customary in a particular community in order to promote better land use practices and to reduce the cost of providing housing for low-income homebuyers. Whether or not such a request is granted, however, is a decision entirely in the hands of local officials.
“CLTs take away the opportunity for low-income people to build wealth.” CLTs help low-income households to gain access to assets they would probably never have been able to acquire without the CLT. Despite the limit that is placed on their home’s resale price, which usually limits the homeowner’s equity as well, most people who purchase a CLT home walk away with considerably more wealth than they would have otherwise possessed. They get back their downpayment when they resell. They get back whatever forced savings they have accumulated in making monthly payments on a mortgage. They may have accumulated voluntary savings, as well, because their housing costs have been stabilized. Under most resale formulas, moreover, they may be able to recover some (or all) of what they have spent in making major improvements and may be able to resell their ownership interest for more than its initial price, realizing a significant capital gain. Compared to the renters they were and the renters they would likely have remained had they not purchased a CLT home, most low-income households will be better off financially for having bought a home through a CLT.