CLTs make expensive homes affordable |
|
|
|
"The original paradigm was that your house was your home, not your nest egg; the latter is a fairly recent phenomenon that has particularly gone crazy in the last decade," Gilbert says.
Today, Gilbert says about one-third of the U.S. population
"can't afford to get into that game" of homeownership and "only
fall further and further behind."
While details vary among the roughly 200 CLTs around the country, community land trusts typically funnel federal, state, county, municipal and private funds into grants that help low-to-moderate-income buyers "buy down" the price of a home -- as Frank Video did -- so they can afford it.
Many CLTs also provide access to favorable financing via government-sponsored mortgage programs. All provide upfront education and ongoing support for their homebuyers.
Less risk, lower reward
The catch -- and it's a big one for some -- is that if and when owners like Video decide to sell, their homes are priced below market value to keep that unit permanently affordable.
In a CLT home purchase, the buyer owns the house but the CLT owns the land, which it then leases (via a ground lease for single-family home or covenant for condos) at a nominal monthly fee to the homeowner, typically for 99 years with a 99-year extension option.
Essentially, the CLT removes the cost of the land from the purchase price of the home. Homeowners must live in the house as their primary residence and retain all rights to privacy and the ability to transfer the home and lease to their heirs.
Should an owner choose to sell, the CLT retains the right to repurchase the house at a limited price based on a predetermined formula. The owner's fair compensation typically includes one-quarter to one-third of the home's appraised market appreciation, as well as reimbursement for most capital improvements.
"If a house costs $300,000, you're going to be able to buy it for $150,000," says Gilbert. "The catch is that when it sells, if it appreciated from $300,000 to $400,000 in five years, you're going to sell it for $200,000. You agree to that upfront. It's a bit like paying it forward."
For example, if Video sold, he would receive only one-quarter of his home's appraised appreciation. Video is also contractually obligated to either sell the home back to Homestead or, more likely, to another qualified Homestead first-time buyer.
For folks like Video who have no plans to leave,
it's the deal of a lifetime.
"I think it's the only option today for people who are restricted to how much they can spend, but it's for very specific buyers," says Video. "If your plan for financial independence is to make $50,000 or $100,000 on your home in a couple years, this is definitely not the program to do that."
Growing demand
CLTs have sprung up in all types of communities across the country. On the
Institute for Community Economics' list of CRTs, you'll find resort towns such as Jackson Hole, Wyo.; Key West, Fla., and Traverse City, Mich., alongside perennially unaffordable cities like San Francisco, Boston and New York City.
In recent years, forward-thinking municipal governments
in such cities as Chicago; Austin, Texas; and Irvine, Calif., have
started their own CLTs. Irvine has even set a goal of bringing as
many as 10 percent of its housing units into the shared equity housing
market between rentals and fee simple homeownership.
Sheldon Cooper, executive director of Homestead CLT,
says his organization has 25 units in the land trust and expects
to add many more in 2008. In overheated housing markets like Seattle,
even middle-income buyers with good credit are feeling the squeeze,
he says.
|
