Why You Should Give Up Your Land
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Judgments: Opinions on the news.
Why You Should Give Up Your Land
Community land trusts can prevent foreclosures, yet few use them.
By Nik Steinberg
Posted Tuesday, April 14, 2009 - 10:46am
By every indicator, Boston's Dudley neighborhood should be riddled with foreclosures. One in four of its families lives below the poverty line. The unemployment rate there often runs twice as high as the rate in the rest of Boston. And the neighborhood is filled with newly built houses, condos, and apartments.
But banks aren't repossessing homes in the Dudley neighborhood. In fact, this February workers put the finishing touches on a brand-new apartment complex where, despite the real estate collapse, every unit had been presold. What's Dudley's secret?
The answer is that most of the property there is part of a community land trust—a form of shared equity that separates the value of homes from the value of the land they rest on. Dudley's CLT has more than 200 units, and not a single one has been seized by the banks in the collapse.
Not many real estate developers, let alone average Americans, have heard of CLTs. But their resilience in staving off foreclosures is catching the attention of more than a few policymakers and developers. A study performed by the National Community Land Trust Network in 2008 found that, nationwide, CLTs' foreclosure rate was about one-thirtieth the national rate—only 0.06 percent, or six in every 10,000 homes.
Much of the CLTs' success can be traced back to the model itself. First, because trusts own a considerable share of homeowners' properties (the land), houses and apartments in community land trusts tend to be cheaper; one 2005 study in Vermont found that median monthly rent for a CLT was about 40 percent cheaper than other housing. That means smaller mortgages and lower monthly mortgage payments.
Second, CLTs vet potential homeowners and monitor their upkeep. This is simple self-interest. Trusts and their homeowners are partners in a joint investment, and nobody wants partners who can't hold up their end of the deal. Recently, CLTs have proven much more adept than other lenders in distinguishing who can afford mortgages from who cannot (compared with say, WaMu, where they'd probably have given a loan to a dead person).
(Photograph of a foreclosure sign by Justin Sullivan/Getty Images)
Comments
Reply from an Oregon community land trust
I am a member of the 10-year old Community Land Trust in Clackamas County, Oregon (suburban Portland). We, too, know a homeowner like the one you described in Chicago who went to the CLT, which intervened and helped her to work out a solution with her lender. Many of us at CCLT especially appreciated the article's insights on foreclosures and the buffer CLTs provide against them. We think that's a great argument for municipalities and lenders to throw more support to CLTs. We want to make a couple points: 1. In Clackamas, we're anxiously awaiting almost $900,000 in federal Neighborhood Stabilization Program funds, and we're ready to buy foreclosed homes in the community when we get it. Mr. Steinberg wrote that CLTs have been passed over by federal stimulus programs. It's true there isn't a set-aside spelled out in a piece of legislation, which is certainly a missed opportunity by lawmakers. But CLTs have long been recognized and defined by the federal government (in the policies of FHA and Fannie Mae). 2. To respond to the source from the Urban Land Institute who said no matter how successful a CLT is, Americans still probably won't go for it: We understand and believe in the American Dream. We know why people want to own a home and we want to help them get there. We want people who sell their CLT home and have the ability to purchase in the conventional market to do so. We would never tell anyone who has the means to buy their home and their land not to: we're not against private land ownership in any way. I know this ULI official wasn't saying that, but I think it's important to point out. Often we have to explain this. We think a lot about the "path to homeownership" at our organization. We're also convinced, however, that shared equity ownership like the CLT model is a safer way to promote homeownership among people of lower-incomes than the policies of the past 10-15 years. That's what got us into this big economic mess we're in. Research shows there's an increase in the public's willingness to consider shared equity (or shared appreciation, deed restricted, etc.) housing options like CLTs when traditional market ownership is out of reach for them. We have 31 homes in our trust that have served 37 homebuyers of lower incomes, and many hundreds of people have attended our homebuyer education program to receive unbiased information about mortgages and lending. We think the best way to fight harmful lending practices is by arming people with the knowledge they need to be successful; that's also why we provide financial education and instruct people on the need to make savings and spending plans. Thanks for the article.