Why You Should Give Up Your Land
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Why You Should Give Up Your Land
Community land trusts can prevent foreclosures, yet few use them.
Posted Tuesday, April 14, 2009 - 10:46am
John Davis is a founding partner of Burlington Associates, a consulting group that advises communities and cities on how to set up and run CLTs. He says that with an infusion of capital, CLTs could march right into some of the neighborhoods hardest hit by foreclosures and say: "Look, we'd like to buy the land under your feet. Here's a check for $30,000. We just want you to agree that when you're ready to sell, you'll sell to us, and that you may not get the full market price."
According to Davis, the government, foundations, or private investors could do this by investing in trusts with proven track records or by seeding new CLTs across the country. And while he concedes that CLTs wouldn't work in every market—trusts cannot, for example, stimulate demand in completely blighted cities like Cleveland—CLTs could go a long way toward helping many homeowners get back onto a sustainable payment plan.
But for all the money being poured into shoring up the housing market, CLTs keep getting passed over. Neither last summer's Neighborhood Stabilization Program nor the recent American Recovery and Reinvestment Act sets aside funds from their billions in housing money for investing in CLTs.
Much of this boils down to ideology. The house with the white picket fence has been part of the American dream for generations. Yet over the past several decades, Americans have come to see their homes not only as places to live and status symbols but also as a key source of wealth generation. By the '90s the dream had less to do with owning a home than it did with making money by flipping it. It was about accruing value—and fast. This held true across class and race lines. For the poor, owning (and eventually selling) a home was seen as a fast track out of poverty. For the rich, it became yet another way to add to the coffers.
And the model delivered. In fact, it worked too well. In Florida, gardeners became mortgage brokers, drug dealers became developers, and a bank teller earning $23,000 a year could buy a house worth 10 times her income. The entire global market bet on it: banks and government agencies, hedge funders and pensioners. And then—POP!—they all lost.
The CLT model breaks with the idea of the home as a form of instant wealth generation. CLTs have a formula for determining the price at which homeowners can sell their property—one that takes into account inflation and improvements made by the owner—though it still promises a modest return on the investment. This formula is designed to keep housing affordable at the market's peak and safe from foreclosure when it hits rock bottom.
(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.