October 15, 2013
The land trust movement in the United States has gained notoriety over the past 20 years mainly for its role in environmental conservation. Known as land conservancies, these non-profit organizations, such as the Nature Conservancy, acquire development rights or land in fee simple. in order to conserve natural resources by protecting land from development.
A lesser-known type of organization, a community land trust (CLT), uses similar legal tools in a very different way to accomplish very different objectives: the preservation of affordable housing, avoidance of gentrification and building of community wealth. The CLT movement began in the early 1970s
According to community-wealth.org. there were 242 community land trusts in the United States in 2011 with about 10,000 housing units serving over 12,000 residents. A majority (82%) of those residents had incomes below 50% of area median, had 31% were non-white.
The CLT model works by purchasing land on behalf of the community and holding it in trust in perpetuity. The CLT can sell the land and structures on the properties, with option to repurchase, or enter into a long-term lease, typically a ground lease, during which the tenant can make improvements to the property, and during which time the CLT maintains an interest in maintenance of the structures and property. If the buyer chooses to sell, the CLT retains the right to re-purchase the structures for an agreed-upon formula giving the buyer partial equity. The remaining equity stays with the CLT, and the structure is re-sold below-market rate. The cost of the land is forever retained within the trust.
The National Community Land Trust Network provides resources and coordination for CLT’s in the United States.
Steps for Establishing a Community Land Trust
Several rationales exist for starting and supporting a CLT. When establishing a CLT, one or more of the following rationales are commonly identified:
- Developing communities without displacing people (avoiding gentrification and displacement of low-income residents),
- Perpetuating the affordability of privately owned housing (avoiding market-rates on housing that was developed intentionally for affordability by public or private measures)
- Retaining the public’s investment in affordable housing (avoiding market-rates on housing that was developed for affordability by with public dollars)
- Protecting the occupancy, use, condition, and design of affordable housing (ensuring occupancy, stewardship and maintenance of affordable housing over time)
- Assembling land for diversity of development (assembling land under which CLT tools can be used to develop multiple types of development within the CLT’s service area)
- Enabling the mobility of low-income people (providing additional routes to housing for lower- and moderate-income people beyond what the market offers)
- Backstopping the security of first-time homeowners (stepping in to cure defaults and prevent foreclosures, protecting the homeowner, the housing, the bank and the community)
CLTs generally get their start from some sort of impetus initiated by one of the following four potential sponsors:
- Individuals and institutions at the grassroots level (typically faith-based and community organizations). Advantages of grassroots organizations include acceptance by the community being served, legitimacy in the eyes of lenders and funders, market insight, and a lack of baggage from other of organizations. Disadvantages include challenges in building staffing and financial capacity, credibility, competition with existing organizations, and difficulty in selecting beneficiaries.
- Governmental officials at the local, regional, or state level (typically municipal government), Advantages include access to public community development funds, staff support, regulatory assistance, and a view f the entire housing non-profit local landscape to establish the appropriate niche for a CLT. Disadvantages include public distrust of government, political tainting, a top-down approach that may be perceived to be out of touch with community needs, and resistance to including community members in the CLT governance structure.
- Other nonprofit organizations operating within the CLT’s service area (typically community development corporations, social service organizations or housing non-profits, which may convert, spin-off, adopt a CLT as a program, or establish an affiliate organization). Advantages can include foundational capacity form the existing nonprofit, increased productivity, credibility, compatibility within the nonprofit housing network, and diversification and renewal of an exsting nonprofit. Disadvantages can include political baggage attributed to the parent non-profit, difficulty in adjusting leadership and board structure to accommodate the need for a CLT to be accountable to leaseholders and the community, divided loyalties and lingering control.
- Local businesses and banks (typically businesses concerned about the ability of lower-income employees to secure affordable housing).
Advantages can include early capacity and sponsorship, provision of starter homes for working families, and leveraging of private dollars for public funds. Disadvantages can include control and power concentrated at the business, failure to embrace the CLT model where it contrasts with traditional business models, and a tendency to target higher on the income scale (towards working families and above the structurally unemployed).
The CLT must decide early on who its target beneficiaries are, as this will determine the type and tenure of housing, the amount of subsidy the CLT will need to provide to make housing affordable to the targeted beneficiary, the types of funds the CLT can access, and design of the resale formula, marketing plan, selection criteria, and organizing strategy.
When determining beneficiaries, an assessment of community need revolves around three main decision points:
- Where on the income scale to begin
- Whether future sales should target lower on the income scale (increasing affordability) or at the same level (to maintain affordability)
- Whether other factors beyond income (families, disability, age, geography of residence or work) be factored into a decision
Targeting higher incomes will mean challenges with nonprofit incorporation and securing means-tested public funding, greater resistance in lower-income neighborhoods, and
less risk of default and maintenance issues resulting in lower administrative costs.
Maintaining affordability may mean a better equity share for sellers; expanding affordability may speed the rate at which a CLT can expand and meet its mission, as resources that would go into subsidy on subsequent rounds of sale can be used instead to acquire new properties.
Advantages of taking other factors beside income I to account can include neighborhood development objectives, broadening appeal, and tailoring developments to meet the unique needs of specific targeted groups. Risks include losing out on public funding targeted towards low-income persons, running afoul of equal-protection housing laws, and perpetuating patterns of discrimination based on income an color.
CLT’s are place-based organizations and must define the geography within which they will operate and serve. A CLT can operate at the scale of a neighborhood, a city, and metropolitan area, or a state.
Advantages of operating over a large geography include mobility for low-income people, establishing a ”fair share” of affordable housing in the suburbs, securing lower-cost land for development outside of the urban core, a wider pool of applicants allowing increased selectivity, opportunity to build a broader constituency, increased opportunities for collaboration and funding, and opportunity to participate in regional smart growth planning and development.
Disadvantages of going large include increased management costs, loss of accountability, perception as absentee landlord, competition from other organizations operating locally, NIMBY-ism, contributing to sprawl, and less community development and organizing.
Key constituencies of CLTs include grassroots community advocates, nonprofits, and government agencies, housing professionals, public officials, private lenders and donors.
The three key organizing principles for a CLT include:
- Community organizing: campaigning at the grassroots level within a neighborhood. Advantages include early awareness and acceptance, recruitment, marketing, and fundraising, Disadvantages include time consumption, engendering high expectations in the community, and opening up for criticism before the CLT is established.
- Core group organizing: approaching influential institutions and individuals to engender support. Advantages can include faster support, faster development, credibility, borrowing capacity; disadvantages can include the burden of elitism, borrowed baggage, and increased market risk.
- Resource organizing: a few advocates secure resources (funds and/or ands) from donors to seed the fund and staff the CLT, then staff commences community or core group organizing, Advantages can include acceptability, early staffing, and leveraging of resources. Disadvantages can include guilt by association with a donor who has earlier been perceived to have wronged or neglected a community, building projects before the organization has time to develop, too much money at once risking misuse of funds by forcing development into a single direction, possibly a bad one, quickly.
Some options for CLT land development include:
- CLT-Initiated Projects. CLT acts as developer. Issues include role of the CLT, conflicts, capacity, and resources.
- Buyer-Initiated Acquisition. CLT purchases land and building from the seller and executes a ground lease with the buyer. Issues include pre-qualification for homebuyers, source and amount of subsidies, neighborhood targeting, types of housing accepted, and inspection and maintenance.
- Developer-Initiated Projects: Developer approaches CLT and assumes risk during construction. Issues include protections for CLT and evaluation of projects.
- Stewardship Projects with Partners Doing all Development: CLT makes parcels available to developer partners, taking an active role in land assembly and stewardship but not developing. Issues include sources of funding for the CLT of developer fees are foregone, CLT’s role in ensuring quality development, and partnerships.
- Municipality-Initiated Projects: Municipality conveys land to CLT for a specific purpose (typically for the CLT to develop affordable housing). Issues include cost of land, allocation of risks, and any reversion clauses.
- Municipally mandated units (inclusionary zoning): CLT monitors and enforces inclusionary requirements on behalf of municipality. Issues include compensation for services to the municipality and responsibility for units not on CLT-land.
- Public Housing Authority: Divested Property: Land is conveyed from the PHA to the CLT to ensure continued affordability. Issues include CLT’s role in managing existing tenants, price of land, and post-conveyance services to residents.
CLT’s need funding to pay for a variety of functions related to land acquisition, construction, and subsidies. Sources of project funding include:
- Federal Programs: CDBG and HOME Funds- may require special designation of CLT as a Community Housing Development Organization by Local Participating Jurisdiction. HUD Funds for organizational planning and development are also available.
- Federal Tax Credits: Low Income Housing Tax Credits and Historic Preservation Tax Credits
- Federal Home Loan Bank
- Private Lending Institutions
- State Housing Finance Agencies
- Institute for Community Economics’ Revolving Loan Fund
- Housing Trust Funds
- Tax Increment Financing
- Municipal Real Estate
- Private Developer Exactions
- Pension Funds
- Private Foundations
- Private Land Donations
- Development Fees
- Lease Fees
Sources of Operational Funding:
- CDBG & HOME
- Private Institutions
- Private Donors
- Grassroots Fundraising
- Development Fees, Rental Income, & Lease Fees
Project funding issues include avoidance of subsidy erosion over time; a CLT seeks to retain the subsidy in the housing stock, acquiring grants to subsidize both land costs and building construction, and strong partnerships with local lending institutions. Issues in securing operational funding include competition with other nonprofits, surviving foundation fads, and staffing levels.
It takes about three years for a CLT to establish itself within a community. It's may seem like a lot of work and time, but CLTs offer a lasting, systemic solution for affordable housing.
This how-to is based on the publication, Starting a Community Land Trust: Organizational and Operational Choices , by John Emmeus Davis. Highly recommended if you need more detail.