Land speculation has been one of the most popular American pastimes since before we parted ways with Great Britain. Its impact is especially pernicious in urban areas where finite land—combined with the ability for cities to enact policies (e.g. zoning) or make investments (e.g. parks, highways) that raise the value of land and the incentive for cities to do so because much of their revenue comes from property taxes—makes for a fertile breeding ground for speculation and corruption.
When a neighborhood or a city, for whatever reason, becomes more attractive the price of land, and thus the price of housing, rises. Sometimes so dramatically that it displaces existing residents, some of whom have been there for decades. Most recently the flight from cities that characterized the post-World War II generation has reversed and a growing number of cities are witnessing a mass in-migration, often of people with greater means, roiling local real estate markets and threatening neighborhood instability.
Cities have used various strategies to sustain existing neighborhoods and nurture affordable housing. Regrettably, many states have taken away their most powerful weapon—rent control—leaving only strategies that bribe developers in one form or another to do the right thing. This has proven, on the whole, a costly, largely ineffective and unsustainable approach.
In the 1960s some far reaching thinkers and activists devised a new legal strategy to address the problem, a strategy that upended traditional American concepts of property ownership. Their creation, the Community Land Trust (CLT), creates a social real estate market that combines a social market in land with a largely private market in housing.
Community land trusts are nonprofit organizations, with a board usually composed of representatives of the public, local government, and tenants. The trust owns the land and leases it to the homeowner for a designated period, often 99 years. The homeowner receives a fixed rate of appreciation. By taking the land out of the market, the CLT lowers the price of housing. Limiting the proportion of any increased value of the housing that goes to the homeowner also keeps the housing affordable.
In his 1996 PhD dissertation, Reinventing Real Estate: The Community Land Trust as a Social Invention in Affordable Housing, James Meehan examined the birth and evolution of this new real estate vehicle. He tells how decentralists and commoners Robert Swann and Ralph Borsodi, founders of the International Independence Institute, later renamed the Institute for Community Economics (ICE), developed the concept. It was applied first in rural Georgia to preserve land for African-American farmers. In 1972 Swann published Community Land Trust: A Guide to a New Model of Land Tenure in America to promote the concept. For the next two decades ICE became its principal advocate and cities became its chief breeding ground.
Bernie Sanders helps pioneer a new form of housing ownership
Burlington, Vermont established the first urban CLT. The city offered fertile territory for introducing the model. It had the need in the form of a rapidly inflating housing market. And it had the opportunity in the person of its mayor, Bernie Sanders.
As Jake Blumgart reports in Slate, “When the idea was first presented to his administration and its allies in 1983, Sanders voiced serious reservations. The mayor feared the restrictions on reselling properties would create a form of second-class home ownership. If middle- and upper-class people could build wealth off their houses, why should the working class be limited to shared equity? Sanders’ preferred methods of ensuring housing affordability were rent control—which Burlington voters shot down in a referendum in 1982—and providing direct subsidies to low-income residents who wanted to buy homes.”
Bernie came around and embraced the concept decisively. In 1984 his administration boosted the land trust with a $200,000 seed grant and municipal staff support. The city later made a significant loan from its pension fund to the land trust and raised additional funds from local businesses and federal resources. To provide on-going significant funding, in 1988 the city established The Burlington Housing Trust Fund bankrolled by a small increase in property taxes.
The land trust concept was not universally embraced. “An opposition group upholding property rights organized and picketed the Board of Alderman,” Meehan writes. “One realtor said, ‘If you believe that one of the most precious rights we, as individuals, have in our country, is the right to own land, a right protected by our Constitution, then you should take a long, hard look at this land trust.’”
Land trust advocates prevailed.
In 2006 the Burlington Community Land trust merged with the Lake Champlain Housing Development Corporation to form the Champlain Housing Trust (CHT), which serves three Vermont counties. In the last two years, CHT has increased its portfolio by purchasing several hotels and apartment buildings and converting them into housing and lodging for the homeless. Its operating budget is over $10 million.
Today, according to Blumgart, CHT holds about 565 homes in a land trust plus 2,100 rental and cooperative units. Half are within the city of Burlington where they constitute nearly 8 percent of the city’s housing stock.
Reviving one of the poorest neighborhoods in America
In 1984, a neighborhood in Boston took the concept and applied it on the community level. The Dudley Street neighborhood was characterized by burned out and abandoned houses. As Peter Medoff and Holly Sklar note in their path breaking book, Streets of Hope: The Fall and Rise of an Urban Neighborhood, the Boston Redevelopment Authority maintained that in 1980, “the per capita income of the Dudley Square residents was one of the lowest in the nation, on a par with the poorest counties in Mississippi, or Indian Reservations of the West.”
Led by neighborhood residents, with the support of foundations, the Dudley Street Neighborhood Initiative (DSNI) held a series of meetings in which hundreds of residents hammered out a plan that included job and business development, affordable housing, human service provision, improvements in education, playgrounds and public space, and youth development. The city adopted DSNI’s plan but its implementation required one more innovation.
The “Dudley Triangle”, a 60-acre area, consisted of city-owned land interlaced with tax-delinquent properties, and vacant private lands. The neighborhood asked the city to grant it the authority to take the parcels, an eminent domain authority that heretofore had only been exercised by governments. In 1988, the Boston Redevelopment Authority granted its request.
The DSNI largely used foundation money to purchase private properties and purchased city-owned land very cheaply.
As Harry Smith, DSNI’s director of sustainable economic development told Blumbart, writing for Next City, “we never really used the actual power of eminent domain. We used it more as a stick, so if there were absentee owners who weren’t coming to the table and weren’t engaging we could send them a letter and say we are going to exercise the power of eminent domain. That would get their attention.”
According to Dudley Neighbors Inc. the 30-acre Land Trust that today boasts 225 units of affordable housing, a playground, a mini-orchard and community garden, a greenhouse, commercial space and office space.
Land trusts proved their value during the 2008 real estate crash
In 1987 ICE convened the first national land trust conference. Meehan reports the gathering included 24 established and developing CLTs. A year later the number of CLT’s attending doubled. Blumgart reports that by 1990 the number had reached 120. After a period of stagnation in the 1990s, the number of CLTs increased rapidly, reaching more than 280 today.
Member organizations of the National Community Land Trust Network (which in 2017 merged with Cornerstone Partners to become the Grounded Solutions Network) now have around 25,000 affordable rental units and 13,000 to 15,000 affordable owner-occupied homes.
The housing collapse in 2008 tested the viability and utility of CLTs. They passed the test with flying colors. A 2010 report by the Lincoln Institute of Land Policy, Outperforming the Market used a 2010 survey of CLTs conducted by the National Community Land Trust Network to conclude that those who took out conventional mortgages were over 8 times more likely to be in the process of foreclosure by the end of 2009 than those with CLT mortgages. That disparity soared to more than 25 times if the homeowner had a subprime mortgage. Similar disparities occurred in the comparative rate at which homeowners were delinquent in their payments.
These low rates of foreclosure and delinquencies were a result of the CLT’s stewardship. In the pre-purchase stage, the non-profit organization protected homeowners from predatory mortgage lenders. Post-purchase, it intervened where needed to make mortgage payments current or preclude foreclosure completion by using a variety of strategies: financial counseling, direct grants or loans, arranging the sale and purchase of a less expensive unit, and working with homeowners and lenders on permanent loan modifications.
Low-income households enjoy significant economic benefits from home ownership only if they remain homeowners for a number of years. The Urban Institute, found that 90 percent of low-income households remained homeowners five years after buying a shared equity, CLT home, far exceeding the 50 percent home ownership retention rate the Lincoln Institute reported as the 2010 average among low-income homeowners in the conventional market.
For policy makers and city officials the Lincoln Institute’s report had an important message, “CLT home ownership appears more sustainable than private market options for low-income homeowners”
The promise and challenge today
The use of CLTs as a strategy for preserving neighborhoods and affordable housing units is still a work in progress. Banks remain wary of financing these projects. Blumgart reports that the North Camden (New Jersey) Community Land Trust collapsed in 2007 because local banks would not allow it to refinance its loans after the Great Recession.
Most cities still tax CLT property as if it were conventional property although the National Community Trust Network reports some states (including Florida, North Carolina, Vermont) have adopted legislation requiring that CLT property be assessed at a lower value than unrestricted property because of its unique ownership structure.
While interest in CLTs continues to grow, community groups are increasingly fighting the clock. When the Dudley Street Initiative was born, land in that part of Boston could be had for a song. Now its price is escalating rapidly. In 2015, Boston’s nascent Chinatown Community Land Trust was thwarted in its first attempt at acquisition when it came up short in a bidding war with a developer. Undaunted, this past March, an alliance of a dozen local neighborhood groups formed the Metro Boston Community Land Trust.
Today urban real estate prices are soaring, even in some parts of hard-hit cities such as Detroit and Buffalo. This challenges the growth of CLTs. It also instills a sense of urgency. Many neighborhoods have yet to experience gentrification, but they know it may be coming.
Regrettably, cities have yet to invest significantly in CLTs despite considerable evidence of their value not only to their members and low-income neighborhoods but also to the city as a whole. Reducing foreclosures benefits neighbors and the city alike. Foreclosed properties significantly diminish nearby housing values. Depreciation leaves remaining homeowners vulnerable to foreclosure and their neighborhoods to increased crime.
Foreclosures also impose costs on municipalities. The costs of administrative fees attendant to foreclosure, demolition of vacant properties and declining property taxes can run into the tens of thousands of dollars per house.
Given the increasingly urgent nature of the problem, and the increased capacity of CLTs to expand, activists are asking cities to raise the bar. In Baltimore, for example (which leads the nation in evictions while holding 30,000 vacant homes) a coalition has proposed a $40 million investment in CLTs. Mayor Catherine Pugh has endorsed the proposal.
Vermont remains the pacesetter. In June the state’s legislature enabled the issuance of up to $35 million in revenue bonds, the largest housing investment in Vermont’s history. The resources are dedicated to housing that is permanently affordable.
Vermont’s population is just about the the same size as Baltimore’s.