How to get ‘free’ money for housing
by Caleb Reading
As the name suggests, Homestead is an example of a community land trust — a nonprofit organization that seeks to make homes permanently affordable for credit-worthy, moderate-income, first-time home buyers who live in communities where housing prices have passed them by.
Unlike traditional land trusts, which typically seek to preserve undeveloped land, the goal of CLTs is to encourage owner occupancy and seed investment. CLTs are often promoted as a way to maintain sustainable, affordable neighborhoods for people such as teachers, firefighters, police officers, public employees, service workers and other lesser-paid but vital members of the community.
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 a 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.”
Here’s a list of Community Land Trusts in the U.S., Canada, and U.K.