In discussing public policy, most pundits would have us believe that our only choices are: A. government regulation. Or, B. the free market. The lack of imagination evidenced by such discussions is depressing. Surely we can come up with some innovative ideas that don’t simply reproduce past mistakes?
Indeed, we can.
Dollars and Sense magazine has an article about the Burlington Community Land Trust, which provides a case study of how one community managed to create affordable housing, effectively taking properties out of the market, without resorting to excessive regulation.
In fact, regulation was what Bernie Sanders and “his ragtag Progressive Coalition” initially wanted:
Frustration over housing issues came to a boiling point when the political establishment cut a deal with big-time developers to put an upscale apartment complex on the city’s scenic waterfront. Voter disgust with this plan to privatize public space led to an upset victory in the mayoral race by Socialist gadfly Bernie Sanders and his ragtag Progressive Coalition in 1981.
Sanders and the Progressive Coalition quickly sought to develop institutions and programs that would have a lasting impact on the community. The Progressives decided to make affordable housing a signature issue. Things got off to a rough start when their proposal for rent control was voted down after a coalition of property owners and establishment politicians hired a professional consultant to defeat it. With rent control off the table, and federal funding in short supply, the Progressives had to turn to more creative measures to address the housing crisis.
The land trust was the result. Here’s how it works:
Buying land through a housing trust involves several steps. To start, the trust acquires a parcel of land through purchase, foreclosure, tax abatements, or donation, and then arranges for a housing unit to be built on the parcel if one does not yet exist. The trust sells the building but retains ownership of the land underneath. It leases the land to the homeowner for a nominal sum (e.g., $25 per month), generally for 99 years or until the house is sold again.
This model supports affordable housing in several ways. First, homebuyers have to meet low-income requirements. Second, the buying price of the home is reduced because it does not include the price of the land. Third, the trust works with lenders to reduce the cost of the mortgage by using the equity of the land as part of the mortgage calculation. This reduces the size of the down payment and other closing costs and eliminates the need for private mortgage insurance. In all, the trust can cut the cost of home ownership by at least 25%.
… This model gives the buyer the benefits of homeownership (including the tax deduction for mortgage interest, wealth accumulation through equity, and stable housing costs) that would otherwise be beyond her means. In return, she gives up the potential of windfall profits if the market keeps rising. BCLT recently published a study of the first 100 trust homes that were sold to a second generation. “The implications were very powerful,” says Brenda Torpy. “The initial homebuyers realized a net gain of 29% on the money they had invested. Our homeowners were taking an average of $6,000 with them. These aren’t the sky-high returns that some people have come to expect from the housing market, but these were people who would never have entered it in the first place.” That’s because most BCLT homeowners “would never have been able to buy homes otherwise, even with existing federal and state programs,” explains Torpy. “For many, we are a stepping stone between renting and homeownership.”
One of the things I really like about this solution is that the new affordable housing is spread throughout the community, since it is buyer initiated (the buyer identifies the property and then requests support in purchasing it from the land trust). This avoids the NIMBY problems associated with large scale developments of affordable housing, and ensures that low-income families have access to all the same services available to their neighbors.
The BCLT has become an important force in Burlington’s housing market. After 20 years, the trust controls almost 650 housing units, including over 270 rental apartments and 370 shared-appreciation single-family homes and condominiums—about 4% of Burlington’s total housing stock. The process is “buyer initiated”; the buyer picks out the house and asks the trust to incorporate it. Therefore the units are dotted all over the city. The trust has also built a wide variety of homes in various styles to fit into particular neighborhoods. “Most of them are modest,” says Torpy. “We’ve found that condos are good starter homes. They’re something new but are still affordable. But we’re also building modular homes and 2- and 3-bedroom homes.” The BCLT’s programs also include tenant-owned cooperatives, a family shelter, a transitional shelter, and housing for homeless youth, the mentally ill, and people with HIV/AIDS.
I’m sure the land trust has its down side as well, but what is important is that people are trying something truly innovative and it seems to be working.