Editor’s Note: This is the second part in a three-part series on local innovations focused on affordability and community development. Read part one here.
Often in the housing industry, people get caught looking up. Expecting the next big thing or the solution to long-standing problems to come from a national think-tank, a big conglomerate or an established thought leader is not misguided—a lot of world-changing ideas do, of course, originate from these spheres. At the same time, it is easy to miss spectacularly innovative new ideas or approaches simply because they come from elsewhere—from small markets, from outsiders and from different disciplines.
As the entire industry buckles under the weight of a long-simmering crisis of both affordability and lack of inventory, it is possible real estate will claw its way back up through methods and approaches already practiced. It is also possible that, high in the upper echelons of the C-suite, experienced executives and academics are concocting the eventual solutions that will address longer-term problems in real estate like the racial homeownership gap, pessimism around affordability, entry-level new home construction and gentrification.
But it is also possible these ideas are germinating at the grass-roots level, driven by innovators who have found new ways to view housing unencumbered by the burdens of convention and preconception, drawing on resources or expertise not endemic to industry thinking. With how local real estate is, it seems even more likely that great change might grow from the bottom up rather than top-down.
Almost always starting small, these ideas have the chance to grow and spark real and foundation change in how we think about housing:
The Community Land Trust
Not a new concept by any means, the non-profit Community Land Trust (CLT) has spread broadly across the country with hundreds of models in cities both large and small, overseeing hundreds of homes or just a handful.
Though they have been around for decades, Nancy Williams, who runs a CLT in the small town of Waterville, Maine, says that she is suddenly getting a lot of inquiries and seeing CLTs mentioned in the media.
“It’s not new at all,” Williams says. “We can both provide affordable homes and revitalize neighborhoods.”
Though the specifics vary from CLT to CLT and from state to state, the idea is that the non-profit entity purchases land with agreements or leases to keep the land affordable long-term. Homes on this land are sold at a below-market rate to owner-occupants with a mortgage, and that person receives some percentage of the appreciation when they sell.
Williams says about 60% of CLT homeowners go on to purchase market-rate homes. Very importantly, the home they just vacated remains affordable for the next person, preventing a cycle of gentrification where even relatively affordable areas quickly spiral out of reach for lower income folks.
One of the best things about the CLT model is that it has been proven to work in nearly every type of community, with hundreds spread across the country—especially important in a market like the current one, where affordability is a huge barrier for rural, suburban and urban regions.
Ashley Allen is executive director of the Houston CLT in Houston, Texas. They have worked directly with the city and with a local land bank in the area to quickly match people with homes, circumventing the often lengthy wait times that characterize other affordable housing models.
Allen says one of her priorities was to purchase properties at market rate in areas where lower-income people already live, making that land part of the CLT. This means no one is forced to leave their neighborhoods to find something affordable.
Around 50 people had purchased homes in this way in 14 neighborhoods as of late last year, she says.
“Part of what we were trying to do is allow for everybody in Houston to partake in this affordable housing opportunity,” she says.
Most mortgages Allen sees are around $90,000, administered by a handful of lenders the Houston CLT has a relationship with. Homeowners receive a fixed 1.25% annual appreciation on the home and receive back whatever of that principal they paid when they leave.
A lot of people who do own homes in the fast-gentrifying Houston area are pushed out as property taxes grow or maintenance costs make market-rate homes untenable.
“Our program is not for people who are able to ride the wave of gentrification and appreciation in their homes,” Allen says. “What we’re seeing is people being able to build wealth in other ways because they’re not burdened by trying to keep this asset of a home that is a struggle for them.”
Preserving some level of affordability in these areas is particularly important for Black residents, who often see amenities spring up and home prices balloon only after they are forced to leave an area, meaning they are unable to build wealth through housing. Also, some older people simply want to stay in a neighborhood they love and have family or friends in, according to Allen, while younger people often need the boost of that relatively small amount of equity to make it into the unsubsidized market.
The stability created by keeping these homes occupied and maintained also can’t be overstated. As Allen has seen dozens of historically neglected neighborhoods thrive around CLT properties, in Waterville, Williams has been doing a lot with a lot less.
As her CLT fixed up and sold a property in one neighborhood—an area that had been essentially abandoned for at least 40 years—Williams says three other properties were purchased and renovated.
“When a house that’s really in poor condition suddenly becomes rehabbed, it gives hope to other people around it,” she notices. “In a way, we already accomplished our goal because we’ve already made a positive change in the neighborhood.”
With no paid employees and essentially all their funding coming from other non-profits or philanthropic foundations, Williams says the Waterville CLT is limited in how much it can scale, especially as the cost of building materials and labor continues to climb. There is also currently a huge opportunity to help move people toward homeownership that unfortunately is likely going to be missed, she describes, with many local landlords in the rent-heavy city putting their properties on the market.
“There’s this huge shift that’s happening in the market,” Williams says. “If there are out of state investors that think that Waterville is a great market, they’ll pay $220,00 for a property that has been assessed for the last ten years for something less than $80,000. We can’t compete with that.”
If CLTs like Waterville could get their hands on even a fraction of these properties instead of having them rented at increasingly wild price points with little in the way of improvements, a whole new path for homeownership would open up, Williams claims, as opposed to just increasing the number of low and moderate income folks overpaying for rent and unable to save for down payments.
“I would need a lot more money in order to participate in that market,” she admits.
In both Waterville and Houston, another thing the CLT model offers is stability, which is also key in helping lower-income folks achieve homeownership. Williams says that she and her team are regularly checking in on their homeowners, able to assist with financing or more practical problems, and Allen describes a holistic support system both before and during homeownership, including job assistance and credit rehab.
Allen also emphasizes that helping people meet the fundamental need for shelter and ensuring they don’t have to worry about eviction or sudden rent increases does wonders for their physical, mental and financial health. She says one woman recently got a new job, refinancing her CLT mortgage to build equity faster as she begins looking at the unsubsidized home market.
Regardless of where people are in their lives, though, Allen argues the CLT model is essential for bringing homeownership to those who are just at the cusp of that dream, while maintaining local support, control and insight.
“We look at this as a tool particularly for people who are of limited income who would not be able to keep their homes or who would never be able to enter the housing market,” she says.