Another path to owning your own home and building wealth: community land trusts

home-ownership-trustsFor many families, owning their own home is still a pillar of the American Dream. Thanks to a new model for affordable homeownership, they might now have another option to make it possible: community land trusts.

Here’s how it works. Rather than renting or buying a house from private sellers at market rates, these would-be homeowners buy from the nonprofit land trust at a reasonable price below market rates — which at high levels would otherwise shut out low-income Americans. The land trust then continues to own the land upon which the house is built; should the resident wish to sell the home later, it also limits the selling price. In this manner, the land trust preserves the home’s affordability for future buyers while allowing the current resident to enjoy predictable housing payments, stable neighborhoods, and the various other benefits of homeownership.

Land trust homes are not without trade-offs. A crucial one, for example, is the restricted selling price, which will prevent a home seller from reaping huge gains should local home prices skyrocket. As such, the land trust concept has faced criticism that it undermines wealth accumulation through home equity. That said, Yes! Magazine addresses those concerns and explains here why community land trusts still offer a “stepping stone to lasting wealth”:

Proponents of the model say that land trust homeowners actually do build wealth. While they may not build as much equity as they would from owning a market-rate home, they note that lower-income people would not be able to afford market-rate homes in the first place.

…Studies confirm that Ilstrup’s experience of land trust homeownership as a stepping stone to market-rate homeownership is shared by many others.

…Each of these land trusts allows owners to keep 25-30 percent of any appreciation of the market value of the property. These returns on initial investments far exceed those that would have been possible if they had invested their down payment in stocks or bonds.

Furthermore, 68-78 percent of the sellers went on to buy market-rate homes. Far from being trapped in subsidized housing, most land trust homeowners are improving their financial situation to the point where they can afford to buy at market prices.

Perhaps the best news is that these land trusts were not only able to support homeowner asset-building, but also retained the affordability of these homes for future generations. Ilstrup says that when he sold his condo, he didn’t “begrudge the grant going to the next owner, who was a single mother with a child.”

Thus, the land trusts effectively preserve and recycle the original public subsidy. One study estimates that if the local and state investments of $2.17 million in the Champlain Housing Trust homes was not preserved, it would have taken more than five times that amount in additional subsidies to keep those homes affordable.

Only about 200 community land trusts now exist in America, but given the lasting appeal of homeownership and the persistence of barriers to attaining it, let’s hope the model spreads. For more information, see “Land Trusts Offer Houses That People With Lower Incomes Can Afford—And a Stepping Stone to Lasting Wealth,” Yes! Magazine (2015).