Community Land Trust
Why A Community Land Trust?
Community land trusts are nonprofit, community-based organizations designed to ensure community stewardship of land. Community land trusts can be used for many types of development (including commercial and retail), but are primarily used to ensure long-term housing affordability. To do so, the trust acquires land and maintains ownership of it permanently. With prospective homeowners, it enters into a long-term, renewable lease instead of a traditional sale. When the homeowner sells, the family earns only a portion of the increased property value. The remainder is kept by the trust, preserving the affordability for future families.
The length of the lease (most frequently, 99 years) and the percentage earned by the homeowner vary. Ultimately, by separating the ownership of land and housing, this innovative approach prevents market factors from causing prices to rise significantly, and hence guarantees that housing will remain affordable for future generations. Today, there are over 225 community land trusts across the United States.
Owners can improve and maintain their homes.
They can leave their home to their children.
If a homeowner decides to sell, the land trust retains an option to repurchase the home to sell or rent to a future resident or to assist the homeowner to identify a new purchaser. Homeowners share the equity they earn on their homes with future buyers, thus, fostering long-term affordability even as surrounding neighborhood property values grow.
How It Works
Generation after generation, the trust recycles public and community investments in affordable housing and maintains affordable housing even as the surrounding neighborhood values grow.
The Trust acquires land and houses through purchase or donation often using Community Development Financial Institutions Funds.
The house (not the land) is then sold to the buyer utilizing a 99-year renewable ground lease agreement. The owner of the house pays the Trust a nominal fee each month for leasing the land.
Share Equity Model
Land trust houses remain affordable because homeowners share in a percentage of the increase in market value (i.e. equity) of the house at the time of resale with future buyers. This resale restriction ensures that the house will be affthe next, and the next
We use an appraisal-based formula to calculate final shared equity, as per the chart below. As you’ll see, the amount of equity the owner earns is dependent on the difference between initial price and appraised value at time of sale.
1. First, we determine the increase in the house’s value by looking at the difference between initial price
as compared to the the appraised value at the time of sale.
2. Then, we determine what the shared equity percentage will be (25-45%).
3. Then, we add the initial purchase price.
Here is a sample breakdown of the shared equity model:
Appraised value of house at time of sale $125,000
Minus initial price/appraised value of house $95,000
Equals increase in appraised value (“appreciation”) $30,000
Homeowners’ share of appreciation is therefore
(35% equity earned on $30K for someone who has
lived in the house for 15 years) $10,500
Plus initial purchase price $95,000
Equals the new sale price $105,000
Minus cost of paying off home loans $80,000
Equals Total Homeowner’s Equity $25,500