Can Land Trusts Keep Housing Affordable?
"Buying land through a housing trust starts when the trust acquires a parcel through purchase, foreclosure, tax abatements, or donation. The trust arranges for a housing unit to be built on the parcel if one does not yet exist, then sells the building but retains ownership of the land beneath. The new homeowner leases the land for a nominal sum (for example, $25 per month), generally for 99 years or until the house is resold.
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 mortgage costs 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 25 percent or more.
Unlike federal programs that only help the initial buyer, the CHT keeps the property affordable in perpetuity by restricting the profit buyers are able to take when they sell the house. According to the terms of the CHT leases, homeowners get back all of their equity plus the market value of any capital improvements they made. However, they only get 25 percent of any increase in the value of the house, and none of the increase in the value of the land.
A study conducted in December showed that foreclosure rates among members of 80 housing trusts across the United States were 30 times lower than the national average."