I offer a few thoughts on land trusts-- tossing them out for discussion purposes. What are your views?
Background- Over the past decade-plus, the land trust has become a popular model across the country for those seeking to preserve urban and rural lands, and to create affordable and energy-efficient housing. Typically a non-profit community-based [501(c)(3)] organization is established to raise funds and purchase urban and/or rural lands for the purpose of pursuing land conservation and affordable housing initiatives. In rural/suburban-fringe areas, they preserve farmlands and allow farmers to extract equity from agricultural or wooded property without destroying agricultural productivity or wilderness value. This is accomplished largely through the use of restrictive easements and limited development rights. In urban areas, they are used to develop affordable and energy-efficient housing. In most cases, the trust purchases the land and/or the lot with an existing structure on it, then rehabs or builds the housing unit(s). The trust retains title to the land, sells the home(s) and leases the land to the buyer(s). As the property appreciates in value, upside gains in equity are restricted by the trust so, if there is a sale, the property remains affordable to the next buyer. Thus, the property is sold for less than full market value. The homeowner typically pays property taxes and holds a long term lease on the land under the home. I'm not sure if taxes are based on a market/assessed value or the limited/trust-restricted value. The Rondo Land Trust in St. Paul is a good example of how a land trust providing affordable housing operates in our metro area: http://www.twincities.com/mld/pioneerpress/3083515.htm In Mpls., the City of Lakes Community Land Trust is being launched this week (see Cara Letofsky's earlier post), with a gala tonight at Maria's across the street from the E. Franklin Library, 13th and E. Franklin- 5:30-7 pm. Discussion Issues- Home ownership vs rental The ownership model- Most land trusts sell the structure to the home buyer and provide a long term lease on the land. The logic being based on home ownership providing a stabilizing influence in the neighborhood (relative to rentals), pride in ownership, better upkeep, etc. However, the validity of that 'ownership model' logic is questionable, given that equity appreciation in these units is often severely limited in order to preserve the perpetual affordability concept. Typically, the conversion of endless rent payments to mortgage payments is an attractive proposition because the new owner begins building equity in the property. As those equity payments slowly grow, they are compounded by appreciation of property values in the marketplace. In fact the equity associated with home ownership (principal payments plus appreciation) often becomes the largest single asset in many homeowner's portfolios-- especially those of modest means. This is the typical justification for owning a home. If the growth in that equity value is artificially restricted, as it is in the land trust model, the true value of the 'ownership model' comes into question (a land trust typically restricts equity growth to 25-50 percent). Ownership is an expensive proposition since it entails property maintenance and repair, property insurance and the payment of taxes- all of which may be offset somewhat by the tax benefits associated with ownership- yet the cash flow requirements remain. If a homeowner in a land trust purchases a home for $100K and lives there 10-20 years, similar homes in the neighborhood may double in value, yet if the mortgage is paid, the land trust home owner is typically limited to a 25-50 percent gain in property appreciation-- leaving $50-$75K on the table in this case- being unable to purchase and move into another similar property, let alone step up to a fancier property after owning their home for say, 20 years. What have they gained via this ownership option? Add to this dilemma, the fact that most home owners use equity (loans) to finance maintenance and improvement costs in their home. This attractive source of financing is limited -to- non-existent under the land trust 'ownership model.' Often times, lenders won't even offer equity loans in this situation. Also, the land trust usually holds a 'right-of-first refusal' option to purchase the property from the lender/mortgage holder, if the property owner defaults-- making the mortgages very low-risk for the lender, all the time supporting the lender's CRA statistics in the neighborhood. The homeowner should receive a lower mortgage interest rate in such a situation, but I doubt that is ever the case. It seems that the home owner is placed at GREAT disadvantage, is penalized, under these ownership conditions. Who gains under this model, besides the lender? The rental model- Using a land trust to purchase the land greatly reduces the cost associated with providing affordable housing-- especially in neighborhoods where land is very expensive. In some neighborhoods, the cost of an empty lot exceeds the cost of an entire home in other neighborhoods. In these situations, single family, double and mixed-income rental housing could be made affordable in many neighborhoods that currently don't offer many affordable housing options. The 'rental model' avoids the equity shortcomings identified above, and doesn't penalize the renter in the process. In fact, it could be argued that a renter, actually saving homeowner insurance, maintenance and interest costs over an extended period of time might be in better position to purchase with a sizable down payment and enjoy unrestricted market appreciation thereafter. Need for innovation- It will be interesting to see what innovative adaptations we can arrive at here in Mpls. with the land trust model. The faith communities, community based organizations and existing land trusts, housing developers and private investors, coupled with the various governmental agencies (at city/regional/state/fed level) involved in housing should be able to devise unique strategies and solutions to address the unique housing needs scattered across our city. The differences between metro-median income and city-median income are significant and we will need to devise many tools-- such as the land trust models, to address the unique needs of city residents. Talk it up, list members. What are the strengths and weaknesses of the land trust models? How can we structure the models to be most effective, given the limited financial resources available? How can the private sector best be involved with the land trust model? Michael Hohmann Linden Hills Commissioner, Minneapolis Planning Commission _______________________________________ Minneapolis Issues Forum - A Civil City Civic Discussion - Mn E-Democracy Post messages to: [EMAIL PROTECTED] Subscribe, Unsubscribe, Digest option, and more: http://e-democracy.org/mpls
