What is a Community Land Trust?
A community land trust (CLT) is a private, non-profit organization that owns land on behalf of a community, promoting housing affordability and sustainable development and mitigating historical inequities in homeownership and wealth-building. CLTs are a response to the increasing lack of affordable housing in major metropolitan areas, particularly for underserved minority communities.
- Community land trusts are shared equity programs that keep land available at low cost for low- and moderate-income families.
- CLTs help eliminate racial wealth gaps by assisting traditionally underserved minority communities to build a degree of home equity (resale prices have caps to keep the housing affordable).
- CLTs promote stability by reducing loan delinquencies and default rates.
How Community Land Trusts Work
Community land trusts are a form of shared equity ownership. CLTs use public and private investment funds to acquire land on behalf of a specific community. The CLT owns the land in perpetuity (that is, forever).
Community residents can purchase their homes, but not the land on which the houses sit. Instead, residents enter into low-cost, long-term property leases with the CLT, known as ground leases, typically for a 99-year period. Monthly charges for the ground lease can be $100 or lower.
Although CLT residents can never sell the land their home is on, they otherwise have the same rights as other homeowners. During the term of the ground lease, they enjoy full and exclusive use of the property, as well as common privacy rights associated with homeownership.
CLT residents also have many of the same obligations as other homeowners, including liability for property taxes. Historically, property taxes have presented difficulties for CLTs when states assessed taxes based on the actual market value of CLT property rather than the managed values that the CLT sets.
CLT residents can sell their homes, although the CLT has a right of first refusal for every sale and there is a cap on resale profits so that the housing remains affordable for the next owner. CLT residents may not sublet their properties. Instead, CLT leases typically include an occupancy requirement that the property must serve as the owner’s primary residence. Critically, however, CLTs allow residents to pass the property lease and ownership of the home to their children, which promotes generational wealth-building within families.
CLT members are primarily responsible for CLT management. But in some cases, CLT boards may also include members of local government organizations or other non-CLT members.
CLTs use land for housing as well as for community public spaces, such as parks, gardens, and public centers—for recreation, for instance.
Community Land Trusts vs. Mutual Housing Associations
There are other forms of not-for-profit, community property ownership intended to promote affordability and neighborhood development, such as mutual housing associations (MHAs). Like CLTs, MHAs are community-governed organizations that facilitate low-cost housing for low-and-middle-income families while also working to rehabilitate and revitalize neighborhoods.
There are several important distinctions between CLTs and MHAs. Whereas CLTs focus on land ownership, MHAs focus on the housing itself. MHAs also rely on economies of scale to minimize property costs and ongoing maintenance expenses. MHAs frequently own one or more multi-unit buildings, allowing them to share resources, spread operating and maintenance costs, and generate bulk purchasing power.
MHAs are also generally more inclusive of the larger community surrounding them, frequently including non-residents as board members. This allows MHAs to seek management expertise from outside experts and associations. Indeed, MHAs frequently have experienced, professional property management staff.
Finally, unlike CLT homeowners, MHA residents cannot sell their units for profit; that is, they do not develop equity in the property. Instead, the organization uses resident rents to continually provide services and improvements which increase the overall value of the MHA.
Advantages and Disadvantages of Community Land Trusts
There are numerous advantages of CLTs, both to CLT residents and to the larger community, including that they:
- Keep home prices from escalating out of reach for low- and moderate-income buyers
- Provide access to homeownership for underserved minority communities
- Help reduce the wealth gap for minority communities by building generational wealth through home equity
- Help revitalize urban neighborhoods and provide opportunities for minority-owned businesses
- Reduce delinquency and foreclosure rates
- Give neighborhood residents control over development
CLTs have disadvantages as well. For one, potential homebuyers may be reluctant to buy property in a CLT because they do not actually own the land, even though CLT property owners have ownership benefits that are similar to those of traditional homeowners. Overcoming this obstacle requires CLTs to educate prospective buyers about their rights and responsibilities, particularly regarding intergenerational transfers.
A more significant obstacle to CLT participation is the cap on resale profits. One of the causes of housing unaffordability has been the large price spikes that occurred just before the 2008 housing bubble crisis and during the COVID pandemic. Providing an affordable alternative is the goal of CLTs. But it also limits the equity growth that those who buy CLT properties can achieve when they sell them.
All prospective homebuyers come into homeownership with preconceptions about the appreciation in value they expect to achieve, and historical price increases keep these expectations high. So, when given a choice between a CLT and alternative affordable housing from commercial builders that do not have similar resale restrictions, potential buyers may shy away from the limited profit potential of the CLT.
CLTs must also compete with other non-profit housing organizations for scarce public and private resources. Lack of resources can make it difficult for CLTs to achieve critical mass and build sufficient inventory to serve the community.
Provide access to home ownership for underserved minorities.
Help minority communities build generational wealth through home equity.
Reduce delinquencies and foreclosures.
Homeowners do not own the land their home is on.
There is a cap on resale profits when a homeowner decides to sell.
CLTs must compete with other non-profit housing organizations for limited resources.
Real World Examples of Community Land Trusts
More than 250 CLTs operate in the United States and hundreds more exist worldwide, many of which have been very successful. Among the CLTs that have generated recognition for their efforts—which often include organizing community political action in support of affordable housing—are New York City’s Cooper Square development, Boston’s Dudley Street Neighborhood, the Chicago Community Land Trust, and T.R.U.S.T. South LA.
How Does a Community Land Trust Acquire Property?
While CLTs can simply buy property at going market rates, there are other, less costly paths to property ownership. CLTs frequently seek gifts or donations of property, for example, from private citizens, companies, and government organizations. In addition, CLTs can benefit from what is known as a “bargain sale,” where the CLT pays a portion of the fair market value (FMV) of the property and the seller writes off the unpaid portion of the value as a tax deduction.
How Do Community Land Trusts Help Keep Home Prices Affordable?
Housing is affordable when the monthly cost does not exceed 30% to 35% of of a homeowner's gross income. CLTs have several avenues available to help keep home prices within the community affordable. One of the most important is the "resale formula. "
The resale formula allows the CLT to place a cap on the resale price of any home in the community. Homeowners still build some equity, but prices do not escalate so much that they are out of financial range for people the community hopes to support. As a result, resale values are almost always lower than the actual market value of the home.
CLTs also facilitate long-term affordability by keeping the community property out of the general housing market. Even when a CLT decides to cease operation and dissolve, it cannot just put its property out for sale. Instead, it must transfer the property to another charitable organization, often one with a similar purpose. If there is no acceptable recipient for the land, ownership typically reverts to the state.
Who is Eligible to Buy Property in a Community Land Trust?
To meet their goal of providing affordable housing to underserved communities, CLTs have a maximum income requirement. Typically, the pre-tax income of CLT purchasers can not exceed 80% of the median household income for the area surrounding the CLT (published annually by the U.S. Department of Housing and Urban Development [HUD]).
How Do Community Land Trusts Advance Racial Justice and Reduce Wealth Disparities?
CLTs are one of many methods that can reduce the racial wealth gap by helping minority communities build wealth. CLTs allow low-income families traditionally over-represented among minority communities to build generational wealth through home equity. By offering lower barriers to homeownership, including lower initial and overall costs, CLTs provide underserved communities with more opportunities to become homeowners and develop equity.
Recent studies show that initial costs for the average shared equity homeowner are less than $2,000, substantially less than the 20% loan-to-value requirement for traditional mortgages. But members exit with $14,000 in equity, on average, noticeably increasing their household wealth.
What If a CLT Homeowner Defaults on Their Mortgage?
As with any other type of homeownership, both mortgages and mortgage defaults are an unfortunate reality in CLTs. However, CLTs typically require use of a standard mortgage with specific requirements in the event of default.
Under the standard mortgage, lenders must give the CLT notice when a resident defaults on their mortgage and provide an opportunity for the CLT to resolve the default. For properties that proceed to foreclosure, the CLT has an opportunity to purchase the foreclosed building. Foreclosure does not affect the ownership of the land, which always remains in the hands of the CLT.