Community Land Trusts Explained: Benefits, Drawbacks, and Real-World Cases

What Is a Community Land Trust?

A community land trust (CLT) is a private, nonprofit organization that promotes affordable housing and sustained development. They typically own land, which is used to provide long-term housing leases to disadvantaged communities.

CLTs are a response to the increasing lack of affordable housing in major metropolitan areas, particularly for communities that have been harmed by racial discrimination.

Key Takeaways

Community Land Trusts (CLTs) provide affordable housing by separating land ownership from homeownership, allowing residents to purchase homes while the CLT retains ownership of the land.
CLTs use public and private funds to acquire land, which remains in trust indefinitely, ensuring long-term affordability and preventing speculative real estate development.
A significant advantage of CLTs is their role in reducing the racial wealth gap by offering lower-income, often minority, communities opportunities for homeownership and wealth building.
While CLTs cap resale profits to maintain affordability, they still allow homeowners to build some equity, offering a balance between personal financial growth and community stability.
Residents of CLT properties can pass their homes to the next generation, promoting generational wealth and stability within families.

Understanding the Functioning of Community Land Trusts

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 99 years. Monthly charges for the ground lease can be $100 or lower.

Although CLT residents can never sell the land their home is on, they can sell the home itself and profit from it. However, there is a limit to serve the mission of affordable housing. 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.

Important

CLTs use land for housing as well as for community public spaces, such as parks, gardens, and public centers—for recreation, for instance.

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. The buyer must meet the trust's eligibility requirements. Many community land trusts will buy the home from owners wishing to sell, and then resell it to an eligible buyer.

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. CLT boards typically include those living on CLT land, community members not living on CLT land, public officials, funders, experts, representatives from nonprofits in the community, and other stakeholders.

Comparing Community Land Trusts and 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 generally inclusive of the larger community surrounding them. Just like CLTs, they frequently include nonresidents 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, those living in an MHA building rent from the association. The organization uses resident rents to continually provide services and improvements that allow the MHA to offer quality housing at affordable prices.

Pros and Cons of Community Land Trusts

Advantages

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

Disadvantages

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. Home prices tend to appreciate overtime, allowing homeowners to profit when selling their home. Of course, rising prices also contribute to affordability issues. CLTs help to provide affordable housing, but to do so they limit profits from 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 that 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 nonprofit housing organizations for scarce public and private resources. A lack of resources can make it difficult for CLTs to achieve critical mass and build sufficient inventory to serve the community.

Pro

Provide access to homeownership for underserved minorities.
Help minority communities build generational wealth through home equity.
Reduce delinquencies and foreclosures.

Con

Homeowners do not own the land that their home is on.
There is a cap on resale profits when a homeowner decides to sell.
CLTs must compete with other nonprofit housing organizations for limited resources.

Notable Examples of Community Land Trusts

More than 260 CLTs operate in the United States, and more exist in Canada, Belgium, Kenya, New Zealand, Australia, and the United Kingdom, 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 (CLT) Acquire Property?

While community land trusts (CLTs) can simply buy property at going market rates, there are other, less costly paths to property ownership. For example, CLTs frequently seek gifts or donations of property 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 CLTs Help Keep Home Prices Affordable?

Housing is affordable when the monthly cost does not exceed 30% 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 whom 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, then ownership typically reverts to the state.

Who Is Eligible to Buy Property in a CLT?

To meet their goal of providing affordable housing to underserved communities, CLTs have a maximum income requirement. Typically, the pretax income of CLT purchasers cannot exceed 80% of the area’s median household income for the area surrounding the CLT (published annually by the U.S. Department of Housing and Urban Development [HUD]).

How Do CLTs 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 overrepresented 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.

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 the 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.

The Bottom Line

Community Land Trusts are nonprofit organizations that own land to provide affordable housing. Homeowners can buy homes on CLT land, with resale restrictions to ensure that future prices remain affordable for underserved communities.

While CLTs offer a pathway to homeownership and community control over development, they must compete for limited resources with other nonprofit housing organizations. They also rely on the participation of residents and community members, who play active roles.