'Shared equity' model for U.S. housing boosts home ownership for poorer families
by Gregory Scruggs | Thomson Reuters Foundation
The organisation develops permanently affordable housing for working class families by separating a house's title from the land underneath
By Gregory Scruggs
DURHAM, North Carolina, Jan 21 (Thomson Reuters Foundation) - A home under construction is a common sight in Durham, a small but booming city in North Carolina that has been billed "the start-up capital of the South".
But this wood-frame, which will soon be a three-bedroom house, is unusual: it will rent for $800 a month, about 40 percent below the market rate.
The rent is designed to be affordable to restaurant workers and janitors, not just the new entrepreneur class. It is being built by non-profit developer Durham Community Land Trust.
"It will make some family very, very happy," said Selina Mack, the group's director.
Mack's organisation develops permanently affordable housing for working class families by separating a house's title from the land underneath.
Proponents of community land trusts say they offer the best chance of providing affordable housing in fast-growing cities like Durham compared with other popular options such as deed restrictions, which expire after a set period.
"Term-limited affordability will allow maybe one family to benefit," said Tony Pickett, executive director of Grounded Solutions Network, a non-profit housing group.
"Creating a stock of permanently affordable housing with a one-time public investment - and that same affordable housing is kept affordable for generations to come - that's a much more sustainable and financially feasible use of public dollars."
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CIVIL RIGHTS ROOTS
Community land trust housing gives low-to-moderate income families the chance to become homeowners that otherwise they would never have, said Pickett.
And creating a balance "between individual wealth-building and ongoing, long-term affordability" is vital, he added, particularly given the U.S. racial wealth gap.
According to the Center for American Progress, a left-leaning think-tank, African-American families' median wealth is one-tenth that of white families - in a country where owning a home is the primary path to wealth-building.
By lowering barriers to home ownership, the community land trust model offers that opportunity.
The concept, whose roots lie in the Civil Rights movement, turns 50 this year, but rising land costs and traditional housing finance practices remain obstacles to its widespread adoption.
To date there are just 225 land trusts nationwide, according to Grounded Solutions. That is largely because mortgage bankers and realtors remain unfamiliar with the model, said Pickett, and that creates a vicious cycle.
Additionally, the relatively small number of land trusts means families looking to buy a house do not routinely have this option; that, in turn, limits land trusts' ability to accrue more equity to buy more houses.
While the house where Mack was overseeing construction last year will be rented, most trust residents own their homes.
Through an innovative housing finance model called "shared equity", the trust retains ownership of the land - and thus much of the accrued value - when the occupant sells the house.
As a result, the house can be sold at a below-market rate to the next buyer.
'SCREAMING PENNIES'
In the early 1900s, long before Durham became a start-up capital, it was home to a district known as Black Wall Street for its concentration of insurance companies and banks owned by African-American businesspeople.
But the construction of a downtown freeway in the 1960s dismantled its black business community, while a discriminatory housing policy known as "redlining" prevented black families from getting mortgages.
That left areas like Durham's West End, which is bisected by the highway, down at heel.
"Abandoned housing, little to no homeownership, a lot of rental properties most of them owned by absentee landlords, in disrepair, the city not invested in community," said Mack, describing the West End in the 1980s.
In 1987, residents of the majority African-American neighbourhood banded together with the motto "take back the streets" and renovated five buildings.
The neighbours placed the houses into trust, inspired by New Communities, a Georgia land trust and farm collective started in 1969 by veterans of the Civil Rights movement.
Their effort spurred the city to pass an affordable housing bond that year. That funding source helped to buy land, renovate existing homes and build new ones.
Today, the Durham Community Land Trust owns 281 properties, including one-fourth of the West End, halfway between downtown and Duke University.
The trust's property portfolio ensures an affordable anchor amidst a tide of rising rents.
"Durham is experiencing rapid gentrification. Housing prices are skyrocketing ... The impact of the land trust being in that neighbourhood is what has kept the prices, or at least the increase in the neighbourhood, somewhat stable," Mack said.
Mike Richmond, a retired university janitor, bought through the land trust. As prices have risen in Durham, he said, it would today be near impossible for someone working in his former job to buy a house in the neighbourhood.
"He would have to pinch pennies and, if something came up, then those pennies would be screaming pennies," Richmond told the Thomson Reuters Foundation from his front porch.
TRADE-OFF
Richmond acknowledged he would not gain from Durham's housing boom as much as if he had owned the land, but he accepts the trade-off.
"If I don't make a larger profit today, at least somebody else could come in and afford to live," he said.
That attitude is uncommon in a country where housing is considered a profitable asset.
A 2010 report on a longtime Vermont land trust showed most first-time buyers earned enough money from the shared equity sale of their home for a down-payment on a market-rate house.
However, Rocke Andrews, past president of the National Association of Mortgage Brokers, was sceptical that land trusts could offer a widespread opportunity for residents as trusts must rely on land donations and public subsidies.
"It's going to require a large amount of money for large amounts of people," he told the Thomson Reuters Foundation by phone.
Grounded Solutions has said previously that trusts might get a boost from banking regulations known as "Duty to Serve" that arose from the 2008 housing crisis, and that push government-sponsored mortgage-finance giants Fannie Mae and Freddie Mac to offer financial support for cooperatives.
But Andrews doubted the regulations would have a significant impact.
"Lots of programmes are available through Duty to Serve, but they aren't widely used in the mortgage market," he said.
As the Great Recession decimated financially insecure homeowners a decade ago, community land trusts provided a bulwark by shoring up struggling mortgages and helping homeowners avoid foreclosure.
Grounded Solutions found market-rate mortgages were eight times more likely to be delinquent than those on land trust homes at the height of the 2008-2009 housing crisis.
Percy Covington, a social worker who lives in a townhouse he bought from the land trust, experienced that firsthand when he needed help to make his mortgage payments.
"It gave me reassurance going through Durham Community Land Trust. They really have your back - a lot more than the bank. It's their investment too," he said.
"It helped save my home."