Protecting Communities from Gentrification

This article was originally published in our The Public Good: Reports from the Front Lines (September 27, 2017), available here.

About 15 years ago, the half-century flight from America’s cities came to an end.  A growing number of cities began to see a growing in-migration, often of people with higher incomes.  Rising real estate prices spurred land speculation and new developments, threatening existing neighborhoods with displacement and reducing affordable housing.

Some cities have tried to do right by their long-term residents.  But the strategies they’ve embraced look to bribe developers with tax breaks or higher densities than the zoning code allows in return for the developer including in their high rise condos a portion with a sales price set to households with less than the area’s median income. On the whole, these bribes have only marginally increased affordable housing, done little if anything to preserve existing neighborhoods and in the long run, are unsustainable.

In the 1960s activists proposed a new strategy: Community Land Trusts (CLT) The first incorporated land trust was established in 1969.  New Communities was a 5,700-acre land trust and farm collective in southwestern Georgia owned and operated by approximately a dozen black farm farmers from 1969 to 1985.

In 1972 Robert Swann, one of the creators of New Communities, wrote Community Land Trust: A Guide to a New Model of Land Tenure in America, which among others things, explained in detail how a land trust differs from conventional ownership.  A trust separates the ownership of the land from the ownership of the building.  A nonprofit organization, with a board usually composed of representatives from tenants and the surrounding neighborhood, owns the land and leases it to the homeowner for a designated period, often 99 years.  The homeowner has the right to sell the land at any time, but the return to the homeowner is limited.

Keeping the land out of the real estate market holds down housing prices, as does limiting the equity gains that accrue to the homeowner. The objective of the land trust is not to maximize profit, but to maximize community and diversity.

In 1984 Burlington, Vermont established the nation’s first urban CLT.  Burlington offered fertile ground for the concept.  A rapidly inflating housing market created the need.  A mayor, Bernie Sanders, receptive to the concept of social markets created the opportunity.

Initially Sanders viewed land trusts with skepticism. “The mayor feared the restrictions on reselling properties would create a form of second-class home ownership,” Jake Blumgart reports in Slate, “If middle- and upper-class people could build wealth off their houses, why should the working class be limited to shared equity? Sanders’ preferred methods of ensuring housing affordability were rent control…and providing direct subsidies to low-income residents who wanted to buy homes.”

But in 1982, in a referendum, Burlington voters rejected rent control.  And direct subsidies to low income households, would have to increase as real estate prices increased, eventually overwhelming the municipal budget.

Bernie eventually vigorously supported land trusts. In 1984 the city midwifed the creation of its first land trust with a $200,000 seed grant and municipal staff support. Later, it made a significant loan from its pension fund to the land trust and raised additional funds from local businesses and federal resources. In 1988, it established the Burlington Housing Trust Fund, funded by a small increase in property taxes.

Municipal sponsorship of a land trust was not universally supported.  In his 1996 PhD dissertation, Reinventing Real Estate:  The Community Land Trust as a Social Invention in Affordable Housing, James Meehan recalled, “An opposition group upholding property rights organized and picketed the Board of Alderman. One realtor said, ‘If you believe that one of the most precious rights we, as individuals, have in our country, is the right to own land, a right protected by our Constitution, then you should take a long, hard look at this land trust.’”

Advocates prevailed.

In 1984, the same year Burlington started its land trust, a community in Boston applied the concept on a neighborhood scale.  At the time burned out and abandoned houses characterized the Dudley Street neighborhood. “(T)he per capita income of the Dudley Square residents was one of the lowest in the nation, on a par with the poorest counties in Mississippi, or Indian Reservations of the West,” noted to Peter Medoff and Holly Sklar note in their book, Streets of Hope:  The Fall and Rise of an Urban Neighborhood,

With the support of local foundations, the Dudley Street Neighborhood Initiative (DSNI) held a series of meetings. Over many months, hundreds of residents participated in developing a plan that included business development, affordable housing, human services, youth development, education, playgrounds and public space.

The city adopted the plan, but its implementation required one more innovation. The “Dudley Triangle” consisted of a tangled web of city-owned land interlaced with tax-delinquent properties and vacant private lands. The neighborhood pressed the city for the authority to demand that the owners sell the trust the parcels. In 1988, the Boston Redevelopment Authority granted that request. The DSNI became the first, and so far the only, neighborhood with the ability to exercise eminent domain, a power usually reserved only to governments.

As Harry Smith, DSNI’s director of sustainable economic development told Blumgart, writing for Next City,  “we never really used the actual power of eminent domain. We used it more as a stick, so if there were absentee owners who weren’t coming to the table and weren’t engaging we could send them a letter and say we are going to exercise the power of eminent domain. That would get their attention.”

In 1987 the Institute for Community Economics convened the First National Conference.  Twenty-four CLTs attended.  A year later the number doubled.  By 1990 the number attending had reached 120. After plateauing in the 1990s, the number of CLTs again began to grow rapidly, reaching more than 280 today.

Member organizations of the National Community Land Trust Network (which in 2017 merged with Cornerstone Partners to become the Grounded Solutions Network) now host about 25,000 affordable rental units and 13,000-15,000 affordable owner-occupied homes.

The 30 acre Dudley Land Trust now boasts 225 units of affordable housing, a playground, a mini-orchard and community garden, and greenhouse, as well as commercial space and office space.

The Champlain Housing Trust (CHT), the result of a 2006 merger of the Burlington Community Land Trust and the Lake Champlain Housing Development Corporation, an agency that serves three Vermont counties,  holds about 565 homes in a land trust plus 2,100 rental and cooperative units. Half are within the city of Burlington. These constitute about 8 percent of the city’s housing stock. In the last two years, CHT has expanded its portfolio by purchasing several hotels and apartment buildings and converted them into housing and lodging for the homeless.  CHT’s operating budget is over $10 million.

Some land trusts now include commercial space.  The Anchorage Community Land Trust focuses exclusively on commercial development. Vermont’s CHT manages 14 commercial properties in Burlington.

Evaluations have demonstrated the viability and effectiveness of land trusts.  They stabilize neighborhoods, revitalize communities, and keep housing costs affordable.

And they build equity for low-income households. The Urban Institute, found that 90 percent of low-income households remained homeowners five years after buying a shared equity, CLT home, far exceeding the 50 percent average home ownership retention rate among conventional market, low-income homeowners, as reported by the Lincoln Institute of Land Policy.   Reviewing the resale of 205 housing units in land trusts between l988 and 2008, analysts found that, on average, a CHT homeowner who resold her home after five and one half years, recovered her $2,300 down payment and earned an additional $12,000 net gain in equity.

The housing collapse in 2008 offered an extreme test of the viability of CLTs.  They passed with flying colors.  A report by the Lincoln Institute, Outperforming the Market found that homeowners who took out conventional mortgages were over 8 times more likely to be in the process of foreclosure than those with CLT mortgages.  That disparity soared to more than 25 times if the homeowner had a subprime mortgage.  Similar disparities occurred in the comparative rate at which homeowners were delinquent in their payments.

Comparatively low rates of foreclosure and delinquencies were an inherent result of the structure of the land trust.  The non-profit acts as the trust’s steward.  In the pre-purchase stage, the non-profit organization protects homeowners from predatory mortgage lenders.  After purchase it intervenes where necessary to make mortgage payments current or preclude foreclosure completion via a variety of strategies: financial counseling, direct grants or loans, arranging the sale and purchase of less expensive unit, and working with homeowners and lenders on permanent loan modifications.

For policy makers the Lincoln Institute’s findings held an important message, “CLT home ownership appears more sustainable than private market options for low-income homeowners”

Despite the overwhelming evidence of their success, community land trusts are still on the margins of urban policy, a result of at least four factors.

First, banks continue to be wary of financing units where ownership is divided. Blumgart reports that the North Camden (New Jersey) Community Land Trust collapsed in 2007 because local banks would not allow it to refinance its loans after the Great Recession.

Second, many cities tax CLT property the same as conventional property, despite the fact that its unusual ownership structure results in a lower market value for the property.  A few states have adopted legislation requiring that CLT property be assessed at a lower value than unrestricted property. (e.g. Florida, North Carolina, Vermont).  Otherwise it is a city-by-city proposition

Third, new land trusts are confronting rapidly escalating real estate prices that outpace their ability to finance expansion.  When the Dudley Street Initiative was born, land in that part of Boston could be had for a song.  Now its price is rising rapidly. In 2015, the nascent Chinatown Community Land Trust was thwarted in its first attempt at acquisition when it came short in a bidding war with a developer. (Undaunted, this past March, an a dozen local neighborhood groups formed the Metro Boston Community Land Trust.)

Fourth, cities remain lukewarm, at best, to the concept despite the evidence that the city as well as its low-income residents may benefit.  Foreclosed properties significantly diminish nearby housing values, leaving the remaining homeowners vulnerable to foreclosure and the neighborhood to increased crime. Foreclosures also impose costs on municipalities.  The cumulative costs of administrative fees attendant to foreclosure, demolition of vacant properties, and declining property taxes can run into the tens of thousands of dollars per house.

One reason cities are reticent about supporting land trusts is the very reason land trusts have been created.  A significant percentage of municipal revenues come from property taxes, giving the city financial interest in maximizing the market/assessed value of real estate.   The land trust slows the increased price of real estate.

Opportunities for land trusts may be disappearing in besieged cities like Seattle and San Francisco, but they are still abundant in the many cities that have suffered decades of disinvestment and where in-migration has just begun and gentrification has touched only a tiny portion of the city.

Consider Detroit. In 2015 the city had some 45,000 empty homes.  Thousands more face tax foreclosure.  The Detroit Land Bank was auctioning off more than 20,000 vacant houses.

A coalition of housing activists asked the Detroit Land Bank to transfer some of its properties to a community land trust.  It refused.  The newly formed Detroit Community Land Trust Coalition turned to crowd funding, raising more than $108,000 in 10 days and an additional $30,000 from other funders, enough to purchase 15 houses at tax foreclosure auctions and begin repairs.

With the city’s help, Detroit could do much, much better.  Consider if Detroit were to approach the financing of land trusts as it did the financing of a new arena for the hockey team. The city and state enabled the issuance of $300 million in bonds backed by property tax revenues for the $900 million arena.  And later, adding insult to injury, it took $34.5 million dedicated to schools and parks to enable the hockey arena to become home to the Detroit Pistons as well.  The $300 million alone could have financed the purchase of about 30,000 homes for community land trusts.

In Buffalo, land trust activists are focusing on the Fruit Belt neighborhood around the Buffalo Niagara Medical campus where expansion has spurred land speculation and development.  In late 2015, the city council responded to pressure by organizations like the Community First Alliance, a coalition of residents of the Fruit Belt neighborhood and activists from other neighborhoods in Buffalo by imposing a moratorium on the sale of any of the over 200 city-owned lots in the Fruit Belt neighborhood until “a duly approved strategic plan” has been created, a plan that must protect residents from “the adverse effect of development.

In Baltimore, which has two small land trusts and some 30,000 vacant homes owned by the city, a coalition has proposed a $40 million investment in CLTs. Mayor Catherine Pugh has endorsed the proposal.

Vermont, with a population about the size of Baltimore’s, remains the pacesetter. In June its legislature enabled the issuance of $35 million in revenue bonds dedicated to housing that would be permanently affordable.  It was the largest housing investment in Vermont’s history.

Photo Credit: Mariamichelle via Pixabay.

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Source: https://ilsr.org/protecting-communities-from-gentrification-community-land-trusts/