Floating equity

How would you like to buy a house without the land it sits on?

Some folks might say, “No thanks,” but a local group believes the concept could be a key to creating affordable housing that stays affordable.

Neighborhood Housing Services of Asheville, a 10-year-old private nonprofit organization, plans to launch a community land trust early next year. Across the country, such trusts are turning conventional notions of homeownership upside down.

NHS hopes its program will help tackle a pervasive problem: the continual loss of affordable-housing units to the open market.

Under the program (believed to be a first for Western North Carolina), NHS would sell a home to an eligible buyer for less than the market value — but without the land. Instead, the buyer would lease the land from NHS for 99 years. The buyer would also agree to sell the home back to NHS if he or she wanted to move on, using a prearranged resale formula that would prevent a huge markup, NHS officials say.

“When I heard about it, I said, ‘This is a real answer to the affordable-housing crisis in Asheville,'” says Adam Fetterman, president of the NHS board of directors.

Traditionally, NHS has gotten subsidies to sell homes to qualifying buyers at below-market prices. But when one of those buyers decides to sell the home and move on, “We lose it,” Fetterman explains.

Once a house is on the open market, it can be snatched up by an absentee landlord who charges market rents, or the seller may simply charge a much higher price, reflecting increased local housing costs. That profit may benefit the seller, but the property no longer qualifies as affordable housing.

“It doesn’t help the next person down the line,” says Fetterman.

A community land trust, on the other hand, effectively dedicates land to affordable housing forever.

Besides preventing resale prices from skyrocketing, the community-land-trust model also recycles the subsidy that was used to buy the house. And with other nonprofits competing for donations and grants, it makes sense to try to get the maximum benefit from the funds that are raised.

“We get more out of the same money,” Fetterman says.

The program will target potential home buyers whose annual income prevents them from qualifying for a mortgage sufficient to buy a house at current market prices. To qualify, applicants’ yearly household income must be less than $24,600 (single person), $28,100 (parent and child), or $35,100 (family of four).

“We’re offering an alternative to the traditional way of thinking,” Fetterman observes.

Selling the concept

The tricky part for NHS officials, however, will be explaining the community-land-trust model to lenders and potential home buyers who aren’t used to the concept of separating home and land ownership.

“Ours is a culture that’s very much home-based,” Fetterman admits.

New homeowner Toni Morgan, for example, seemed skeptical that the system would have worked for her. Morgan bought a house on Elizabeth Street in Montford from Neighborhood Housing Services last July –the traditional way.

“I want to be an entrepreneur,” she declares. “Eventually, I want to rent this house out and buy another house. … If the land is never yours, how can you get your foot into the door to buy houses?”

But Morgan has only good things to say about her experience with NHS. Besides offering her a more affordable home, NHS helped Morgan with the paperwork and closing costs.

“It’s just a great experience, being 36 and owning my own home,” she enthuses. “There’s nothing like coming home to something that’s actually yours.”

Morgan’s reticence about the community-land-trust idea is understandable, Fetterman says — which is why NHS plans to conduct a very careful publicity campaign early next year to explain the program’s benefits.

The community-land-trust model does offer many of the advantages of traditional homeownership. Unlike renters, homeowners build equity in the house. They also enjoy stable monthly payments and security from eviction, plus one thing traditional homeowners often don’t get: a chance to help others become homeowners, too.

What’s more, the resale formula won’t deny the homeowner all the home’s market value, Fetterman says. But the tradeoff for having a chance to become a homeowner (and build equity) will be helping to maintain the local stock of affordable housing.

And while acknowledging that the community land trust may not be a permanent solution for every homeowner, Fetterman feels it may be a “step in the right direction.”

For people who want to hold onto their homes, the leases will be set up so that the land can be willed to future generations. And the leases will be renewable, provided certain conditions are met, NHS officials say.

Meanwhile, homeowners will enjoy most of the privileges of land-ownership, including having a garden or putting up a basketball hoop.

“If you strike gold or oil, we might have to talk,” Fetterman jokes.

Adding permanent structures to the property would be subject to NHS approval, however.

Durham’s success story

Though the concept may be new to WNC, community land trusts have a proven record elsewhere. A Durham neighborhood association launched the first one in North Carolina 14 years ago, and there are about 120 nationwide, reports W. Selena Mack, executive director of the Durham Community Land Trustees.

Spurred by deteriorating local housing stock and escalating gentrification efforts, the Durham group swung into action in the city’s West End neighborhoods, says Mack. Since then, the DCLT has produced 100 affordable-housing units between downtown Durham and Duke University. Two-thirds have been sold under the land-trust format; the rest are permanent rentals, Mack reports.

Educating others about community land trusts was a challenge for the Durham group, says Mack, adding, “It took us awhile to convince banks that it was possible.”

Eventually, they succeeded with Central Carolina Bank. They also won over such neighborhood residents as former skeptic Gloria Beamon. Now a DCLT resident (and on her way to homeownership), Beamon also chairs the group’s board.

“I think community involvement is probably the most important aspect,” Mack emphasizes.

Not content simply to provide affordable housing, the Durham group tries to build a sense of community by encouraging residents to get actively involved in their neighborhoods.

Ironically, however, the group has been so successful in rehabilitating houses — and revitalizing their neighborhoods — that they’ve virtually priced themselves out of those areas in terms of buying additional properties, Beamon reports.

“It’s kind of a Catch-22,” she says.

Fetterman and others from NHS have met with Mack and taken her advice to heart. They also attended a community-land-trust conference this fall, obtaining information that’s helping them address the complexities of setting up such a program.

Although NHS officials haven’t set a date for launching the new program, Fetterman thinks the earliest it will happen is February.

“We’re fully committed to the idea and [to] actually doing it and doing it right,” he says. “Affordable housing in Asheville is a hot topic right now, and it’s a hot topic right now because the need is so great.”

For more information about the community-land-trust program, contact Neighborhood Housing Services of Asheville at 251-5054.