Scattered-Site Properties and the Community Land Trust: A Strategy for Expanding Affordable Housing Opportunities

Edward J. Dodson

[An unpublished paper initially written to facilitate my work with community land trusts while employed at Fannie Mae, and later revised for potential use by groups interested in the development of permanently affordable housing, 1991]


The declining affordability of decent housing is a problem that reaches all across the United States and beyond. For many low and moderate income households in the United States, the prospects for homeownership have almost disappeared. What has made housing an issue of national importance is the fact that after nearly a half century of increasing owner-occupancy, the percentage of households owning their own homes is declining. Reduced access to housing is once again becoming a serious a societal problem, and one with widespread economic consequences.

Too often ignored or downplayed by housing analysts and policymakers has been the role played by the rising cost of land as a component in housing prices. In communities and regions blessed with strong business activity (and, therefore, a sound employment base) poverty may not be visible or reflected in homelessness; however, the demand for housing -- and for sites upon which to construct housing units -- always translates into highly speculative land markets that pull up the cost of building sites to levels where the construction of units affordable to many households is nearly impossible without substantial public subsidy. In many areas, the land cost component now represents nearly 50 percent of the cost to complete a new dwelling unit.

Public policy has thus far primarily relied on a combination of interest-rate subsidization, liberalization of income and creditworthiness requirements and direct grants to mitigate the problem of housing affordability. Local governments have also attempted to make low and moderate income housing profitable to developers by approving high density construction and by heavy subsidization of land acquisition costs. These approaches have achieved some notable successes; however, considerable argument has ensued over the cost incurred by the taxpayers; and, more importantly, these measures have been outpaced by the problem. The community land trust, on the other hand, offers a unique and potentially self-sustaining vehicle for mitigating the long-term problem of providing affordable housing.

Land trusts have a long and positive history in the preservation of open space and as administrative bodies for leasehold residential communities, such as those of Arden, Delaware and Fairhope, Alabama -- both of which continue to flourish to this day. These land trust efforts are, however, most often rural or (as with Fairhope) begin as a rural, self-contained community that over many decades may evolve into a significant hub within a regional economy. Starting these communities required the acquisition of large tracts of land, a near-impossibility in today's era of high land prices. Another strategy is needed; namely, to take advantage of existing housing units and bring them into the community land trust under a scattered site strategy.

The community land trust can make effective use of a scattered site strategy to remove the cost of purchasing land for the homebuyer, acting as a co-purchaser of real estate with homebuyers who qualify for assistance under whatever program requirements are established in partnership with lendinginstitutions, state or municipal housing agencies and participants in the secondary market for residential mortgage loans. The trust would take title to the land itself, and the homebuyer would purchase the improvement. The homebuyer would then be charged an annual ground rent by the trust in accordance with a predetermined formula (and subsidized based on the level of household income).

For example, if the selling price of the real estate is $100,000 and an independent appraiser values the house at $70,000 and the land at $30,000, the homebuyer would need to obtain permanent mortgage financing based only on the $70,000 purchase price of the house. The land trust would purchase the underlying land for $30,000.

The cash required from the homebuyer for the minimum acceptable downpayment (normally 5 percent) plus closing costs associated with the transaction would be substantially less than had the homebuyers acquired title to both house and land. The monthly payment of ground rent to the land trust would be factored into the homebuyer's ability to quality for the mortgage financing based on income.

Success of the community land trust as a not-for-profit entity will depend on the availability of a revolving fund to facilitate the land purchases. Potential sources of funding include both government agencies and private foundations committed to housing affordability objectives. Additionally, the land itself could be used as collateral for borrowing from regional financial institutions that might be induced to approve grants to the trust and/or provide below-market rate financing as part of their commitment to community lending. Municipalities might also consider a general surtax on assessed land values as a mechanism for providing funds to the land trust. As a not-for-profit entity, the trust's landholdings would be exempted from the property tax so that ground rents charged to homebuyers could be utilized for expansion of the land trust's co-purchase activities.

The ground rent charged to the homebuyer could be paid directly to the trust or indirectly by arrangement with the mortgage servicer as part of the total monthly housing payment.

What is unique about the scattered site strategy is its potential to eventually become self-sustaining. No restrictions should be imposed on the resale of homes purchased with community land trust assistance. At the time of resale, the distribution of proceeds between the homeowner and the trust would be apportioned based on reappraisal of the real estate. Any increase in land value will be returned to the trust. The value of any improvements made to the house itself will be reflected in the appraisal and distributed to the homeowner. Based on the selling homeowner's current income, this household may still be eligible for assistance under the trust's program but is free to look for a new property based on the neighborhood where they most want to live rather than only in those neighborhoods or communities where a fixed-site trust has homes available.

Another direct benefit of the program is that trust involvement would be transparent to the market; only the parties directly involved in the transaction need be aware that the homebuyers do not own the land. No special zoning or density variances are required by government, and the properties will be scattered within existing communities rather than concentrated as is now the case with most subsidized housing.

A region might eventually experience the creation of a number of such trusts, each designed to serve a particular segment of the population and able to secure financial support from different sources (e.g., labor unions, pension funds, religious organizations, corporations, etc.). Administration of the scattered site program by the land trust can be expected to be much less demanding than most other housing programs because of the partnership with mortgage servicers. Employers concerned about the expense of transferring individuals into areas with high housing prices would find it very cost effective to contribute to the trust in lieu of providing repeated relocation grants and other forms of compensation adjustments to employees, to say nothing of the tax benefits of contributing to a not-for-profit organization. This is becoming increasingly important in areas where the cost of housing has driven up wages for hourly workers beyond what employers can pay and still remain competitive in the global marketplace.

The scattered site program as described here will not address the problem of housing for those who are the truly poor or live in areas where land values and housing prices are already very low. A deteriorated housing stock is, in those instances, closely related to a general absence of employment opportunities even at modest levels of income. However, with fewer demands on government to subsidize the housing needs of lower middle income households, perhaps government can concentrate its attentions on revitalization of depressed areas and to providing residents of such communities with desperately needed public services. What the scattered site strategy does offer is a promising addition to the inventory of options available to those who are committed to expanding the opportunities for affordable housing to those who have been priced out of the market.