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Plan Would Take Land Costs Out of Equation
Duane W. Gang
San Bernardino County's public housing authority today is set to create a nonprofit land trust to sell homes for as much as 40 percent below market value in an effort to make more houses affordable in one of the nation's most expensive areas.
The concept of a community land trust to boost housing affordability is on the rise across the nation but still little used in Southern California. The San Bernardino County housing authority views the trust as a way to build a permanent stock of affordable homes.
The trust works like this: A nonprofit organization owns the land in perpetuity and sells the home on that land. With the value of the land taken out of the equation, the home price dramatically drops.
The homebuyer will lease the land from the trust for about $50 a month and may sell the home at any time. But that person agrees to keep no more than 25 percent of the appraised equity, which is the difference between what the house is worth and any outstanding debt. The homeowner would also agree to sell to someone else who qualifies for the program.
Homes would be sold to people earning no more than 80 percent of the region's median household income. That is currently $59,200, so households making $47,360 or less would qualify.
"We think it is a great formula for California," said Dan Nackerman, the housing authority's executive director. "It is the land costs that are making these houses so expensive."
Despite the recent housing slowdown, the Inland region remains a costly place to buy a home - the nation's 16th-most-expensive metropolitan area, according to the National Association of Home Builders. Just 10.5 percent of the new and resale homes in the second quarter of 2007 were considered affordable for those earning the region's median household income.
Under the land-trust plan, home prices would vary depending on location, Nackerman said. But a home at the county median price of $370,000, would instead go for between $222,000 and $296,000 if bought through the land trust.
AFFORDABLE OPTION
The land-trust model is an increasingly common way for communities to provide access to affordable housing, said Jeff Yegian, with the Springfield, Mass.-based Institute for Community Economics, which assists the nonprofit organizations. The institute's founders pioneered the community land-trust model in the late 1960s.
Public agencies, community groups or residents can form the land trusts, which are almost always nonprofit.
Francis McIlveen, project manager for the Northern California Land Trust in Berkeley, said the land-trust model is the only way to create long-term housing affordability in high-cost regions.
That land trust, founded in the early 1970s, has about 170 housing units, spread between rentals, condos and single-family homes, McIlveen said.
Housing Authority of the County of San Bernardino, which administers Section 8 federally subsidized rental vouchers and manages more than 1,600 housing units, has long sought ways to help low- and middle-income residents buy their first home.
The agency has helped 99 public-housing tenants buy homes in the past four years through a program that provides subsidies, assistance and education.
The Housing Authority of the County of Riverside, which also issues federally subsidized vouchers and manages about 500 housing units, also provides homebuyer assistance. One program provides up to 20 percent of the home's purchase price in the form of a "silent second" mortgage, which is forgiven if the person remains in the home for 15 years.
Nackerman said the San Bernardino County housing authority sees the land trust as a way to expand access for first-time buyers and create permanent affordable housing.
50 HOMES TO START
San Bernardino's proposed trust, called Emerald Empire Homes, will start with about 50 homes the housing authority purchased in the 1980s through a federal Department Housing and Urban Development program, Nackerman said.
Once current tenants decide to move out, the housing authority will transfer the homes to the trust at minimal or no cost, he said.
In addition, the trust will start with about $2 million from the housing authority's reserves to begin buying new and used homes or initiating a new tract development, Nackerman said. So far, the board has allocated $990,000 to the trust.
The San Bernardino County housing authority also is in talks with Ontario-based Frontier Homes to purchase five houses built in the High Desert. Frontier Homes did not return a call seeking comment.
Nackerman said he also hopes to have cities throughout the county contribute funding as a way to fulfill affordable-housing requirements, Nackerman said.
State and local affordable-housing requirements vary by city and county. But generally between 10 percent and 20 percent of future housing must be affordable for very low-, low- and moderate-income residents, he said.
RARE IN SOUTHERN CALIFORNIA
About 15 land trusts are active in the state, but just four in Southern California - two in Los Angeles and one each in Irvine and Inglewood, according to Burlington Associates, a Vermont-based land-trust consulting firm.
In Irvine, the city formed a community land trust last year with the goal of creating 9,700 housing units, backed by $143 million in city redevelopment housing funds.
Nationwide, Burlington Associates has identified 163 land trusts that have owned property since 1970. One of the largest is in Burlington, Vt., where a trust owns the land for more than 2,000 homes.
Land trust proponents say the advantages include the ability to build up a permanent supply of affordable homes.
More common affordable-housing programs generally provide one-time assistance, such as a grant or loan, directly to the homebuyer to help reduce financing costs. Other programs put time restrictions on a property, meaning once they are expired, anyone, even a wealthy buyer, can purchase the home.
With a community land trust, the nonprofit group receives the subsidy directly to create an affordable selling price. The trusts generally buy the land or get it donated, according to Burlington Associates.
FINANCIAL RISKS
Creating a community land trust is not without risk, though.
The challenge is finding enough money to make the initial purchase of land and homes.
"We would like to grow it as large as possible," Nackerman said. "The only drawback is the investment we have to make in the land, one time."
If the region's economy turns and wages fall or don't keep pace with real estate values, the trust could lose money on the venture, since the homes would be sold to those earning 80 percent or less of the area's median income, Nackerman said.
McIlveen said funding is always an uphill battle. And while California cities are increasingly turning to the land-trust model to develop affordable housing, many local government officials and lenders still do not understand the concept, he said.
"There are not enough people who want to help you out with subsidies or with reduced rate loans on a scale you need," he said. "There is an educational hurdle to get over. That translates into every facet of doing these projects."
Reach Duane W. Gang at 951-368-9547 or dgang@PE.com
* * *
HOW IT WORKS
San Bernardino County's housing authority is setting up a community land trust as a way to expand affordable home ownership opportunities.
THE TRUST RETAINS the land but sells the home to someone earning no more than $47,360.*
THE BUYER LEASES the land for about $50 per month.
THE BUYER MUST GET a loan through a commercial lender for the home's cost, expected to be as much as 40 percent below market value because the sale price does not include the land value.
The buyer may sell the home later but agrees to keep only 25 percent of the home's equity and to sell it to someone who qualifies for the program.
* 80% of the region's current median household income of $59,200
SOURCE: Housing Authority of the County of San Bernardino