Housing Partnership, Inc.: Using Community Land Trusts to Preserve Affordability

Home prices in Palm Beach County, Florida climbed steeply from 2003 to 2006. New construction took off as homebuyers and speculators poured into the area to take advantage of the real estate boom.

Soaring home prices soon wiped out the affordable stock available on the private market. This in turn put pressure on nonprofit housing groups like the Housing Partnership, Inc., a community development corporation and NeighborWorks® organization headquartered in Riviera Beach, to find ways to make homes affordable to low and moderate income families. The answer, initially, was greater public subsidy but soon the relentless upward pressure on prices made that strategy untenable. “People were having to use crazy subsidies, as much as $150,000, to make housing affordable and it just didn’t make sense to put that into a non-permanent form” recalls Patrick McNamara, Housing Partnership, Inc. president and CEO. The state of Florida took the unusual step of promoting formation of community land trusts (CLTs), which bring affordability by unbundling homes from the land they sit on. The CLT retains ownership of the land, removing it from the speculative market, and homeowners purchase the units. Palm Beach County is now home to CLTs run by the Housing Partnership, Inc., the City of Delray Beach, Neighborhood Renaissance (this includes a lease-purchase program), and Palm Beach County CLT.

When the Florida Housing Finance Corporation issued a request for proposals in 2007 for CLT projects HP applied for and received funding for nine units. The units were clustered on two different blocks in stable neighborhoods, and chosen carefully so they would blend well with the community.

Housing Partnership, Inc.’s intent was to make CLT units the new first-time homebuyer stock in the community, giving families a responsible, affordable way to move into an ownership position.

Then the bottom dropped out of the housing market, with prices plunging 32 percent between January 2008 and January 2009. By September 2008 Palm Beach County had 12,000 foreclosed homes. While the initial foreclosures were largely attributable to subprime mortgages, 2009 has seen an increase in defaults of prime mortgages that were suddenly underwater due to the rapidly cooling market. Industry experts estimate south Florida now has a backlog of four years worth of housing inventory on the market.

McNamara concedes that the CLT model works best in high cost housing markets where buyers have fewer alternatives and are more motivated to participate. Still, he believes that CLTs can be an attractive option for first-time home buyers, especially if they are priced so that monthly mortgage payments are less than what they would pay for a rental unit. South Florida has seen its share of boom and bust real estate cycles in the past, and is likely to experience them again going forward. Even if the market is bad now, it makes sense to build a stock of housing that will remain affordable when property values inevitably begin climbing once again.

In late 2008 Palm Beach County issued a request for proposals for a portion of its $27.7 million Neighborhood Stabilization Program-1 (NSP-1) allocation. In preparing their response McNamara and his colleagues at the other CLTs formed the CLT Collaborative, believing that this structure allowed them to pool their expertise to improve project implementation. While they were ultimately required to submit individual applications County staff saw value in the CLT Collaborative and encouraged them to highlight it.

In August 2009 Palm Beach County awarded Housing Partnership, Inc., the CLT of Palm Beach County, and Neighborhood Renaissance about $850,000 each in NSP 1 funding. (The fourth CLT Collaborative member, Lakeworth Adopt-A-Family, had decided not to apply). Collectively, the group plans to assist 13 single-family units, as well as an 8-unit multi-family property (which may also be included in the CLT structure).

Housing Partnership, Inc. is certified in Full-Cycle Lending , and is also a licensed, FHA-approved mortgage lender, so its contribution to the CLT Collaborative will be providing homebuyer education and counseling, underwriting the mortgages, and closing the loans. It will also be responsible for acquiring, renovating, and managing the eight-unit multi-family property. Neighborhood Renaissance has expertise in using a lease-purchase model to help families transition to homeownership, and in marketing and managing scattered site single-family housing. CLT of Palm Beach County is also experienced in renovating single-family units for re-sale to low and moderate income buyers.

This first project will assist a modest number of units but the collaborative structure offers a number of potential advantages. Sharing expertise means that the members do not have to bear the cost of having duplicate capacity, such as originating and closing loans. Applying for grants as a Collaborative can also improve operating efficiencies, as one member can serve as the lead applicant, reducing administrative costs. Customers benefit from having access to a wider range of resources that are more integrated than would be the case if each member operated alone.

The Collaborative also offers the promise that CLTs will continue to be an active and permanent strategy for developing affordable housing. The combined forces of several vital nonprofit organizations working in the same geographic area, rather than an isolated organization here or there, will help ensure that CLTs remain a vital strategy for creating and preserving affordable housing, taking advantage of the current trough in property values.

Housing Partnership, Inc. and the CLT Collaborative are testing some creative marketing techniques in order to attract CLT buyers. Housing Partnership, Inc. has contracted with a former newspaper reporter, who covered community news for years prior to the recent media layoffs, to write stories about the programs and resources it offers. The reporter will try to get these stories placed in both newsprint and electronic publications. The Collaborative will also work closely with the Palm Beach County school district. The lack of affordable housing has been a big problem for the school district for years, challenging its ability to hire and keep staff, so it is motivated to work with Housing Partnership, Inc. to support marketing efforts. Housing Partnership, Inc. will be able to send out information about the CLT option to all staff with the help of the district.

In addition to the extra marketing effort, CLT buyers often require more handholding as they learn what it means to be a homeowner. A social worker by training, McNamara frames this as a “boundary issue”. “We have to say things like ‘this is now your home- the warranty has run out and taking care of that is your responsibility’”, says McNamara. While this ongoing education makes it a slightly more costly program to operate, over the long term it is an important contribution to creating affordable- and sustainable- homeownership in the volatile south Florida housing market.