As city leaders pointed out last week at the release of NLC’s Housing Task Force report, American cities, towns and villages are experiencing a severe shortage of housing for low-income residents.
According to a new report from Harvard University’s Joint Center for Housing Studies, the supply of low-rent housing units has declined significantly since 2011. In all, approximately 4 million housing units renting for less than $800 monthly have been lost, three-quarters of which vanished between 2014 to 2017. Each year, many of these affordably priced homes become unavailable to low and extremely low-income families due to conversions from rental to ownership units or deterioration, or because expiring subsidies make affordable rentals eligible to be repositioned as market-rate housing.
Over the years, tens of thousands of affordable units that were built using federal Low Income Housing Tax Credits (LIHTC) have shed their initial 30-year affordability requirements early, exiting the program through a15-year loophole and becoming unaffordable to many. Complicating matters are the nearly half a million additional LIHTC units expected to convert to market rate use over the next decade, beginning in 2020, as affordability provisions begin to expire for the first 30-year LIHTC properties reaching the end of their affordability requirement.
As city leaders across the nation work aggressively to address the loss of low-rent affordable housing supply, there has been a growing interest in the use of cooperative housing to permanently preserve long-term affordability.
Community land trusts (CLTs), limited equity cooperatives (LECs) and other types of cooperative housing belong to a class of resale restricted owner-occupied housing frameworks referred to as shared equity models. Shared equity models account for a mere 3.7 percent of U.S. housing supply. Central to the shared equity model is a reliance upon the separation of ownership rights, whereby individual homeowners retain tenure over a property’s physical dwellings and a non-profit or governmental entity retains title to the underlying land.
Community Land Trusts
CLTs are typically private non-profit corporations that strategically acquire and develop residential property for the benefit of the community. Since the 1960s, CLTs have been at the forefront of efforts to ensure permanent affordability of homes and help low income families tap into the wealth building potential of homeownership.
When a CLT acquires a residential property, the CLT holds the property’s underlying land rights separate and apart from the housing, which can be single-family or condo units. Individual dwelling units are purchased and owned by low-income qualified buyers using traditional mortgage products, often from CLT-partnered financial institutions, while the underlying land is rented back to homeowners through long-term ground leases. Should homeowners choose to sell their homes, the resale price of the home is set according to a predetermined formula that allows for a modest return on investment to the homeowner but preserves long-term affordability for future residents.
Limited Equity Cooperatives
Conversely, LECs are a cooperative ownership structure in which both the physical dwellings and underlying land are financed, purchased and wholly owned by a co-op corporation. In lieu of ownership interests in the physical real estate, low-income qualified households purchase and own shares of stock in the LEC.
Ownership of LEC shares entitles households to the secure and exclusive use of the dwelling, most often in the form of a 99-year ground lease, as well as a vote in the democratically-run management of the corporation.
Co-op members also pay a monthly fee to cover the operating costs and ongoing maintenance of the property. To preserve long term affordability, LECs incorporate resale provisions into the co-op bylaws and occupancy agreements that allow members to sell their co-op shares at a predetermined, formula-driven price that allows for modest appreciation.
Although shared equity models are more likely to ensure permanent affordability than many other types of programs, CLTs and LECs are not without their limitations. For example, CLTs tend to only be a fit for low-income families that can obtain traditional mortgage financing — a requirement that often excludes many very low-income households. And while LECs tend to offer a deeper level of affordability to very-low income households, traditional banks have demonstrated a hesitancy to lend to LECs. And for some co-ops, a lack of management capacity and experience has led to solvency issues over the long term.
Despite their limitations, shared equity models deserve a thorough consideration from city leaders. Given that the affordability provisions of many locally and federally funded affordability programs eventually lapse, cities could produce a profound public benefit if increased funding was allocated in support of shared equity housing models.
Such investments could lead to a larger supply of permanently affordable housing for generations to come.
About the Author: Terrah W. Glenn is the Senior Associate for Housing within NLC’s Center for City Solutions. In addition to pursuing dual Master’s degrees in the fields of urban and regional planning and landscape architecture, Terrah works on the Center’s full range of research priorities with special emphasis on the areas of affordable housing, urban innovation, sustainability, and economic development.