Burlington Busts the Affordable Housing Debate

The Burlington Community Land Trust's radical 20-year experiment in affordable housing.

BY DANIEL FIRESIDE

"Housing used to be an opportunity ladder in our country. You started out in a rental and began to save. Then you bought a small home, and eventually you moved up. Today, housing prices are so high that if you're renting an apartment, you can't possibly save," says Brenda Torpy, executive director of the Burlington Community Land Trust.

With housing prices skyrocketing beyond the means of the average worker, rents eating up a greater share of household income, and HUD funding on the chopping block, local governments have few tools at their disposal to create affordable housing. Too often, mayors are reduced to offering tax breaks to big developers in exchange for a few token "below market rate" apartments. In the old debate between supply-siders and government interventionists, it's clear who has the momentum.

Undaunted by these grim trends, community leaders in Burlington, Vt., are continuing to carry out a 20-year experiment in affordable housing based on the radical precept that housing should not be treated as a market commodity. The Burlington Community Land Trust (BCLT) represents an altogether different approach to housing security--and one that holds important lessons for community organizers around the country.

BCLT is Born

In the early 1980s, wealthy out-of-town speculators began driving up the cost of housing in Burlington. Harried New York City yuppies saw the bucolic college town of 40,000 as an ideal place for their vacation homes, and longtime working class residents were being rapidly priced out of their own neighborhoods. Housing prices in Burlington were rising at twice the national rate.

Frustration over housing issues came to a boiling point when the political establishment cut a deal with big-time developers to put an upscale apartment complex on the city's scenic waterfront. Voter disgust with this plan to privatize public space led to an upset victory in the mayoral race by Socialist gadfly Bernie Sanders and his ragtag Progressive Coalition in 1981.

Sanders and the Progressive Coalition quickly sought to develop institutions and programs that would have a lasting impact on the community. The Progressives decided to make affordable housing a signature issue. Things got off to a rough start when their proposal for rent control was voted down after a coalition of property owners and establishment politicians hired a professional consultant to defeat it. With rent control off the table, and federal funding in short supply, the Progressives had to turn to more creative measures to address the housing crisis.

In 1983, they created the Community and Economic Development Office (CEDO), a permanent community-development office that would set development goals and initiate creative projects. CEDO initially focused on three areas of housing policy: protecting the vulnerable, preserving affordable housing, and producing affordable housing. While these goals sound typical of many municipal development authorities, CEDO's strategy was distinctive. It sought to decommodify residential property, ensure its housing projects would be permanently affordable, and actually empower residents. Its most important initiative, and the key to all of these goals, was the Burlington Community Land Trust.

Rethinking Private Property

In the late 1970s, Vermont environmentalist Rick Carbin had formed the Vermont Land Trust (VLT) in an effort to preserve open space as developers bought up farms. Instead of buying and holding land, as some land trusts do, the VLT used its resources to buy undeveloped properties at the edge of urban areas and resell them, often at a profit, but with strict conservation easements that prohibited future development. (For more on easements, see "Land Trusts Ease Control of U.S. Farmland Away from Developers," p. 16.) The VLT's successful track record paved the way for Burlington's housing land trust program.

The Institute for Community Economics, a thinktank based in Springfield, Mass., approached CEDO planners with a proposal to use the land trust model as a tool to address Burlington's housing crisis. Much as the VLT program "unbundled" the ownership of property from its function in the future, the housing land trust separated the ownership of a house from the land it sits on. As Brenda Torpy summarizes, "Conservation land trusts take land out of the market to protect the natural environment. Community land trusts take land out of market to protect the urban environment including the people who live there."

CEDO established the Burlington Community Land Trust as an independent nonprofit corporation in 1984, with official backing from the Burlington City Council and $200,000 in seed money. The trust was viewed as an integral part of the city's affordable housing program. Even traditional politicians came to see the land trust model as an acceptable compromise between a flawed free market approach and heavy-handed government intervention, especially as it promoted the popular concept of home ownership. Democratic and Republican politicians have found it difficult to oppose a program that offered life-long renters a "piece of the American Dream."

At its founding, the BCLT was the first municipally funded community land trust in the country. Today it is the nation's largest community land trust, with over 2,500 members.

Housing Trust 101

Buying land through a housing trust involves several steps. To start, the trust acquires a parcel of land through purchase, foreclosure, tax abatements, or donation, and then arranges for a housing unit to be built on the parcel if one does not yet exist. The trust sells the building but retains ownership of the land underneath. It leases the land to the homeowner for a nominal sum (e.g., $25 per month), generally for 99 years or until the house is sold again.

This model supports affordable housing in several ways. First, homebuyers have to meet low-income requirements. Second, the buying price of the home is reduced because it does not include the price of the land. Third, the trust works with lenders to reduce the cost of the mortgage by using the equity of the land as part of the mortgage calculation. This reduces the size of the down payment and other closing costs and eliminates the need for private mortgage insurance. In all, the trust can cut the cost of home ownership by at least 25%.

For longtime BCLT member Bob Robbins, purchasing a home through the trust "was the only affordable option. We did not have access to money for a down payment on a regular home, and at our income level, we wouldn't have qualified for a mortgage. Through the BCLT, we were able to purchase a $99,000 home with just $2,500 down."

Unlike federal programs that only help the initial buyer, the BCLT keeps the property affordable in perpetuity by imposing restrictions on the resale of the house. Specifically, the contract restricts the profit buyers are able to take when they later sell the house. According to the terms of the BCLT leases, homeowners get back all of their equity from their mortgage plus the market value of any capital improvements they made. However, they only get 25% of any increase in the value of the house (which constitutes 75% of the total value of the property), and none of the increase in the value of the land.

Since buyers keep a portion of the housing value appreciation, families do accumulate some wealth through BCLT homeownership. And as time passes, if the surrounding housing prices continue to rise, the trust prices become even more affordable relative to market housing, and the trust captures more wealth on behalf of the community.

When the homeowner sells, the new buyer must agree to the same terms. If no buyers are interested or the owners default on the mortgage, the BCLT retains the option to buy the property.

This model gives the buyer the benefits of homeownership (including the tax deduction for mortgage interest, wealth accumulation through equity, and stable housing costs) that would otherwise be beyond her means. In return, she gives up the potential of windfall profits if the market keeps rising. BCLT recently published a study of the first 100 trust homes that were sold to a second generation. "The implications were very powerful," says Brenda Torpy. "The initial homebuyers realized a net gain of 29% on the money they had invested. Our homeowners were taking an average of $6,000 with them. These aren't the sky-high returns that some people have come to expect from the housing market, but these were people who would never have entered it in the first place." That's because most BCLT homeowners "would never have been able to buy homes otherwise, even with existing federal and state programs," explains Torpy. "For many, we are a stepping stone between renting and homeownership."

Urban land is not a normal economic good because it exists in a fixed quantity. (They're not making any more of it, as realtors say.) Since the supply cannot rise to meet growing demand, the price is subject to speculative forces. The housing supply can be increased by building in greater density, but this does not happen quickly. When a normal home is offered for sale on the usual terms, it does virtually nothing to make the overall housing market more affordable. A land trust home, by contrast, creates a permanently affordable property because the land it sits on is removed from the speculative market. Most of the appreciation is retained by the housing trust (and by extension, the community), rather than the individual. In this way the trust model creates a bridge between purely public and purely private property. "We're trying to stop the concentration of land in the hands of a wealthy minority," says Torpy.

The land trust program was designed to outlast any change in city hall. This was an important strategy in the Progressive Coalition's early years. As it turned out, the Progressives hung on to control, with the exception of a single Republican administration in the mid-1990s. As a result, they have been able to expand on the aims of their original programs and establish a broad base of support for their housing agenda.

The BCLT has become an important force in Burlington's housing market. After 20 years, the trust controls almost 650 housing units, including over 270 rental apartments and 370 shared-appreciation single-family homes and condominiums--about 4% of Burlington's total housing stock. The process is "buyer initiated"; the buyer picks out the house and asks the trust to incorporate it. Therefore the units are dotted all over the city. The trust has also built a wide variety of homes in various styles to fit into particular neighborhoods. "Most of them are modest," says Torpy. "We've found that condos are good starter homes. They're something new but are still affordable. But we're also building modular homes and 2- and 3-bedroom homes." The BCLT's programs also include tenant-owned cooperatives, a family shelter, a transitional shelter, and housing for homeless youth, the mentally ill, and people with HIV/AIDS.

The BCLT is remarkable not only for its size, but as an organizing structure that promotes community empowerment. Tenants and owners of BCLT units vote for and serve on its governing board, along with government officials and other residents with technical expertise, such as architects and urban planners. The system is designed so that the BCLT doesn't play the role of landlord to tenants and homeowners. Rather, all interested parties have a voice and a vote. In this way it's also an experiment in democratic self-governance.

By looking at housing as a fundamental human right rather than a market good that goes to the highest bidder, and with shrewd political organizing in a hostile environment, housing advocates in Burlington have created a sustainable model for affordable housing that deserves to be emulated across the country. Others are catching on. Since the BCLT published its study, the Fannie Mae Corporation, other city planning offices, and state financing offices have all contacted the BCLT for information about how to use housing trusts in an environment of shrinking funds. Today there are 130 community land trusts in more than 30 states, including in large cities like Atlanta and Cincinnati. The largest growth has been in California and the Pacific Northwest. BCLT itself is expanding into the surrounding counties.

BCLT homeowner Bob Robbins says, "I think every community should have a land trust--not just as a fringe option but as the dominant model to keep housing affordable."

Daniel Fireside is books editor at Dollars & Sense.