Community Dividend

How did community land trusts survive the housing crash?

Thanks to some of their features and practices, these shared-equity homeownership organizations appear to have weathered the recent crisis relatively well.

Harshada Karnik

Published January 31, 2014  |  January 2014 issue

A before-and-after composite of a formerly vacant home in North Minneapolis. City of Lakes Community Land Trust, one of the organizations that participated in a recent survey of Minnesota Land trusts, led the property's rehabilitation. The recent housing market crash contributed to the decline or demise of many entities that deal with real estate and homeownership. Yet a particular type of real-estate-related, homeownership-centered organization called a community land trust (CLT) appears to have weathered the crash relatively well. How could that be, when housing prices in the U.S. fell by one-third from 2006 to 2010 and the foreclosure rate rose from less than 0.5 percent to nearly 4.0 percent over roughly the same period?1/ A survey of the majority of CLTs in Minnesota, the state that’s home to 9 of the 19 CLTs in the Ninth Federal Reserve District, provides some possible answers.

Keeping homes affordable

A CLT is a nonprofit organization that aims to provide long-term affordable homeownership opportunities by following a shared equity model. That is, a CLT retains ownership of residential land while providing subsidies to help low- to moderate-income families buy the homes sited on the land. If a family later sells a home that was purchased through a CLT, the sales price is typically set by a market-based appraisal. The selling family shares a portion of any increases (or decreases) in the appraised market value with the CLT, according to terms specified in the initial purchase contract. The CLT then sets the new asking price by adding the share paid to the homeowner onto the old sales price. By retaining land title and limiting price appreciation, CLTs aim to keep homes affordable across generations. (For more on how CLTs work, see “Community land trusts strive for permanent housing affordability,” Community Dividend Issue 3, 2007, at

Given that land and properties are central to the activities of CLTs and make up a significant part of CLTs’ assets, one might expect the housing market bust to have adversely affected them. However, the results of a survey of six of the nine CLTs in Minnesota conducted on behalf of the Federal Reserve Bank of Minneapolis in the summer of 2013 shows that most Minnesota land trusts weathered the bust relatively well.2/ Three factors appear to explain this: accounting practices, adaptations to decreases in grant revenue, and the services CLTs provide to their clients.

A matter of accounting

Although they were exposed to the sharp fall in housing prices after 2006, most Minnesota CLTs maintained a strong asset base and some even managed to grow. According to Jeff Washburne, executive director of City of Lakes Community Land Trust in Minneapolis, the general stability of CLT assets was partly due to accounting practices.

“Most CLTs do not mark their real estate assets to market, on the grounds that they plan to hold the asset permanently,” he says. In other words, for accounting purposes, they treat their real estate assets as long-term holdings and do not factor market fluctuations into calculations of net worth. Thus, falling land prices do not have a significant direct effect on CLTs’ balance sheets. Instead, their finances are mainly affected by fluctuating revenue streams.

Grants and volatility

Typically, sustaining the revenue needed for day-to-day operations is a CLT’s biggest challenge. For most of the Minnesota CLTs surveyed, over 80 percent of revenues during most financial years have come from grants, mainly government grants.3/ Other grant sources include foundations, philanthropic organizations, and individual donations.

Grant revenues are inherently volatile but were especially so during the housing crash, when several major CLT donor organizations rolled back their funding. Some CLTs adapted by trimming their administrative and salary expenses. For instance, Rondo Community Land Trust in St. Paul and Two Rivers Community Land Trust in the eastern Twin Cities suburb of Woodbury moved to less expensive office spaces. The scale of operations of some CLTs was also directly affected. Lower revenues meant that many program activities contracted; for example, according to Greg Finzell, executive director of Rondo Community Land Trust, “The number of homes Rondo developed every year fell from five or six or even ten during certain years pre-recession to about three or four a year more recently.”

Fortunately, few grant providers curtailed their funding entirely and most Minnesota CLTs were able to adjust and survive. One exception was Chaska Community Land Trust, located in a southern suburb of Minneapolis, which did not receive enough grant money to fund its executive director position and was then taken over by Carver County.

Client services minimize issues

During the housing crash, CLT clients contributed to the relative stability of CLTs by outperforming other homeowners. By the end of 2010, the general mortgage market was experiencing a national delinquency rate of 8.8 percent while the comparable figure for CLT homeowners was 1.3 percent. Similarly, while only about 0.5 percent of mortgage loans of CLT home buyers nationwide were in foreclosure proceedings, 4.6 percent of other mortgages were in foreclosure proceedings.4/

CLT leaders attribute the exceptional performance to client screening performed upfront and client supports offered post-purchase. Most CLTs require prospective buyers to complete homeownership classes, have a preapproved mortgage from a lender that lends for CLT homes, and go through a one-on-one counseling session or orientation with a CLT representative. Some also pay for clients to visit a legal professional who will walk them through the legalities of owning a CLT home.

Once a client purchases a CLT property, the CLT provides homeownership supports, such as timely referrals for personal finance help if clients get behind on their payments; information on contractors, if clients wish to do any upgrades or repair work on their homes; assistance with paperwork and processes related to property taxes; and social outings and home maintenance workshops where clients can connect with other CLT homeowners.

Facing new realities

Although the market bust did not severely affect most Minnesota CLTs, it has changed the lending environment their clients face. CLT leaders observe that the minimum credit score to qualify for a mortgage has gone up, credit histories are being checked more diligently, and documentation has become more detailed. However, there is a lack of consensus on whether these changes will restrict aspiring CLT homeowners’ ability to access housing finance. Says one CLT director, “Tighter lending standards aren’t significant for families that are really ready for homeownership.”

CLT leaders in Minnesota expect one longstanding challenge—maintaining revenue streams—to intensify in the coming years. For example, Kathryn Paulson, executive director of Two Rivers Community Land Trust, expresses concern that affordable housing may no longer be a priority in the philanthropic world. And according to Jeff Washburne, funds from foundations are starting to decline due to the way grant funding formulas work.

“Foundations award grants on the basis of the returns on their investments on a five-year rolling average, so going into the recession, our revenues held up because the foundations funding them had made good returns on their investments during the previous five years,” he says. “However, the last five years were the down years for foundation investments so funding is now beginning to dry up gradually.”

The new decreases in revenue will likely further test the adaptability CLTs demonstrated during the housing market crash. It remains to be seen how else the new post-recession realities will affect CLTs’ ability to pursue their mission of keeping homes affordable across generations.

Harshada Karnik is a graduate student in the Department of Applied Economics at the University of Minnesota. She is interested in issues related to economic development and, as a Community Development intern at the Minneapolis Fed during the summer of 2013, conducted the interviews and research for this article.

1/ Federal Reserve Bank of Minneapolis staff calculations based on Home Price Index data provided by Core Logic. For more information, see

2/ The six CLTs surveyed were Chaska Community Land Trust, City of Lakes Community Land Trust (Minneapolis), First Homes Community Land Trust (Rochester), Northern Community Land Trust (Duluth), Rondo Community Land Trust (St. Paul), and Two Rivers Community Land Trust (Woodbury). The three remaining CLTs in Minnesota either opted not to participate or could not be reached.

3/ From the surveyed CLTs’ Internal Revenue Service Form 990 filings for 2002–2011.

4/ CLT foreclosure rates are from Emily Thaden, Stable Homeownership in a Troubled Economy: Delinquencies and Foreclosures Remain Low in Community Land Trusts, Lincoln Institute of Land Policy, 2011. Marketwide foreclosure rates are from the Mortgage Bankers Association.




Narayana Kocherlakota

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