Subsidy Use
To fully understand how a Community Land Trust works, one must understand the uses of subsidy in creating housing affordability. Most common models of affordable housing provide subsidy to the homebuyer, usually in the form of down-payment assistance. This subsidy might be a grant to the homebuyer or a loan which is either forgiven over time or repayable, most commonly upon resale. All of these forms of subsidy benefit a homebuyer by reducing their housing costs to an affordable level. When the subsidized homeowner sells their home on the market they benefit from the equity built, but the home loses its affordability for future buyers of a similar income level. What happens to the subsidy? If the subsidy is a grant or a forgiven loan, the seller walks away with it. If recovered through repayment or upon resale, the subsidy is returned to its source and can be re-used to subsidize another buyer to buy an affordable house, although additional subsidy is often needed in growing markets.
Community Land Trusts use subsidy very differently, holding it on the CLT side rather than providing it directly to buyers. The CLT provides subsidy by absorbing the cost of the land and infrastructure (and sometimes some of the development costs), thus greatly reducing the cost to the homebuyer. The subsidy is thereby permanent, serving all future owners of the CLT homes. Together with the equity limitations contained in the ground lease, this permanent subsidy allows CLT homes to retain their affordability forever. Affordable housing developers, funders and governments are starting to recognize the efficiency and effectiveness of using scarce public dollars to provide subsidy that increases the supply of permanently affordable housing. A flash animation, designed by Rick Jacobus, on the Burlington Associates web site demonstrates the merits of "subsidy retention" as a preferred policy for investing public dollars in affordable housing. The argument is that shared equity homeownership is effective in locking public subsidies into each home that is sold, thus guaranteeing a stock of permanently affordable housing.
http://www.burlingtonassociates.com/resources/archives/clt_101/000055.html
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