Inspired by a proposal in Martin Adam’s book, “Land: A New Paradigm for a Thriving World”, the Minnesota chapter of Common Ground USA partnered with the Center for Urban and Regional Affairs (CURA) to explore the feasibility of starting a Municipal Land Trust (MLT) in the City of Saint Paul.
Under an MLT, a home owner finances the building portion of a property with a conventional mortgage but instead of financing the land portion of the property, the homeowner pays land rent to the trust in lieu of property taxes (i.e. the trust pays the property taxes for properties in the trust). This can be arranged in various ways, such as:
- The trust acquires and retains the land title for homes in the trust; and/or
- When a city provides loans/funds to a homebuyer/developer, a deed restriction is placed on the property obligating land rent payments to the trust in lieu of property taxes.
Land rent is typically about 6% of a property’s land value and increases 2% annually on average. Because land’s rental value is created by the surrounding community and is thus “common wealth,” it should be shared equally. So increasing land rent can be used to provide an equal land rent credit to the homeowners. Under the proposal, homes at any price range could be part of the trust, not just lower valued homes.
In addition to making homeownership more affordable, other benefits of an MLT include:
- Reduced foreclosures.
Because the prices of the land value portion of properties are more volatile than those of the building portion, financing only the building results in reduced foreclosures. Studies show that land trust homes have lower foreclosure rates than homes with conventional mortgages. - Communities benefiting from land values.
When land values increase, it is because the community in which the land is located has added value to the land. Land rents reimburse the community for increased land values rather than allowing land speculators and banks to profit from buying and selling the land. - Protection against displacement.
An MLT protects against displacement pressures by providing the opportunity for low-income households to purchase homes and by providing an equal rent credit from increasing land rent. Also, an MLT could provide more democratic control over future land uses.
An earlier, more limited study of the approach (summarized in the chart below) showed, intriguingly, that properties of above-average value paid more in land rent to the trust than they would in property taxes, but would still be paying less overall because the land portion wasn’t being financed.
CURA’s feasibility report, which looked at property data more broadly than the earlier study, confirmed this result and shows that the trust could be self-sustaining, i.e. the higher land rent paid by higher-valued properties in the trust enables the trust to pay the property taxes of all the homes in the trust.
CURA’s report also explored various ways in which an MLT could be expanded such as:
Initiation by Home Buyer
Home buyers could approach the MLT when they want to buy a property and have the trust assume title to the home’s land while the home buyer would assume title to the structure.
Deed Restrictions
In exchange for the City’s financing of down payment assistance, rehab loans, etc., a deed restriction could be placed on the benefited property that obligates land rent payments to the MLT in lieu of property taxes.
Defunct Golf Courses or Buildings
With closed-down public golf courses or similar properties, the City could transfer the properties to the MLT, which would then lease the land portion of these properties out while home buyers would acquire title to any structures on the site.
Properties in Loan Foreclosure
Homeowners who are at risk of a foreclosure could sell the property to the MLT, which would retain title to the land and sell back the improvements on the land to the homeowner, thus allowing the homeowner to continue to stay in the property and avoid loan foreclosure.
Tax Forfeited Land
The City could transfer tax-forfeited properties to the MLT, which would retain the title to the land while a homebuyer acquired title to the structure.
“Single tax communities” such as Arden, Delaware have existed for over 100 years. In them, homeowners have title to house structures but rent the underlying land from a trust, which uses the collected rent to pay for the communities’ public services and to pay for the homes’ school and county property taxes. MLTs would allow cities across the country to use a similar approach in a piece-meal way, resulting in increased housing affordability and stability.
