Guest Post: City Of Minot Should Re-Think Community Land Trust

A Community Land Trust (CLT) is a non-profit corporation that owns and manages land in an effort to create affordable housing in a market, typically in a blighted community. The City of Minot is forming such a trust in response to the housing crunch felt throughout the community. In researching a bit of the history behind CLTs there are plenty of unanswered questions that lead to cause for concern. I have been and always will be a fierce advocate for private property ownership as an earned right in our society, both from a professional and philosophical prospective and will advocate for such when necessary.

The opportunity to enjoy owning private property includes a “bundle of rights” which includes the rights of possession, control, exclusion, enjoyment and disposition. It is my position that many if not all of these rights are reduced in a CLT format for the occupant.

If the intention is to keep the pricing of the property lower, how does that affect the neighboring properties at the time of resale? The CLT property would clearly be used as a comparable property for appraisal purposes, negatively impacting the value of the subject property.

Who would be considered a ‘qualified’ buyer for a CLT property and what exclusions would apply to those deemed ‘over-qualified’? Would an otherwise qualified buyer be excluded from being able to purchase a home held in a CLT, thus reducing the opportunity for the current owner to sell at an arm’s length transaction and reducing their right of disposition?

What are the income tax implications for the seller within a CLT? If a current primary residence is sold under certain parameters, the capital gain is tax free for a married couple up to $500,000. Since the real estate (legal description) is not being sold, would this be viewed as a taxable gain and therefore, substantially reduce the incentive for ownership that another property would provide?

The biggest concern for the owner of the property is the following scenario: If $100,000 is borrowed to purchase a $110,000 home at 5% over 30 years, the monthly principle and interest payments are $536.82. If the property owner owns the home for 10 years and then decides to sell and (under normal market and ownership conditions) the property appreciates at 7% per year, the future value of the $110,000 home becomes $216,000. If under the CLT agreement the homeowner receives 20% of the appreciation, that amount will equal $23,000. The homeowner would have paid over 10 years $18,660 in principle and $45,760 in interest for a total of $64,420. Regardless of how one calculates the amount paid versus the amount gained, the result is a negative to the “investor”. Far too many unanswered questions surround the creation of a CLT to quickly move that direction as a solution to affordable housing issues in our market.

Rep. Scott Louser represents the 5th District in the North Dakota legislature and is also Vice President of the National Association of Realtors.