Lessons Learned: Affordability, Matters of Land

So much of the narrative around affordable housing development conjures up imagines of raising walls and giving the keys to hardworking new homeowners. And to be honest, this is a huge part.  That homeowner is going to have their life changed, “getting a foot on the ladder” up out of poverty (to borrow an analogy from my Bike & Build teammate, Amy).  It’s an incredible moment for the new homeowner and their family.

Let’s think long-term.  Somewhere down the line, the homeowner might want to move or sell their home, just like any other homeowner.  What’s the problem with that?

Significant public and private investment (or subsidy, depending on how you’re counting) went into that home to make it affordable.  Sometimes in terms of outright donations of materials and labor, other times as special deals or access to affordable housing funds.  At least for Habitat, new homeowners only pay for the value of the home minus the cost of building it.  But as soon as that home hits the private market, it’s instantly worth full market value.  And based on the location of the home, that full market value might be on the rise.

Herein lies the dilemma.  Affordable homes on land that’s increasingly valuable  probably wont remain affordable.  New homeowners are rational actors just like other homeowners and they may want to sell for a profit in the future.  Affordable housing development is an investment in a community; as a community improves, so will its land values.

Affordable housing organizations have thought through all of this.  Groups like Habitat employ creative mortgage options that ensure affordability for at least ten years.  Some localities put conditions on their funds  – i.e. if we put money toward this affordable home, it must stay in the hands of those in need of affordable housing if it is ever sold.  Perhaps the most proactive strategy is employed by groups called land trusts, where a legal mechanism removes the value of the land beneath the homes.

Whatever the strategy, affordable housing developers must recognize as they help improve communities, the value of land will be working against them.

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