California’s housing shortage extends across the state, including all tiers of housing from high-tier to low-tier. As available homes fall behind homebuyer and renter demand, the result has been a rapid increase in home prices and rents, the pace far exceeding area incomes.
For example, renters in Los Angeles spend on average 48% of their income on rent alone as of 2017. San Diego and San Francisco aren’t far behind, with renters spending on average 42% of their income on rent, according to Zillow. This is significantly above the maximum recommended 31% housing-costs-to-income ratio.
For potential homebuyers, California home prices have increased much faster than average incomes, rising since 2012:
- 71% in the high tier;
- 89% in the mid tier; and
- 119% in the low tier, according to the Standard & Poor’s/Case-Shiller Home Price Index.
Meanwhile, the median income of married households in California has only increased 15% since 2012, according to the U.S. Census.
These price jumps tell us the hardest hit have been residents reliant on low-tier housing, as the limited supply of new home construction is taking place — with rare exception — in the high tier.
Legislative efforts to combat the affordability crisis have gradually taken shape at the state and local levels. But as construction continues to fall behind demand, the growing populations of homebuyers and renters are still facing fierce competition for a limited supply of homes.
Now, private citizens are taking matters into their own hands.
Non-profits provide affordable housing
Non-profit organizations devoted to providing affordable, long-term housing solutions are popping up in increasing numbers. These organizations are called community land trusts.
This concept is not new, having existed on a smaller scale since at least the 1970s. Other types of land trusts include public land trusts, non-profit organizations dedicated to preserving land for public access or agricultural, scientific, recreational, historical or educational activities. [Calif. Gov. Code §831.5]
These setups are of particular benefit to local governments since they take the problem of insufficient low-income housing and tackle it on a micro-scale.
Community land trusts receive funding from local cities, government-backed agencies, banks and various faith-based and secular organizations. With this funding, they are able to invest in purchasing properties to sell and rent back at a discounted price to eligible residents.
What happens next is up to the individual community land trust. Each of the 15 established community land trusts in California has its own unique rules and responsibilities for owners and tenants.
For example, homeowners in the Oakland Community Land Trust agree that the trust retains ownership of the land beneath the home, much like with a condominium. This takes the form of a 99-year ground lease. Then, when the homeowner decides to sell at some point in the future, they agree to sell it at the same price they purchased it, plus a measure equal to changes in median area income. This practice ensures the home remains within reach of low-income households as the years pass, even if the surrounding land has appreciated significantly.
Other communities have other, more intense sets of rules. The Los Angeles Eco-Village is a Community Land Trust with similar rules as the Oakland Community Land Trust, but is also an intentional community where most residents eschew cars, own environmentally friendly businesses and practice sustainable urban living.
Likewise, the People of Color Housing Network is partnering with the Northern California Land Trust and other organizations to get a community land trust off the ground which centers on bringing affordable housing to communities comprised primarily of people of color.
Each of these community land trusts are formed in response to the threat of gentrification, which forces low-income residents out of their long-term communities. California has seen its fair share of this activity, culminating in the state’s pricey coastal cities, where it’s basically impossible to qualify to buy or even pay rent on the salary of a teacher, first responder or service worker.
Drawbacks to Community Land Trusts
Community land trusts offer a neat solution to gentrification, returning ownership of a community to its most vulnerable, long-term residents. But there are some drawbacks for homeowners who purchase from the trust.
Return on investment is a big issue.
While homeowners of property located within a community land trust watch surrounding property values rise significantly from year to year, their own property value will only inch along. True, this is the price paid to purchase their home at a significant discount, but it also means they are mostly excluded from the riches of property appreciation.
Further, return on investment for improvements made on the property is limited. Some organizations — including the Irvine Community Land Trust — allow for the addition of improvements in their resale formula. But the incentive to improve the property is lessened by the reduced return.
Looking at the big picture, the reach of these organizations is extremely limited. For example, the Oakland Community Land Trust, recently profiled in the Sacramento Bee, has only purchased 20 single family residences (SFRs) since 2010.
Since these trusts rely on donations and grassroots support to purchase property, their progress is slow and meandering.
The solution presented
Are community land trusts the solution for California’s lack of affordable for-sale and rental housing?
No — the ultimate solution is more construction. Only then will sufficient housing be available to the state’s ever-growing population.
But these organizations are doing their part, providing a solution for an extremely limited portion of the population. The few, lucky residents benefitting from community land trusts are able to remain in their community and enjoy the social benefits of homeownership even as their neighborhood gentrifies around them.
But homeownership for relatively low-income individuals located in expensive areas should not be like winning the lottery, a chance few receive. When significantly more homes are built across the low- and high-tier housing spectrum, prices will organically fall closer in line with income changes.
The good news: construction has steadily — but slowly — increased over the past several years. With the passage of California’s latest affordable housing bill package in late-2017, legislators expect construction of low- and mid-tier housing to pick up in 2018 and 2019 as builders and local governments adjust. As these new homes make their way into the housing stock, more homebuyers will be able to participate in the housing market, injecting the market with more stability in the coming years.