NeahCasa
a community housing trust|
Free Housing in 25 Years?A mechanism is available to Community Land Trusts to get out of our “debt trap” of perpetually-cycling finance costs for housing. The IRS requirements for CLTs permit up to 25% of their units to be “market-rate rentals.” Use of this provision, along with other aspects of CLT programs, can permit major shifts in housing costs over the time cycles in which CLTs operate.
Income from those mortgage-free MRR units can then speed payoff of more of the existing units, as they turn over. At 12 years from start, the CLT would have 25% of its units paid off, and total market rate rent income from those 10 units becomes available to pay off more existing units or build new ones mortgage-free. In 6 more years, the CLT would have 50% of its units paid off, as the income from the 10 market rate units combines with 10 low-income unit incomes to pay those units off faster. Then the total income from those 20 units becomes available to pay off remaining existing units or build new ones. It would take another 7 years then, (24 years total) for the CLT to pay off the remaining 50% of its units. In 24 years, all the housing is paid-off and “free.” The economic cost of construction is paid, and the equal finance cost for all the homes eliminated - forever. At this point (or any point along the way) a CLT can:
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A CLTs 25% initial Market Rate Rental units can be rented
at market rates. But assuming reduced costs [here free
land (30% of home cost) and efficient design and construction
(10% reduction)], the mortgages can be paid off in
12 years rather than 30. (A 30-year loan at 6.5% interest,
ends up costing interest charges of 128% in addition to the
initial cost of the home.)