Why are CLTs devoting so many resources to the sustainability of homeownership? A CLT has a vested interest in not losing homes to foreclosure, as they are located on a CLT’s land and/or encumbered by an affordability covenant that gives the CLT a preemptive option to repurchase these homes at below-market prices. A CLT’s portfolio of resale-restricted, owner-occupied housing is meant to stay permanently affordable for one low-income homebuyer after another. The NCLTN survey revealed, in fact, that no homes had been lost from a CLT’s portfolio during 2009. And, as Goetschius points out, “Many CLT homebuyers are first-generation homeowners. Their families don’t have the wealth that could help them through a hard time. We’re their safety net. And if they maintain homeownership, that means it can be better for the next generation.”
Her comments touch on one of the most devastating consequences of the foreclosure crisis: unsustainable homeownership that strips wealth away from low-income and minority communities. They are the ones most likely to experience foreclosure. Even in the absence of foreclosure, roughly half of all low-income, market-rate homeowners revert to renting within five years of purchase. While homeownership can be a path to prosperity for low-income families, this is only possible if they hang onto their homes.
Findings from the NCLTN study suggest that CLTs have been unusually effective in stopping wealth stripping and advancing wealth building among lower-income populations by preventing delinquencies and foreclosures. Preliminary results from a study being completed by the Urban Institute also suggest that CLTs are quite effective in helping low-income people to remain homeowners. Among the three CLTs that provided data on this point, over 91 percent of their low-income, first-time homeowners were still owners five years after purchasing a CLT home.
A CLT’s success in preventing foreclosures and sustaining homeownership has a social and economic impact that extends well beyond a homeowner’s property line. The costs of foreclosure ripple through neighborhoods and municipalities. Foreclosures significantly diminish nearby property values, making proximate properties vulnerable to depreciation and foreclosure. Costs to municipalities mount from the city’s demolition of vacant buildings, unpaid utilities and property taxes, increasing crime around vacant buildings, and declining assessments in neighborhoods where foreclosures are clustered.
In light of these realities, the creation of permanently affordable homes safeguarded by a CLT looks more like a more prudent public investment than a policy of putting people into market-priced homes they cannot retain and picking up the pieces when they fail. Unfortunately, only a third of the CLTs surveyed by NCLTN received public funds in 2009 to create more homes from foreclosed and vacant properties, and only a third reported receiving outside funding for stewardship. Meanwhile most CLTs have reported increases in staffing and spending on stewardship in the past year to better protect their homeowners during the economic downturn.
Until lately, stewardship of resale-restricted, owner-occupied housing was predominantly seen as a way to preserve affordability in a booming housing market. But the foreclosure crisis has called attention to the crucial role of stewardship in preserving homeownership itself when markets go bust. CLTs have spent 30 years demonstrating that their homes remain affordable, resale after resale. The findings from NCLTN’s foreclosure study provide evidence that CLTs are just as effective in helping families to remain in their homes, year after year. As Goetschius notes, “Now I am able to go to my funders and show them that stewardship works — in hot and cold markets.”