The Future Of Housing?


If you were scanning the papers closely last week you might have noticed a couple of short articles on the beginning of something called the Waratah CLT (Community Land Trust) Association.

There wasn’t any great fanfare but it’s just possible that this is the start of a profound shift in the way Australians regard property. Community land trusts are an idea whose time has come — and for good reason.

A sharp disconnect has developed in the way we think about our homes in this country. Today it seems the average house is getting beyond the reach of the average Australian. Lack of housing stock, rising urban populations and increasingly strict borrowing guidelines have made the Australian dream increasingly elusive. Yet at the same time, we celebrate rising property values as if all that mattered was the capital gain when you sell. Indeed, despite the fact that those price rises shut more and more Australians out, much of the coverage of this issue in the media seems to assume that everyone has a negatively geared rental property.

Our property model has stopped being about homes. It’s now much more about money. For some that’s about making it and showing it off, while for others it’s about a grim struggle to scrape over the home ownership finish line, followed by an exhausted sigh of relief. It’s a dumb and destructive model. Too many people are excluded, too many people overstretched, and basic housing needs are not being met. Locked out of the housing market, many struggle to find properties to rent, and rents keep rising.

A lot of this comes from treating our homes as mere property. That’s where community land trusts (CLTs) like Waratah come in. But what are they?

It can be hard explaining how the CLT approach works to someone for the first time — people have become so conditioned to seeing ownership primarily as investing a large amount of money, and then making even more when they sell. Because the CLT model separates the rights to the land from the rights to the home on the land, the CLT doesn’t offer that. What it offers instead is stability, security, community and affordability.

The model was been hugely successful overseas, particularly in the US. The key to understanding the CLT is that the land it’s on belongs in perpetuity to the trust — not to the residents. If you buy into a CLT, you buy a building on the land, which is then your home, essentially for as long as you want it. Overseas, CLTs use a "ground lease" form of tenure (as opposed to freehold ownership) for the land part. It operates as a long-term lease, a bit like the 99-year leases you get in Canberra.

The benefit is that as a resident, you pay only for the building component of the property purchase, which substantially reduces the cost. In Sydney, land is usually more than 60 per cent of the purchase price. The affordability of a CLT home basically comes from taking the cost of land out of the equation.

So how does a CLT get its land in the first place? The answer is mostly from government, or on the open market using public funds and private donations. In the US, CLTs have generally been established through partnerships between local government, communities, private philanthropists and general public donations. Generally, CLTs have worked in areas of relative disadvantage and have contributed significantly to urban renewal — as in Burlington, Vermont.

Once in the CLT, residents can buy and sell their properties on the market, but capital gains are limited by a set formula. This is designed to encourage community longevity and sustainability, and at the same time discourage speculation. This turns our profit-driven attitude to property on its head. The rule reflects the fact that capital gains are usually driven mainly by rises in the land value — and the residents in a CLT do not own the land. But while this limit to the capital gains that you can make in the scheme is seen by some as a negative, there are still plenty of people for whom that will be outweighed by the positive of accessing an affordable, secure home in the first place.

CLTs in the US report low levels of turnover in properties because people become attached to their community — which is really what CLTs are about, building communities rather than making capital gains.

CLTs are designed for people on low to medium incomes, people who probably cannot afford a mortgage on the open market but are not eligible for social housing. In the US, typical CLT residents have income around the median income for their area. They usually buy in with a mortgage and a small deposit. In a city like Sydney, where the median house price is around $600,000 but the median household income is only $60,000, the number of people who would find this idea very attractive is large.

Another factor that sets the CLT model apart from the law of the jungle approach that we’re used to is its broader emphasis on community. Members of the land trust are drawn from not just residents but the whole local community. The committee that runs the trust is typically made up of one-third residents, one-third members (non-residents) and one-third local community representatives (eg. councillors, businesspeople, social workers and architects). Community input is always critical in making a CLT happen — from fund raising to building renovations. CLTs are about people not property.

Intriguingly, the experience of the sub-prime crisis in the US has demonstrated the robustness of the CLT model, with default rates in CLT schemes estimated to be at just 0.5 per cent compared to their national default average of over 3 per cent. Not surprisingly therefore, many US banks love the model.

In the US there are now more than 200 CLTs, including trusts in almost every state. The Champlain Community Land Trust in Burlington, Vermont is the flagship American CLT, in operation since 1987, and alone has created more than 2000 CLT households. Meanwhile in the UK, the London-based CLT is about to acquire its first two sites, offering an exciting vision of how the model can work in another overpriced property market.

It’s true that there are other good ways to approach the problem. Rental affordability schemes are great. Housing co-ops are great too. But CLTs offer certain unique advantages. They challenge our assumptions about how we use land and the public goods we create.

Opponents question the public interest (and commercial sense) of using crown or government land for a CLT and the effect on property values and so on. Against this are the benefits to the broader community of affordable homes and functioning communities.

In Australia there are still many technical issues to iron out including the status of ground leases in Australian law and how CLTs should be regulated. But it’s looking increasingly likely that an idea this good will find a way. Already in Australia we have seen plenty of interest in the model from all levels of government, desperate as they are to find a proven method of addressing precisely the problems that this model does so much to solve.

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