2017 – Creating a Community Land Trust in Chelsea, MA – Green Roots, Inc.

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Abstract

Chelsea, Massachusetts is currently in the process of gentrifying due to an increase in public transport, density increases of middle to high class commercial business, and increases in educated, middle class population. While these changes are beneficial to the new populations, current residents, some of whom are low-income, are at risk of displacement from their homes. Our goal for this project is to help the Chelsea-based nonprofit GreenRoots by providing them with benefits and challenges of implementing a community land trust (CLT). We accomplished this goal by learning about other community land trusts and how they are able to create and maintain sustainable affordable housing. We also gathered interest about implementing a CLT from other Chelsea-based organizations, which will help GreenRoots determine if a CLT is appropriate for Chelsea’s at risk populations.

Team

  • Daniel Barra (ME)
  • Jonathan Cohen (ACT)
  • Ada Dogrucu (CS)

Sponsor 

Green Roots

Advisors

  • Seth Tuler
  • Jennifer deWinter

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Executive Summary

Introduction

Chelsea, Massachusetts is currently gentrifying due to its growing accessibility to Boston and relatively low property values. A consequence is that rents and property values increase, such that low-income residents are at risk of displacement.

Our project focuses on a form of affordable housing called a Community Land Trust (CLT) to ameliorate the effects of gentrification in Chelsea. CLTs have the ability to provide affordable housing by using various subsidies to take the land out of the equation and limiting the sale/rent value of their houses are strictly affordable.

GreenRoots, our sponsor organization, wanted to explore the feasibility of the installation of a CLT in Chelsea. Our goal in this project was to conduct an exploration of feasibility through analyzing stakeholder opinions, providing technical information and providing cost/benefit analyses for different technical options one needs to consider in creating a CLT in the context of Chelsea.

 

Methods

Our goal of informing GreenRoots on the main topics concerning the creation of a CLT trust was compartmentalized into five distinct objectives. These objectives were:

 

Objective 1: Identify stakeholder opinions of a community land trust in Chelsea

Objective 2: Identify the processes for establishing a community land trust

Objective 3: Identify alternative approaches for community land trusts to acquire and manage land

Objective 4: Identify screening methods and resale formulas

Objective 5: Identify alternative different funding options for community land trust projects and operations

 

For our first objective we interviewed five stakeholder organizations in Chelsea, namely the Chelsea Collaborative, Chelsea Restoration, The Neighborhood Developers, Chelsea Department of Planning and Development. We also had a chance to interview the Massachusetts Housing and Urban Development Secretary, Jay Ash. We recorded the interviewee whenever it we had consent, and took notes if recording was not an option. We used interview raw data to provide a comprehensive stakeholder analysis to GreenRoots.

Our team completed objectives 2-5 through literature review and interviews with CLT executive directors. We have interviewed with the executive directors of the Sawmill CLT in New Mexico, and Worcester Common Ground in Worcester. We have asked them a battery of interview questions that concern the topics of CLT establishment, land acquisition, land management, resale formulas, screening processes and funding options. The raw interview data helped to provide benefits and drawbacks for the variety of options that a fledgling CLT must consider in establishing themselves.

 

Findings and Analysis

We learned that a CLT is a tool to provide affordable homeownership. Affordable rents, a sense of community, and empowerment of residents. In this vein, we identified five main benefits that a CLT in Chelsea would provide and listed them below:

 

  1. Community land trusts will increase the amount of affordable housing in Chelsea.
  2. The establishment of a community land trust will mean more buildings will be safe and up to code. Many of Chelsea’s buildings are not up to code, and the severe amount of overcrowding makes many buildings unsafe.
  3. Many CLTs provide community spaces or activity spaces as a means of bringing the community together.
  4. The CLT model will also diversity the types of affordable housing in Chelsea.
  5. There is social momentum to use a CLT as a medium of affordable housing.

 

While a CLT seems desirable, there are many challenges associated with starting one, and we have identified some particular challenges that will prove to be particularly impeding. There are five main challenges a community land trust in Chelsea will face: Land shortage, economic feasibility, conflict with other organizations, stigma of developing a new organization, and funding.

  1. A CLT in Chelsea would struggle because there are very few opportunities for acquiring land.
  2. Overcrowded and costly, regular properties are the conventional way of acquiring land, but in order to pass this roadblock, a CLT in Chelsea may have to look for alternative methods.
  3. A community land trust can create conflict with the organizations that already create affordable housing in Chelsea.
  4. The main driver for a community land trust to exist is funding. The CLT needs funding to buy properties, restore buildings, pay taxes, and subsidize housing. We have seen in our research that getting funding is competitive, and success in this avenue corresponds with the track record of the applicant organization, which a fledgling CLT lacks.
  5. While a new organization may not have the funds initially to start a CLT, there are options they can use to try to get started, such as government subsidies from HUD or CDBG.

 

We have interviewed the stakeholders below to gauge their interest and understand their standing on a possible CLT in Chelsea. Below are summaries of their mission statements, and their standings towards a CLT in Chelsea.

  1. Chelsea Restoration – This non-profit creates affordable homes through the process called ‘Receivership’. While they recognize the need for a way to provide affordable housing before a property goes into receivership, they believe that by joining a CLT process would limit the people they can help.
  2. Chelsea Collaborative – A non-profit that strives to empower residents. They help anyone that comes to them in some manner. Chelsea Collaborative took a large interest in participating in a CLT.
  3. City of Chelsea – This part of the government works with city planning and urban development. They also have programs to create and provide affordable housing. The two members of the Department of Planning and Development that spoke with our team are Ms. Bethany Rosa and Mr. Karl Allen. While both Rosa and Allen are proponents of the idea of a CLT, they have concerns about available space. “Everything is being used” and “There is almost no space for new development” were heard often when discussing land acquisition.
  4. The Neighborhood Developers – A local CDC. Works with the city and completes a majority of the projects to create new affordable housing. The representative we have had the pleasure of talking to from The Neighborhood Developers (TND) is Mr. Jose Iraheta.  While not at liberty to speak for the company, he personally believes that there is always a need for affordable homes, so he welcomes any tools that can provide such services.
  5. Secretary Ash – As the former city manager of Chelsea, Secretary Ash has worked with providing affordable housing for Chelsea’s residents before. Like many of the other stakeholders, he welcomes every tool that can provide affordable housing. He states, “The most important thing to a person’s prosperity is having an affordable place to live… It’s never a bad thing to put somebody in a place that is affordable for them” (Ash, 2017). He thinks that the model for a CLT is good since it takes the land out of the equation.

 

There are a number of main topics that need to be taken into serious consideration in creating a CLT. These details define the CLT organization character and function. Our research has shown us that every CLT adapts to the needs of their community, and the circumstances that they face, and that there is no set way to do anything. Below is a list of the things a CLT must do, which are followed by a discussion of these requirements:

 

  1. A CLT must register itself as a non-profit organization.
  2. A CLT must explore options and make a choice on how to provide property management to its residents.
  3. A CLT must decide on a resale formula. To do this they must consider different types of resale formulas to decide which provides a good tradeoff between affordability and good return value for their particular situation.
  4. A CLT must figure out how to select and screen people.

 

Using a non-profit is necessary in registering a CLT. By becoming a certified nonprofit, an organization gains access to funding options, as well as registering as a tax-exempt entity so companies would provide grants. In doing this, two documents need to be created, Articles of Organization and Bylaws.

Through our interviews, we learned that there are some subtleties to land and property management in the context of a CLT that will surely directly aid and inform any discussion had on this topic. Most CLT organizations contract professional property management companies. The upside of contracting professional property management companies is the transfer of responsibility of management from the CLT to another entity that is professionally in this business. The downside is that since as a CLT organization you have no oversight over the operation of the property management contractor, thus the only avenue for the CLT organization to ensure that they are paying a fair price for property management services would be to ask around other housing organizations that utilize this property management company’s service.

The resale formula, which is a formula that a CLT uses to calculate the sale value of a property, whenever it is being sold, can be implemented in a variety of ways. Resale formulas exists are divided into four categories to categorize all resale formulas in existence. These categories are itemized formulas, appraisal-based formulas, indexed formulas, and mortgage-based formulas.

The itemized formula utilizes a list of items that result in a quantifiable amount of appreciation or depreciation. The investments and the damages on the property are assigned a dollar value by the owner, and added onto the original sale price. If the CLT board approves this assessment, the resale price is set (Burlington Associates, n.d.). The appraisal-based formula utilizes two appraisals, one at the time of purchase, and one at the time of resale. The appraisals are done by professional appraisers, and the difference between the latter and the former appraisal is multiplied by a percentage that is determined by the CLT governing body. This value is generally around 25 percent. The percentage multiplying factor reduces the effect of the house market on rents and resale prices (Burlington Associates, n.d.). The indexed formula solely utilizes the change in a select index at the time of original sale and resale. An example for an index choice would be the change in median income (Burlington Associates, n.d.). The mortgage formula is a formula that is used rarely in CLTs to address extreme needs concerning affordability. The formula does not depend on the original price of the property, and assures affordability of the property for the next buyer (Burlington Associates, n.d.). The benefits and drawbacks of all these formulas can be summarized with the idea that the appraisal based formula incentivizes improving and maintaining the property and requires resources to be calculated, whereas in the indexed and the fixed-rate formulas do not incentivize improvement and maintaining of property and are very easy to calculate.

In screening for potential residents, the Worcester Common Ground (WCG) CLT adopts the screening criteria enforced by the United States Department of Housing and Urban Development (HUD). They must adapt their criteria, for WCG applies to and extensively utilizes HUD grants for affordable homes (Dyson, 2017). On top of the HUD income limit and the first-time homebuyer classes, WCG uses a tailor-made approach in choosing their residents by asking them for their tax returns, pay stubs, credit checks etc. to make an informed guess as to whether if they will be able to handle the mortgage that is required to buy their home. Sawmill CLT is no different in that they also utilize HUD grants extensively, and have to abide by the grant specific income limits that the HUD enforces. Since Sawmill CLT is one of the largest CLTs in the country, they use a less personalized screening system than WCG, which is to use a simple lottery system to choose amongst the many potential homebuyers.

 

Conclusion and Recommendations

It is evident at the end of this project that Chelsea has an affordable housing crisis. The stakeholder interviews all showed that many of Chelsea’s residents do not own a house or an apartment, but sublease a singular room or porch. The vast amount of overcrowding, coupled with many residents living below poverty levels, means that the amount of people that will be displaced when gentrification hits is uncountable. The government has no way of counting how many people are living in a single housing unit.

After meeting with the stakeholders, and through our own research, our team recommends that a community land trust may not be the most effective use of funding when it comes to creating more affordable homes in Chelsea, Massachusetts. Although this is said, if by the recommendations, we provide below or some other sequence of actions, the hurdles that make a CLT not financially desirable in the first place are dealt with, we truly believe that a CLT will make a meaningful addition to the types of affordable homes in Chelsea, Massachusetts.

GreenRoots and stakeholders should gather more information about the types of funding that are available to them, and which types of these funds create a conflict of interest with other organizations, so that they can either avoid or get around these conflicts of interest.

GreenRoots should also look into alternative modes of land acquisition. This is because opportunities for land in Chelsea are rare, so the trust will have to get creative by taking advantage of the following methods of land acquisition: brownfields, receivership, blighted land, and regular purchase.

One way CLTs can acquire land is through buying brownfields from their owners with the help of government and other organizational subsidies. The Sawmill CLT has benefited from this mode of land acquisition. One benefit of this approach is that the initial plot of land can be acquired for little to no cost with certain subsidies. The drawbacks of this approach are numerous. One is that although there exist many subsidies for decontamination of brownfields that the CLT organization can apply for, there is no guarantee that these subsidies will cover the full cost of the decontamination.

Another alternative method of land acquisition that a CLT in Chelsea could use is receivership. Unlike regular purchase, acquiring land through receivership is done through a court process. Using this method to acquire land has drawbacks. Chelsea Restoration also uses receivership, and the CLT will be directly competing for land.

Blighted lands are often abandoned and left without oversight, and as a result serve as a medium for illegal activity such as hard drug use and trade, garbage dumping, and hazardous housing for the homeless population. One upside to acquiring blighted lands is that since it is in the city’s own interest to develop on these lands, the founding CLT organization is able to acquire the land for little to no cost.

The trust can also purchase standard properties in Chelsea. This method is the most expensive option for land acquisition. Based on a report for suitable land for a community land from Tufts University, we characterized the current developed properties by price per square foot, and listed the 10 cheapest properties on that compound formula.

Acquiring land is costly, and funding is still a challenge for established and successful CLT organizations. However, the social momentum should not be ignored. If the interested resident group is willing to put it in the time and effort, it may be possible to create a CLT in Chelsea. The city, as well as other organizations all understand there is a housing crisis. If the people want to establish a CLT in Chelsea, then they will need to work with the other organizations that strive to give every resident in Chelsea a home. If creating a community land trust is still a priority, then our team suggests meeting with the city as well as the stakeholders to discuss methods for establishing a CLT, and who wants to have a leadership role in its establishment as a first step.