Houston CLT Homebuyer Choice Program

Starting Date: 2021-01-01

HCLT’s Homebuyer Choice Program (HCP) directly results in an increase in Black homeownership. HCP fills the financial gap between what is truly affordable for buyers and the market rate price by providing a subsidy between 100K-150K to go towards buying down the principal and closing costs. The homes are then kept permanently affordable to stabilize long-term housing costs allowing residents to comfortably remain in their home post-purchase and/or make it affordable for a future buyer if the current owner decides to move or buy in the traditional housing market. Currently 81% of HCLT homeowners are Black. The HCP contributes to the social fabric of communities by enabling residents who are facing displacement due to rising housing costs to have a chance at remaining in their community. HCP creates a wealth building tool for many that would begin to address the wealth gap that leaves too many Black people with negative net worth. HCP allows for entry into the housing market to allow for building wealth through homeownership but also by creating lower housing costs resulting in more disposable income to invest, pay off debt, or save.

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What is the geographic reach of your work to date?

Local

Which metropolitan areas (if any) does your work focus on?

Houston, Texas

What is the core idea of your innovation? How does it increase the value of homes in Black communities?

HCLT’s Homebuyer Choice Program (HCP) directly results in an increase in Black homeownership. There is a lot of education and preparation for homeownership, particularly for the Black community through churches, community organizations and real estate organizations which is without question essential. There have even been some changes in lending that aim to help increase Black homeownership which is also much needed. However, with the exponential increase in home prices and the stagnation of incomes, it almost impossible for hard working people to purchase a home that is affordable even after many people have fixed their credit, saved up a modest down payment and taken a homebuyer education course. Homebuyer Choice Program fills the financial gap between what is truly affordable for buyers and the market rate price by providing a subsidy between 100K-150K to go towards buying down the principal and closing costs of homes on the traditional market. The homes are then kept permanently affordable to stabilize long-term housing costs allowing residents to comfortably remain in their home post-purchase and/or make it affordable for a future buyer if the current owner decides to move or buy in the traditional housing market. Currently 81% of HCLT homeowners are Black. Homebuyer Choice Program contributes to the social fabric of communities by allowing program for the residents who are facing displacement due to rising housing costs to have a chance at remaining in their community. In Houston, Black residents are primarily the ones being displaced. We have also seen buyers move back to the communities they were forced to leave due to their inability to afford rental or purchase prices in the area. HCP allows and encourages development of the community without completely changing the demographic of the community. We may not be able to halt gentrification, but HCP can disrupt the market and provide current and former residents normally not able to compete in gentrifying markets a solid chance.

HCP helps creates a wealth building tool for many that would begin to address the wealth gap that leaves too many Black people with negative net worth. HCP allows for entry into the housing market to allow for building wealth through homeownership but also by creating lower housing costs resulting in more disposable income to invest, pay of debt or save.

How is your idea new or different from current approaches?

HCLT’s Homebuyer Choice Program (HCP) is a new prospective to affordable housing as it is not about creating new affordable housing but using existing homes and making them affordable. The method we use to achieve affordability, however, is not new. The Community Land Trust (CLT) model was developed by Black farmers in Albany, Georgia over 50 years ago. The CLT model allows for homes to remain permanently affordable therefore maintaining an inventory of affordable housing that is not lost back to the traditional market after a pre-determined period. Because the home is permanently affordable the initial investment benefits multiple owners instead having to reinvest a new subsidy for each new owner.

Traditional down payment assistance (DPA) programs which often range from providing 10K-50K per homebuyer unfortunately, rarely bring homes to a purchase price that will allow for low and moderate income households to purchase, leaving them to navigate an also unaffordable rental market. HCP has allowed for those below 50% of the Area Median Income to comfortably purchase a home at a cost lower than renting. HCP is an improvement on DPA programs by making homeownership more accessible to families that would not be able to afford to buy or rent without spending over half their income on housing.

Through HCP homebuyers have a real choice in where they live. Some affordable home purchase programs limit buyers to purchasing wherever the program is developing housing. Since buyers get to purchase a home on the open market they have more options of where they can live that best suits their needs. We developed HCP to mirror the traditional homebuying process as much as possible to reduce barriers for the buyers and the realtors that are assisting them. HCP buyers have to submit the same real estate contract as a traditional buyer, have to have an inspection, an appraisal and a traditional closing. This eases the process as the transaction is mostly familiar to the realtor and resembles what the buyers have learned about the process in their required HUD homebuyer education course. While there are a few additional HCP overlays we aim to remove the complexity often associated with homebuying assistance programs.

What are the primary circumstances that devalue homes in Black communities that you are addressing? What is the impact?

Houston was always seen as an affordable city. However, with median home prices rising over $300,000 homes are not affordable for many Houstonians especially those deemed as limited income as determined by an AMI of below 80%. This includes many Black Houstonians. Rental prices have become unaffordable for limited income residents as well, so the reality is housing that is not a financial burden is lacking. Speculators are targeting Black communities such as Acres Homes, 5TH ward, 3RD ward and Sunnyside, buying the land for cheap and then placing a property on the land too expensive for most current residents to afford. This means Black Houstonians are being hardest hit with the rapid development occurring in Houston leaving them with few housing options. HCP creates affordable housing inventory from current housing inventory to avoid having to compete over land and the time it takes to develop new affordable housing.

There is a lot of support/programming to help people get in homes but very limited support once they are in a home. This leads to misinformation or simply lack of information to ensure homeowners know about things such as property taxes, managing an HOA, reporting issues such as illegal dumping or poor infrastructure, foreclosure prevention etc. The CLT model includes Stewardship programming so that homebuyers have resources to maintain their investment and take advantage of the asset they own. For example, there are companies that send out letters targeting Black homeowners soliciting them for payment to file their Homestead Exemptions for their property taxes. We had several homeowners reach out to HCLT to ask about the letter and informed them that the letters were indeed a scam. We sent out a notification to all owners letting them know about the scam and offered to help them complete their tax exemption which is always free. HCP and the CLT model works to get people in homes but also keep them in their homes.

What were your “aha” moments (the key insights) that led you to see how your innovation could work?

HCLT launched HCP 1 year after the start of COVID. We were really starting the see the effects of COVID on the housing market at this time. Interest rates were dropping increasing people’s buying power creating high demand and the reduction in housing inventory due to high materials cost and a compromised supply chain. We were concerned that these conditions were going to make it harder for our program applicants to purchase even with over 100K in subsidy. What we found was that our applicants were able to fully participate in the housing market even under the most unfavorable condition for buyers. Even though most of our applicants could not offer significantly over asking price for homes through HCP, they were able to make strong competitive offers and get contracts accepted. I think launching HCP when we did demonstrates that by HCP using subsidy to bring homes down to a truly affordable price worked in even less than ideal buying conditions, particularly for limited income buyers.

Also, when we looked at the income level of our homeowners we saw that with a deep subsidy homeownership can be achieved for income levels below 50% AMI. Even rental housing for people under 50% AMI is a major challenge but HCP has been able to help assist people even on fixed incomes from SSI and disability achieve homeownership.

Lastly, we have been able to provide buyers with real choice in where they live. Often affordable housing programs are restricted to a particular neighborhood. Through HCP several buyers have opted to move back to the communities where they were raised but could no longer afford to live. Others have made being close to their job and family as a priority which was not previously possible as they moved further away in search of affordability. Connecting with realtors and through data collected through our application we have been able to identify the neighborhoods where applicants would like to live and the motivations for moving to those areas. The information we received let us know that buyers were actually utilizing choice in purchasing their home just as they would in a traditional home purchase.

How does your innovation create structural change? What will be different in 5-10 years if you are successful?

HCLT’s Homebuyer Choice Program will change the housing landscape of Houston by adding to a portfolio of over 500 permanently affordable homes throughout the city of Houston for generations to come by 2024 with a goal of 1000 permanently affordable spaces by 2028. Houston neighborhoods that were disinvested in for decades are going through rapid gentrification. When gentrification occurs often current residents are displaced. HCP can provide an opportunity for residents to purchase and live in the neighborhoods they helped to build, along with those residents that can afford to stay in the community and the newcomers to the community.

The CLT model and HCP can change how wealth is created. Limited income individuals and families rarely have enough disposable income after paying for housing and utilities to put towards savings, retirement or towards their debt leaving them with decreased opportunity to build wealth. While homeownership has historically been a means of acquiring wealth, homeownership has not financially benefited Black families at the same rate as other races. Through HCP Black families have significantly lower and more stable housing costs that will allow homeowners more money to put in other investment and wealth building tools such as 401ks, savings accounts and college funds. They can also use savings from lower housing cost to pay off or limit their debt as the average mortgage with taxes insurance and fees is less than $900 a month and will only go up incrementally because home property taxes are assessed at the CLT purchase price not the market price. Assessing properties at the CLT purchase price ensures the home remains affordable for those that would possibly lose their home due to increased property taxes. However, CLT homes are not used for home comps as they are put in a separate subdivision within our taxing district. Therefore, the CLT model allows for people to remain in their community, increase homeownership in their community but does not negatively impact those residents’ values that can afford to keep up with the rapid appreciation. We want to ensure that as homes in Black neighborhoods appreciate, that Black residents of all income levels can actually remain in the neighborhood and benefit from the resources and amenities that also come with home value appreciation.

What is your innovation’s path to (i.e. strategy for) success? What momentum or impact have you achieved thus far?

The CLT movement is growing across the country so we think funding going towards permanently affordable housing will increase at the local, state and federal level. The City of Houston allocated $52 million to subsidize homes purchased through the HCLT Homebuyer Choice Program that will allow us to make almost 400 homes permanently affordable within the next 3 years. We have shown momentum in the number of CLT homeowners and in support from realtors, builders, government officials and most importantly the community at-large. When HCLT was established in 2018 most people had not heard of a CLT, now communities are actively seeking ways to utilize the CLT model in their community. We currently have CLT homeowners in 17 neighborhoods and 9 of the 11 city council districts.

We are starting a capital campaign to subsidize even more homes expanding the inventory of affordable homes for purchase throughout the city. This capital campaign will also develop funding to subsidize not only single-family homes but other housing and community development efforts such as multi-family units, grocery stores, green spaces and commercial spaces for small businesses. Once people buy homes, they want to see more amenities and resources in the communities in which they have invested. Our goal is to first address the community’s immediate housing needs and then use the CLT model to address larger community and economic development needs ultimately creating increased value that extends beyond just the value of the homes.

In 2021 HCLT hired Sterling and Associates to develop a financial model to determine how we reach sustainability. Based on that financial model once we reach 1000 units we will be self-sustaining, meaning we will be able to operate from monthly homeowner fees and sales of homes within our portfolio without having to acquire additional properties, heavily reinvest into current properties or heavily fundraise. Because of the large initial subsidy put into the property, additional subsidy is not needed to make the home affordable for the next buyer. Our initial $52 million commitment from the city, in addition to our capital campaign and general fundraising over the next 6 years can get us to our 1000-unit goal. There is also an opportunity for additional funding from the City of Houston depending on the priorities of the next mayoral administration.

What will take your innovation to the next level?

Two things that could take our innovation to the next level are out of our control, but I believe we have made the proper adjustments to address these barriers.

First, we need the housing market to stabilize. It is currently a sellers’ market with low inventory and high demand leading to inflated housing prices. As with many cities, we see multiple offers placed on each home for sale and buyers offering well over asking price. Even though HCP buyers come with at least $100K to put towards their purchase they are still limited in their ability to compete in a bidding war. Sellers are not willing to make concessions and repairs because buyers with more financial means are agreeing to make their own repairs just to have their offer excepted. We work very closely with real estate agents and builders to help identify properties for buyers, but a less aggressive market would benefit our buyers.

Secondly, once COVID and its impact ceases the supply chain will return to normal. This will bring the overall building costs down. Builders have said lumber has tripled in price. There are delays in getting finishes such as appliances, fixtures and flooring. This inability to complete homes in a timely manner due to material delays has reduced the inventory of homes across all price points but has hit affordable home prices extremely hard because it is now almost impossible to build below a certain price point.

One thing that is in our control is our potential to raise operating funds. We received a large allocation from City of Houston for HCP but it can only be used for subsidizing homes, not for operations. If we do not have money to operate then the subsidy funds can’t be used. We are actively submitting grants to increase our operating funds in addition to our earned income to ensure we have the ability to take advantage of the subsidy funding.

How will you involve others to move your initiative forward?

Realtors have been an essential part to HCLT’s HCP success. Most of the referrals we receive from realtors are buyers that are not able to find homes on the market within their budget. The realtors initially thought they would not be able to assist them but with our subsidy they have now opened up the option to purchase a home to a whole new market which are buyers at lower AMIs. The realtors now have created a new pipeline of buyers and they receive commission off of the market price not the subsidized price so they’re not penalized financially for helping a limited income buyer. What we need realtors to do is spread the word about the program not only potential buyers but to other realtors who may be struggling to help buyers due to the exponential increase in housing prices.

Builders/Developers are another group we have formed relationships with as they contribute to the housing inventory. Due to the lags in the supply chain and rising materials cost many affordable home builders are struggling to build at affordable prices. Partnering with builders and developers helps keep them incentivized to produce affordable homes instead of pricing with the market because we have a pipeline of qualified buyers ready to purchase. We encourage them to keep their prices reasonable and with HCP subsidy the homes will be affordable to their target demographic without them taking a loss and without them having to raise the price. We need the builders to maintain their building cost and trust that we can create a pipeline of buyers that will make keeping homes affordable beneficial to them as well.

Foundations have been open to learning more about the CLT model. They can support the growth of HCLT by providing grants to our subsidy fund. This will allow HCLT to expand the CLT model beyond just single-family housing but all forms of affordable community development. Most foundations address affordable housing by funding homebuyer education and financial literacy courses. Some will fund small down payment assistance grants as well. All of these are much needed to address housing issues. However, if the goal is to actually get people in homes they can comfortably afford and increase Black homeownership, foundations should diversify their housing funding strategy.

What is the current composition of your team (types of roles, qualifications, full-time vs. part-time, board members, etc.). How do you plan to evolve the team’s composition as the innovation grows?

Our current team consists of 1 part-time and 7 full-time employees along with 8 active board members. Our board consists of real estate agents, mortgage lenders, community activists, researchers, architects and HCLT homeowners. Having HCLT homeowners on our board helps guide decisions that will better serve current and future homeowners. Because we are a city-wide program in a very large city, they also help provide insight in the varying needs of different communities. Our board chair has been fighting to preserve the history and culture of her community, 3rd ward for years. She leads our board with that passion and experience in preserving communities by developing without displacement.

As Executive Director I bring over 15 years of non-profit experience in fields including community development, economic development and education. I have developed housing policies at the local level to support children and families that are experiencing homelessness or are housing vulnerable. We have a 3-person Intake Team that is responsible for being the first point of contact for interested homebuyers. They walk the homebuyers through the application process for HCP and make sure they understand the CLT model to make sure each applicant is pursuing the best homebuying option for them. The team brings a wealth of experience working in various housing programs such as the Housing Authority, NACA, City of Houston and City of Los Angeles and housing non-profits. The manager of the intake team is a trained social worker and ensures that our staff leads with compassion during the application process. Our 2-person Stewardship Team supports owners after their purchase because we are committed to not only getting people in homes but making sure they remain in their homes and are successful in homeownership by providing resources and training on home maintenance, property taxes and finances, community engagement and advocacy, career development and overall support as homeownership can be daunting. The Stewardship team comes with years of property management and community engagement experience. Our Director Real Estate Operations is a licensed real estate agent and has worked with down payment assistance programs and sold properties throughout several neighborhoods in Houston. His real estate experience helps realtors understand the CLT model and the HCP buying process.

How does your team reflect communities directly impacted by the topic you are addressing? Why are you, your team, or organization dedicated to the issue?

Our current team consists of 1 part-time and 7 full-time employees along with 8 active board members. Our board consists of real estate agents, mortgage lenders, community activists, researchers, architects and HCLT homeowners. Having HCLT homeowners on our board helps guide decisions that will better serve current and future homeowners. Because we are a city-wide program in a very large city, they also help provide insight in the varying needs of different communities. Our board chair has been fighting to preserve the history and culture of her community, 3rd ward for years. She leads our board with that passion and experience in preserving communities by developing without displacement.

As Executive Director I bring over 15 years of non-profit experience in fields including community development, economic development and education. I have developed housing policies at the local level to support children and families that are experiencing homelessness or are housing vulnerable. We have a 3-person Intake Team that is responsible for being the first point of contact for interested homebuyers. They walk the homebuyers through the application process for HCP and make sure they understand the CLT model to make sure each applicant is pursuing the best homebuying option for them. The team brings a wealth of experience working in various housing programs such as the Housing Authority, NACA, City of Houston and City of Los Angeles and housing non-profits. The manager of the intake team is a trained social worker and ensures that our staff leads with compassion during the application process. Our 2-person Stewardship Team supports owners after their purchase because we are committed to not only getting people in homes but making sure they remain in their homes and are successful in homeownership by providing resources and training on home maintenance, property taxes and finances, community engagement and advocacy, career development and overall support as homeownership can be daunting. The Stewardship team comes with years of property management and community engagement experience. Our Director Real Estate Operations is a licensed real estate agent and has worked with down payment assistance programs and sold properties throughout several neighborhoods in Houston. His real estate experience helps realtors understand the CLT model and the HCP buying process.

Is there anything else you think we should know about your innovation?

N/A