Randy Hughey is excited, and who can blame him? The Sitka Community Land Trust has made a calculated bet that it can preserve affordability in Sitka’s skyrocketing housing market, without much sacrifice on the part of owners or lenders, and it appears to be working.
One of the trust’s original seven cottages just changed hands – the first time the organization has put its resale agreement into play.
“And we were very relieved to see that it worked as anticipated,” said Hughey.
The secret sauce is that the land – the lot that the cottage occupies – is not part of the transaction. Only the building is sold. The land remains forever the property of the trust. That’s part one of affordability. The second part is that the agreement owners make when they buy a home from the trust limits their ability to profit.
Limits profit – but does not eliminate it, by the way. The original buyer of the cottage still cleared a large chunk of change.
“Just less than two years ago, the value of the home was appraised at $340,000,” said Hughey. “Twenty months later, it was appraised at $440,000. So the person selling their home kept 25-percent of that, or $25,000, plus the money that they used for a down payment, and any equity that they purchased each month.”
So before you start rolling your eyes at the affordability of a $440,000 cottage, remember that Hughey is only talking about the appraised value. The actual cost of the cottage, both to the original buyer and to the new owner, is far less.
“The real beauty of this model is that the initial home cost to the initial buyer was $275,000,” Hughey explained. “Now, because they took out $25,000 of ‘profit,’ we put the house back on the market for $300,000 plus closing fees. So it changed from a $275,000 cost to buyer to a $300,000 cost to buyer, even though the appraisal went through the roof.”
It’s hard for Sitkans to miss the new neighborhood of attractive cottages. Now, others are starting to see the numbers as well. At a recent presentation on the State of Sitka’s Economy, Meilani Schijvens of Rain Coast Data, called out Hughey and the Land Trust.
“That’s a great model that’s being used statewide, and I think even nationally,” Schijvens said. “The Sitka Model: everyone’s trying to replicate that.”
Hughey demurs. The Sitka Community Land Trust didn’t invent this model, but adapted from elsewhere. But it’s demonstrated – finally – that the model is practical in Alaska, and in Sitka’s housing market, where the price of an average home has just dropped to $500,000, down from a mere $629,000 two years ago. That dip is unlikely to continue. If it did, the Land Trust’s appraisal-based resale strategy becomes less attractive.
“So if the appraisal collapses because somehow or another, you know, the market takes a big dive, then you can, you can lose money on a community land trust home, just as you can on an on-the-market home,” said Hughey.
Despite the recent relief, the cost of housing in Sitka will probably start creeping up again, in lockstep with the rising cost of new construction. Hughey reports that the Land Trust is tackling that problem, too. The organization has just won a $300,000 grant from the Denali Commission that it will use as a revolving construction fund, which will spare its buyers from having to obtain a construction loan – a savings of about $20,000 off the top of a new cottage.
It’s a win for everyone except the banks, whose participation from the very beginning has made the Land Trust strategy possible. Nevertheless, Hughey is not concerned. “They’ll be okay,” he said.
