A New Tool for HOME (Program) Improvement
March, 2024 — Last month, Senator Catherine Cortez Masto (D-NV) and Representative Joyce Beatty (D-OH-3) introduced landmark bicameral legislation, the HOME Investment Partnerships Reauthorization and Improvement Act of 2024 (HOME Improvement Act). If passed into law, the HOME Improvement Act will remove longstanding statutory barriers for community land trusts (CLTs) and other shared equity homeownership (SEH) programs.
For many years, Grounded Solutions Network has worked to document an array of challenges in the HOME program, which limit the ability of CLTs and other SEH programs to use the program effectively. The HOME program is the dominant federal funding source that provides subsidies for affordable homeownership and making it more accessible to the shared equity field is a key objective in our federal policy work.
The statutes and regulations applying to HOME are increasingly stale; the statute has remained essentially the same since 1994, and HOME regulatory changes have not taken place since 2013, despite recognition from HUD, PJs, and nonprofit partners that adjustments to the program are overdue.
Grounded Solutions Network applauds both Members of Congress and their staff for their committed leadership on the HOME program and for being strong champions for housing with lasting affordability. We call on the field to support their efforts and demonstrate our commitment for the changes in the HOME program.
We are also hopeful that the U.S. Department of Housing & Urban Development (HUD) will announce a formal rulemaking process and provide an opportunity to incorporate recommendations put forth by the HOME Coalition that Grounded Solutions participates in.
Summary of New Bill Provisions for CLTs & SEH
The HOME Reauthorization bill proposes changes in several sections of the National Affordable Housing Act. Below is an explanation of the sections of the new bill most relevant to CLTs and SEH programs.
1. Changing the definition of community land trust as it applies to the HOME program
The definition of “community land trust” used by HUD is buried in the authorization for a program which would have provided limited range of education and capacity building to some specific groups. This program didn’t come to fruition, but the definition it put in place has hampered access to HOME funds for CLTs and SEH programs. The existing CLT definition in statute is below (emphasis added):
(1) that is not sponsored by a for-profit organization;
(2) that is established to carry out the activities under paragraph (3);
(3) that-
(A) acquires parcels of land, held in perpetuity, primarily for conveyance under long-term ground leases;
(B) transfers ownership of any structural improvements located on such leased parcels to the lessees; and
© retains a preemptive option to purchase any such structural improvement at a price determined by formula that is designed to ensure that the improvement remains affordable to low- and moderate-income families in perpetuity;
(4) whose corporate membership that is open to any adult resident of a particular geographic area specified in the bylaws of the organization; and
(5) whose board of directors-
(A) includes a majority of members who are elected by the corporate membership; and
(B) is composed of equal numbers of (i) lessees pursuant to paragraph (3)(B), (ii) corporate members who are not lessees, and (iii) any other category of persons described in the bylaws of the organization.
As it is the only existing definition of CLTs available, HUD has applied this definition across the entire HOME program. This has excluded a broad swath of CLTs and SEH programs with various governance structures, resale restrictions, and legal documents, including many using the “classic” CLT model on which this definition was based. The HOME Improvement Act introduces a much more inclusive definition to remedy this. Also, it places this definition into the section of the statute that provides definitions for the entire HOME program to remove any doubt regarding its applicability. The definition in the HOME Improvement Act is as follows:
(26) The term ‘community land trust’ means a nonprofit entity or a State or local government or instrumentality thereof that —
(A) is not sponsored by a for-profit organization;
(B) has as a primary purpose the provision and maintenance of housing that provides long-term affordability for low- and moderate-income persons;
( c) provides housing described in subparagraph (B) using a ground lease, deed covenant, or other similar legally enforceable measure, as determined by the Secretary, that —
(i) keeps the housing affordable to low- and moderate-income persons for not less than 30 years; and
(ii) enables low- and moderate-income persons to purchase the housing for homeownership; and
(D) maintains preemptive purchase options to purchase the property so the housing remains affordable to low-and moderate-income persons
Someone familiar with our field might think, “That definition sounds more like housing with lasting affordability or shared equity homeownership than a community land trust.” This is by design for three reasons.
First, we want to preserve the authority the Consolidated Appropriations Act of 2016 provides to PJs to grant preemptive purchase options. Since the term “community land trust” is used in that bill, we opted to use the same term rather than introducing something new and potentially compromise the 2016 action. If the HOME Improvement Act becomes law, this broader description — encompassing classic CLTs, CLTs with variations, and shared equity homeownership programs — would ensure that the rights granted under the 2016 Appropriations bill apply to the broadest swath of organizations and programs providing lasting affordability.
Second, we wanted to ensure the HOME statute would recognize CLTs and SEH programs providing rental housing with lasting affordability and that the definition would encompass CLTs using deed restrictions (as required on most condominium developments) and other nonprofits providing shared equity homes so they are eligible for HOME funds.
Finally, we wanted to ensure that PJs using HOME funds for direct development of homeownership units would be enabled to provide shared equity homes. This is especially important for PJs in places with limited nonprofit capacity that would greatly benefit from permanently affordable homeownership opportunities.
We want to emphasize that GSN, Congressional staff, and HUD developed this definition through consensus to meet a specific statutory need. Grounded Solutions Network is not proposing it should serve as a general definition for “community land trusts” for all intents and purposes.
2. Removing the use of the term “significant” in the CHDO definition
HUD’s interpretation of the term “significant” in the current definition of a Community Housing Development Organization (CHDO) typically requires that low-income persons make up at least a third of a CHDO’s governing board. This standard creates a perverse incentive by disqualifying organizations when residents serving on the board increase their income. The proposed bill removes the term “significant” from the CHDO requirements, granting HUD flexibility in issuing rules or policy guidance on resident board representation and accountability to communities. We addressed other issues with the CHDO definition in a letter submitted to HUD Secretary Marcia Fudge.
3. Allowing greater flexibility in designing resale formulas
Our members work in diverse markets, and maintaining the balance between affordability and wealth-building — a core element of shared equity homeownership — differs from place to place. Some organizations use a market-based formula to calculate resale value, while others use a fixed-rate formula. To ensure that our members have the flexibility to determine what works best for them, the HOME Improvement Act replaces the phrase “fair return” with “reasonable return.” Although it may seem counterintuitive to remove language requiring fairness, HUD interpreted this term as only allowing resale provisions that are tied to the market. Hence, fixed-rate formulas used by CLTs and SEH programs have been rejected, and it has been unclear whether index-based formulas tied to something other than real estate markets are permissible.
Resale formulas also have an equity component. Neighborhoods with higher percentages of households of color experience less appreciation than neighborhoods that are predominantly white, which means market-based resale formulas will financially disadvantage households living in communities of color. In addition, appraisal-based formulas are prone to racial bias, either because of an individual appraiser’s bias or through reproducing systemic racism seen in existing racial valuation disparities. This bill would allow PJs to permit CLTs and entities with SEH programs to implement resale provisions that are best for their homeowners and communities.
4. Providing PJs the authority to allow preemptive purchase by community land trusts
The HOME Improvement Act enhances the preemptive purchase option provided by the Consolidated Appropriations Act of 2016 by listing specific purposes for a “community land trust,” as defined in the Act, to take ownership of a property: (1) to enter into the chain of title to prevent unrestricted sales; (2) to direct homes towards buyers on a waitlist; (3) to perform necessary repairs and/or rehabilitation to set up the next lower income homebuyer for success; (4) to add subsidy to a home to increase its affordability; or (5) additional reasons as determined by HUD. Extending the preemptive purchase option to all CLTs and all SEH programs is vital, as it is an inherent part of the model to preserve lasting affordability and homes as community assets.
Next Steps
We anticipate HUD announcing a formal rulemaking process for the HOME program in the first half of 2024. We look forward to providing our comments and encourage stakeholders across the shared equity field to provide their own.
The HOME Improvement Act faces a difficult road in Congress. This is why we ask Grounded Solutions’ members and our allies across the housing field to contact their Members in Congress and voice their support for the bill. Please contact Brian Stromberg, our National Policy Director, at bstromberg@groundedsolutions.org if you have any questions about the content of the bill or how you can best support it.
