By GARLAND KENNEDY
Sentinel Staff Writer
Five houses are built and two more are under construction at the Sitka Community Land Trust affordable housing project, and rising inflation is making them a better deal than ever, says SCLT executive director Randy Hughey.
Under the Land Trust model, the trust retains ownership of the land, and the buyer pays only for the house.
Recently, Hughey said, one of the houses in the 1300 Halibut Point Road project was appraised at $330,000 and sold to a buyer for $275,000.
When an owner sells a house, the land trust limits the profit to 25 percent of the increase in appraised value during ownership. Therefore, Hughey said, if this home is appraised at $410,000 by the time of a future resale, the trust would “put the house back on the market to a qualified buyer at original sale price plus the $20,000 profit taking, or $295,000. This means that someone at the same income level can purchase the home in the future.” He added, “The resale formula allows owners to keep all of the equity which they purchase with their down payment and monthly payments. But it limits the profit-taking (during resale) of the inflationary increase in the appraised value of the home to 25 percent of the increase.”
Sitka Community Land Trust houses are pictured today. (Sentinel Photo)
This model addresses a problem in the nation’s housing market – rapid inflation that reduces options for low- to mid-income buyers.
He said in his lifetime, house prices “have accelerated in value vastly beyond earnings.”
“And it didn’t used to be that way,” he said. “Now, the people (selling) are making a killing. And that difference between the price they paid and the price they can sell it for has to be borne by the new buyer. And there are fewer and fewer people with that kind of money, and they’re not young people, generally.”
Two more houses are now under construction on the 14-lot trust parcel. The residential structures average about 1,000 square feet. SCLT pays for the construction and buyers arrange their own financing. Also, the project has received a $500,000 boost from a Rasmuson Foundation grant, which funded site preparation and utility hookups, Hughey said.
During his interview with the Sentinel he showed off the interior of one of the new one-story houses. He recently gave updates on SCLT activities at Sitka Rotary Club and Chamber of Commerce meetings.
Inflationary pressures have increased the price of SCLT housing up in recent years, and mortgage rates have risen to about 6 percent, almost double what they were several years ago. A rule of thumb for the trust, Hughey said, is for families to spend about a third of their income on housing, including payments, taxes and insurance. He does not wish to sell a home to someone with marginal ability to pay their debt and could easily end up in default.
“We are not going to put a family in that position; we won’t do it,” he said. “We don’t want to sell a home to someone who just can by the skin of their teeth get into it. That’s a terrible idea.”
The average income of those in the trust applicant pool is 52 percent of the area median income.
For the time being, the Sitka Community Land Trust can make money only by selling and reselling houses, but plans are afoot to add another revenue source, Hughey said.
“We are currently taking a 10 percent of the builder’s cost development fee. So Sam (Smith, of Hard Rock Construction) says you can build for $250,000. We add on $25,000. And we don’t want to do that; we want to mark them down, not up. So we need an income stream,” he said.
The hope now is to build a four-unit apartment building at a cost of about $1,000,000, with rental income subsidizing the cost of building new homes. At the same time the rents, which have not been determined, would be under market value, Hughey said.
“We’re going to keep it a good deal. But it’s not going to be a steal, it’s not going to be a subsidized rent,” he said.
Affordable new housing development is not going to occur without a subsidy of some sort, especially with the expense of developing land in Sitka, Hughey said.
“Somebody – the city, the state, the feds – somebody is going to have to take on the work of putting the roads and the infrastructure in. And that’s the way it’s always been… you can’t assign that kind of a cost to housing and hope to help housing in Sitka,” he said.
