The Conservatives are planning to help those who cannot afford to own their own home, so reports Graeme Wilson in the UK’s Daily Telegraph (2 Jan 2007). They hope to encourage the availability of Community Land Trusts (CLTs). What happens with these is that a trust acquires land (by donation, or at low cost) and allows people to build their own house on the land which they pay for themselves although they do not buy the land.
The value of land that any house sits on can be from a quarter to a half of the total cost of the property package. It is the land value that is the bit that keeps rising spectacularly in ‘house price’ booms. The value of the bricks and mortar part of the deal merely keeps pace with building costs, as long as you maintain the building in good shape.
Michael Gove (Shadow Housing Minister) says that with CLTs ‘owners can sell their properties…and keep the increase in the value of the bricks and mortar’. This is true but if you are a CLT user the value you sell at will probably not enable you to move across into the normal house + land market, that you were unable to enter at the start. It may just be possible if you sell your house in a housing slump period when land prices dive. Then, the value of CLT houses will keep much steadier than a normal house + land package - since there will be no dropping land value within the CLT package when normal prices will be crashing.
CLTs are rather like a version of the 'right to buy' Local Authority rented housing. The liability of maintenance is on the owner but with CLTs there are no land equity gains. What the owner does gain is their own place to live long term and a low monthly cost for the house. But they have to pay maintenance costs just to keep the house value level and they do not join in the (usually) rising land value to bring in extra gains.
Read The Free Lunch (see: http://www.the-free-lunch.com/) where the land value of ‘housing’ is explained with a worked example showing how much the land costs as against the cost of bricks and mortar.Any source
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