Mankato land trust starts with just three homes

Jul. 28—MANKATO — It will be a quiet launch for Mankato's latest affordable housing project — no more than three houses and just a five-month commitment to start.

But city leaders, working with a private nonprofit housing organization, hope to see the "community land trust" program grow significantly over time.

Eventually, the program aims to offer a variety of new and used homes at affordable prices for first-time homebuyers who earn 60% or less of the area median income. Future options might include newly constructed homes, renovated older homes or even rental houses where the landlord sells to a longtime tenant.

"As this project becomes more integrated and successful, you're going to see 'all of the above,'" said City Manager Susan Arntz.

To start, though, the city is committing only to the purchase and renovation of three or fewer homes — costing no more than $250,000 each — through the end of this year.

"Before we can take some big bold leaps with new construction, we want to make sure we can work on this path of renovation," Arntz said. "Honestly, in this current market, that's where we're going to have the most success."

The program involves forming a nonprofit community land trust to purchase existing homes and, eventually, build new homes. The organization sells the house — but not the land — to a qualifying lower-income buyer. Because the homebuyer is purchasing just the house, the overall cost of the purchase is reduced.

In conjunction with other city assistance, such as subsidizing the cost of repairs and renovation of an existing home, the land trust makes purchasing a house financially feasible for lower-income families. In return for the discounted price, the homeowners enter into a long-term lease for the land beneath the house that obligates them to sell the home at an affordable price to the next buyer if they decide to move.

The city is contracting with Southwest Minnesota Housing Partnership to administer the program through the end of 2022 and is supporting SWMHP's application to the state of Minnesota for a grant to expand the land trust next year.

Under the initial agreement approved this week, the city is committing up to $88,333 each for up to three home purchases plus up to $35,000 each for rehabilitation and $5,000 each for administrative fees — all coming from a fund balance in the city's Economic Development Authority budget.

"This will be homebuyer driven," said Ali Joens, director of homeownership services for the Southwest Minnesota Housing Partnership. "So we will get them prepared and then we will help them shop."

While the upfront costs might appear steep for the city, each of the homes should remain affordable in perpetuity because of the ongoing obligation of each generation of homeowners to only sell at an affordable price to the next income-eligible buyer.

If SWMHP is successful in obtaining state grant funds and the program continues, Council member Mike Laven is optimistic it will grow. Laven said he has already heard from people who purchased rental homes earlier in their lives and have reached an age where they're ready to exit the landlord business.

They are very interested in selling the properties using the land-trust model so that lower-income tenants can purchase the single-family houses.

"There are folks in this community who have been incredibly diligent landlords and want to continue to provide that opportunity for people," he said.

At least one developer of new subdivisions has also approached the city about the possibility of including land-trust homes in his projects.

The initial stages of the program will involve a lot of teaching, said Arntz, who oversaw a similar land-trust effort in her previous job as the city administrator of Waconia.

"So we educate not just the lenders and the Realtors and the potential buyers of the units, but all along the way we're also going to be learning together about how can we continue to do this and be really successful," she said.