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In effort to preserve affordable houses, booming Minnesota city takes aim at 'teardowns'

Jim Buchta, Star Tribune on

Published in Home and Consumer News

Ethan Moore and Carolina Trevino Guajardo are accustomed to unsolicited mail offers to buy their 1950s rambler in Edina, Minn., where hundreds of houses have been demolished and replaced with more expensive ones.

Most of those offers land in the recycling bin. Not this spring when they received one from the city itself. It read, "Do you want to sell your house, but not for a teardown?"

The timing was perfect. The couple are moving to Maryland, so they contacted the city, which is working with a nonprofit that aims to sell some of the city's most affordable houses to lower-income buyers rather than developers.

"We'd rather see this home go to a family and not get torn down," said Moore.

With moderately priced houses on the verge of extinction, Edina's housing authority earlier this year sent thousands of unsolicited offers to owners of the most affordable houses in the city encouraging them to sell to a local nonprofit that then resells houses to working-class families for significantly less than they might otherwise pay.

"We needed to suss them out and find out who was interested in that option," said Stephanie Hawkinson, Edina's affordable housing development manager. "We needed to be more proactive."

The median sale price of a house in Edina during February was $540,000, an increase of more than $100,000 in just a year, according to the Minneapolis Area Realtors. Options for entry-level buyers there are scarce: Fewer than 30 properties listed on Zillow are priced at less than $300,000; all of them are one- or two-bedroom condos or townhouses.

While the Twin Cities housing market has flourished during the recession, a growing swath of would-be buyers are missing out of the lowest mortgage rates in a generation because they're getting priced out of the market.

The pandemic has only made the situation worse. With more people working and studying at home, demand for big suburban houses is on the rise and so are prices. That's forcing cities across the metro to look for new ways of creating — and preserving — options for both first-time buyers and people who already live in the community, but might want to downsize.

Edina is partnering with Homes Within Reach, a nonprofit community land trust (CLTs) that serves a dozen west metro suburbs through the West Hennepin Affordable Housing Land Trust (WHAHLT). Through an innovative ownership structure, the group hopes to sell the Not a Teardown houses for $175,000 to $220,000, depending on mortgage rates and other factors, said Brenda Lano-Wolke, executive director of Homes Within Reach/WHAHLT.

Land trusts and their buyers typically pay market rate for houses, but make them more affordable by separating ownership of the home from the land it's built on, giving the buyer title to the house and the land trust title to the land. In Edina, where the value of a standard city lot can easily top $200,000, the model can dramatically increase affordability.

Land trust buyers must agree to various resale terms including a pricing formula that puts a cap on the resale price of the home, and a promise to sell to another income-restricted buyer or the land trust. Land trusts often contribute additional subsidy to reduce the cost of the home, but they also invest in improvements that ensure buyers don't encounter unforeseen expenses. While Homes Within Reach typically works with buyers who earn 60% of the area median income (AMI), the income limit in Edina will likely be closer to 80% of AMI.

Edina's Not a Teardown campaign targeted about 3,200 houses with an assessed value of $425,000 or less, including properties that are being used as rentals.

"The response has been crazy successful," said Hawkinson, noting that the option is particularly appealing to homeowners who want an easy sale without the hassle of readying a house for traditional showings.

Shortly after the mailing went out, she received more than a couple dozen inquiries. About half of them say they're seriously interested in selling in the very near future and the calls are still trickling in.

Hawkinson acknowledges that many people in the city might not take kindly to a program that caters to lower-income buyers or puts a cap on resale values.

 

"This will ruffle some feathers so I have to see how the dust settles," she said. "I'm sure some ended up in the junk mail pile."

Edina's Not a Teardown campaign comes at an especially challenging time for land trust buyers who don't have the resources to outbid traditional buyers.

"The reality in this market it's tough to get anything for less than $300,000," said Lano-Wolke. "We have been competing with anywhere from 10 to 21 other offers."

She recently raced to preview a $269,000 house that was about to hit the market in another west metro suburb. At least 50 interested parties were already at the home. The seller got 51 offers.

"When you're working as a nonprofit and being mindful and respectful of the process and the funders and our mission, our hands are tied," she said. "We can't overpay to get a home.

A shortage of affordable house listings isn't the only challenge for land trust buyers. Rising home prices are accompanied by higher property taxes. Though land trust buyers don't technically own the land, they're now responsible for property taxes on both the land and building.

New legislation that aims to change that equation is being promoted by land trusts in Minneapolis and St. Paul. The bill, which has a sponsor in both the House and Senate, says that land trust properties would get an across-the-board 25% discount compared with traditional owner-occupied properties that's akin to the discount owners of income-restricted rental property owners already get.

"We make the house affordable initially for the first family, but the market continues to go up and incomes have not kept up for the families that we serve," said Greg Finzell of the Rondo Community Land Trust in St. Paul. "We've been looking at everything we can to help long term to keep costs affordable."

Steve Bubul, a retired tax attorney who is on the Rondo board, said residents have become increasingly concerned that they'll be priced out of their properties. He said that residents have already agreed to restrictions that limit the amount of equity they can accumulate, so it makes sense to also limit their tax burden.

Jeff Washburne of the City of Lakes Community Land Trust in Minneapolis said a similar tax relief proposal is already underway in that city, but he's an advocate of applying the same formula to all land trust properties across the state.

While long-term affordability is a high priority, Lano-Wolke said her focus is on finding suitable listings for would-be land trust buyers. So far this year she's reviewed at least 30 homes throughout the west metro. She's made about a dozen offers, but has been able to acquire only four homes. During a normal year, she says, the goal is to acquire about a dozen properties.

Already, she's met with at least a dozen or so prospective Not A Teardown sellers in Edina, where Moore and Guajardo are in the process of finalizing the terms of their sale.

Moore said although he's committed to selling to the land trust, other unsolicited offers are still landing in his mailbox. He knows that one of them might be willing to pay more than he's getting from the land trust, but he's not second-guessing their decision.

"There's a social value component to this program that really speaks to us," he said. "We're leaving in the best way possible."

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