Land Banks
Land banks are created by local jurisdictions – usually as a public entity but occasionally as an independent nonprofit –to hold abandoned, vacant, and tax-delinquent properties for future development. Not only does this provide local jurisdictions with land for future development, it also reduces the number of “problem properties” in a community by creating a process for management and disposition. Land banks are a powerful tool for jurisdictions faced with problems from both the hot and cold ends of the housing market spectrum. In hot markets, land banks allow jurisdictions to make development decisions with less concern about the cost of land because they already have a portfolio of parcels ready for development. In cold markets, land banks reduce blight by acquiring abandoned and/or delinquent properties, clearing title, and then putting the properties back into productive use.
The Center for Community Progress (CCP), which focuses on the remediation of vacant property, has made land banks a central part of its advocacy efforts. According to CCP, there are around 120 land banks in operation in the United States. Most of these are found in the states of Michigan, Ohio, and Georgia, though eight other states have passed state-enabling land bank legislation. In 2015, the Center for Community Progress published the second edition of Land Banks and Land Banking, a comprehensive guide to the model and the practice. It also includes case studies of notable land banks, a detailed guide on how to create a land bank, and other resources for jurisdictions interested in the strategy.
Advantages of Using a Land Bank
Land banks can be empowered to eliminate outstanding taxes and other public liens
While not all land banks have the authority to clear liens and taxes owed, the ability to do so helps to facilitate transfer to new ownership. For example, the taxes owed on properties that have been in delinquency for a long period of time (plus interest and penalty fees) may exceed the market value of the properties, making their sales to new owners very difficult. And, as some foreclosed properties will likely need to be held for several years until the market recovers, the ability to prevent new taxes from accruing helps to keep down carrying costs.
Land banks can hold properties until such time as they can be reused strategically
Land banks can help communities realize their strategic goals for stabilizing and revitalizing neighborhoods affected by foreclosures by preventing acquisition by speculators and providing a means to manage the available inventory in an orderly fashion. Through the establishment of a land bank, local jurisdictions have a mechanism to remove foreclosed properties from the market, hold them for a period of time and then convey them to qualified buyers when conditions have stabilized.
Disposition policies and powers vary depending on community priorities. Some land banks are set up to hold and manage small properties until they can be assembled into a developable parcel. Depending on local market conditions and management capacity, others dispose of properties as soon as possible after acquisition, even if the parcels are too small to hold more than a single home. Disposition policies can be structured to prioritize the redevelopment of properties as affordable housing or in coordination with other local needs.
Land banks can operate across traditional jurisdictional boundaries
Land banks working outside the constraints of a local government agency or department can be set up as partnerships that bring together multiple levels of government to address problems on a regional basis. One advantage of a regional land bank approach relates to the well-documented “spillover effects” associated with vacant and abandoned properties. These include depressed values for nearby
properties, heightened levels of vandalism and other crime and disruption of municipal services as a result of reduced property tax revenue. Unlike property tax revenue, impacts on property values and crime levels do not adhere to jurisdictional boundaries. A regional land bank helps neighboring communities work together to mitigate the negative impact of foreclosures and vacant properties for all residents. Similarly, interjurisdictional cooperation helps to bolster the capacity of individual municipalities beyond what any one city or suburb may be able to achieve on its own.
An additional benefit of regional cooperation is that this approach may help to facilitate the bulk acquisition of real-estate owned (REO) properties. Communities that have experienced high levels of foreclosures may wish to pursue a bulk approach to acquiring properties, rather than purchasing individual lots on a case-by-case basis. As noted elsewhere in this policy guide, however, bulk purchasing agreements with lenders and servicers may be difficult to negotiate in places that do not have a critical mass of properties owned by one institution. A land bank that spans several jurisdictions may have greater success assembling a large number of foreclosed properties that share common ownership and making a deal.
Land banks can simplify and expedite the disposition of foreclosed properties to new ownership
Cities and other public entities must comply with important requirements when selling or transferring publicly owned property (including foreclosed homes that have been acquired for redevelopment), such as holding a public auction and accepting payment of no less than the fair market value. While these provisions ensure some level of protection and accountability with regard to the use of publicly owned assets, they can also slow the process of moving vacant and abandoned properties back to productive use. Land banks can be set up to overcome these barriers while still maintaining oversight and ensuring all activity is in accordance with local goals. For example, in communities interested in redeveloping foreclosed properties as affordable homes, the local government can give local land banks the authority to accept below-market prices and/or to freely convey the property to nonprofit developers.
An additional advantage of working through a land bank is that all property transfer activities will be consolidated within a single organization. In Baltimore’s Plan to Create a Land Bank, the authors note that the sale of a property from the city to a private owner “is labor-intensive and involves no fewer than a dozen city actors,” including up to seven different departments and committees. In contrast, private purchasers working with land banks will have only one point of contact, which should enable a more streamlined process.
Challenges Involved with Creating a Land Bank
Land banks offer a number of advantages to communities. However, obstacles associated with creating a land bank should be considered.
Land banks are state-chartered bodies and require state-enabling legislation
The establishment of a city, county or interjurisdictional land bank requires not just the cooperation of the participating levels of government, but also approval at the state level. State-level legislation does not create land banks – this step must be completed separately at the state or local level – but rather gives localities the authority to create a land bank, acquire and convey properties and exercise other necessary powers. Getting state legislation passed can be time consuming and depends on political support that may be challenging to marshal.
Political considerations may limit the will to establish a land bank
Many of the functions performed by a land bank are likely already the responsibility of local agencies or departments; consolidating these activities in one place helps to streamline property acquisition and reuse. In some communities, however, existing management and staff may have concerns about giving up local control to a regional entity and challenge the proposed reorganization and reassignment of activities.
Community Land Trusts
Community land trusts (CLTs) are organizations that own land and develop it through an inclusive, community-based process. CLTs develop land according to the community’s needs, which can include anything from open space to a multifamily rental project. Most often, however, CLTs are created to provide affordable homeownership opportunities to low- and moderate-income households. The United States has around 200 community land trusts, and the model has become popular in the UK, as well.
The CLT model is structured around a ground lease. The CLT owns land which is leased to households who purchase the homes that sit on CLT land. Removing the cost of land from the cost of purchasing the home provides a significant subsidy to the households. The ground lease limits the price at which the home can be resold, passing the subsidy on from one homeowner to the next. CLTs also often retain the right to repurchase the home in the case of foreclosure. CLTs are one form of shared equity homeownership.