Housing Easements
The Methow Housing Trust’s Housing Easement program utilizes a combination of community equity and Deed Restrictions to facilitate the conservation of existing Methow Valley housing stock for full-time residents.
Homes in our Housing Easement program have three requirements that make them different from other “Market Rate” Homes:
The home must be occupied by a full time resident of the Methow Valley
No nightly rentals are permitted.
The home can be rented, but not for a profit.
In exchange for these requirements, a portion of the equity of the home is donated and held by the Methow Housing Trust. This reduces the sale price of the home and creates Housing that serves the “Missing Middle” - those that make too much to qualify for the Methow Housing Trust’s Community Land Trust program, but not enough to afford a market-rate home.
Housing Easements are 100% voluntary and community-driven. MHT intends to provide a legal mechanism to facilitate housing conservation, for those in the community that realize:
The Methow Housing Trust’s core Community Land Trust work, in serving up to 1.5x AMI (or, 85% of the community) is and remains foundational.
There is an upper-limit on the number of houses the Methow Valley can support.
Demand for homes in the Methow Valley is inelastic: meaning high earners from outside the valley will continue to pay higher prices to purchase a home.
Market homeownership is out of reach for those that live and work in the Methow Valley: it requires 2.5-3x Area Median Income in order to afford the Median home price.
With all this in mind: unless we ensure there is housing available for all local-earning incomes, and enough housing remains occupied by full-time residents, the cultural and economic future of the valley is uncertain.
Please contact Simon or Danica with any questions or inquiries.
What's it like to own a home in the Housing Easement Program?
Owning a home in the Housing Easements program is nearly identical to ‘market homeownership.’ The only difference is that the owner must adhere to the short list of occupancy and use restrictions, and recertify this adherence on an annual basis.
The home must be occupied by a full-time resident.
No nightly rentals are permitted.
The home can be rented, but not for a profit.
MHT must be listed as ‘additionally insured’ on Homeowner’s Insurance.
MHT retains the right of first opportunity to buy the home for Fair Market Value.
Everything else remains the same.
There are no capital improvement or additional land-use policies: the home is the owner’s to do with as they please. The “Community Equity” portion that MHT retains grows with the baseline housing market, so any increase in home value associated with capital improvements accrue exclusively in the Owner’s equity share.
When the owner is ready to sell the home, MHT has an opportunity to purchase the home (or assign the purchase to an eligible household) at Fair Market Value.
How does the donation work?
Let’s take an example:
Home with a Fair Market Value of $600,000.
The home’s owner would like to ensure their home contributes to the local housing stock and is affordable for the ‘Missing Middle.’
They would like to place a housing conservation easement on their home.
The home is priced at $400k, in exchange for the legal assurance that it will be lived in full-time, not used as a nightly rental, nor rented for a profit.
The difference between Fair Market Value (FMV) and the sale price is a tax-deductible donation to the Methow Housing Trust. MHT retains this equity stake in the home.
This donation and MHT holding ‘Community Retained Equity’ ensures:
The price reduction benefits the community at large, rather than a one-time discount to be realized on the next sale.
MHT can reliably enforce occupancy and use restrictions
MHT retains the right of first opportunity to purchase the home at FMV, retain the community equity, and sell to another full-time resident, carrying forward the housing conservation intent.
How does the Community Equity share work?
The Methow Housing Trust retains ownership of the donated “Community Equity Share” - the difference between Fair Market Value and the home’s sale price.
The Community Retained Equity is only payable upon an eventual sale of the home.
The equity share grows at the rate of the Methow Valley median home price (market appreciation), or at the rate of the home itself (based upon original and final appraised value), whichever is less.
This effectively means that MHT and the new owner share the downside risk of the local housing market, but any appreciation that has accumulated more or faster than the market (sometimes called “forced appreciation”) – perhaps in the form of capital improvements – would accumulate in the owner’s equity share.
The Methow Housing Trust is a ‘silent’ equity holder: only when the buyer expresses an intent to sell or a violation of the Housing Easement restrictions occurs does MHT get involved.
For example
Taking the example home above, and assume that the home has been maintained, but not improved over a 10 year ownership tenure, and that the Methow Valley housing market has appreciated at 3% per year. Here what these transactions look like:
What happens at the next sale? And the next one?
When an owner decides to sell, they let the Methow Housing Trust know of their ‘Intent to sell.’
In response, MHT either:
(A) Accepts the right of first opportunity, finds and assigns the purchase to another eligible buyer.
In this, most-likely scenario, MHT keeps the “Community Equity” in the home, finding another interested and eligible buyer at the below-market price, willing to adhere to the Housing Easement occupancy and use requirements.
Utilizing this option enables MHT to ensure the conservation outcomes have permanence.
(B) Declines the opportunity to purchase at Fair Market Value, and is paid the current value of the “Community Equity” from the proceeds.
In this, unlikely scenario, MHT may choose to liquidate the Community Equity share, and repurpose the capital to further the mission of MHT and for community benefit.
Is a Housing Easement a Deed Restriction?
The Methow Housing Trust’s Housing Easement program utilizes Deed Restrictions to stipulate the occupancy and use restrictions.
The Deed Restriction is the tool, the Housing Easement is the program of management (and as needed, enforcement) that ensures the Deed Restrictions achieve their housing conservation goals.
Here’s how we think about it:
A “Deed Restriction” is a legal agreement in a property’s deed, where property owners agree to certain covenants/restrictions on how they can use their property. These covenants can run with the land – meaning they are binding on the property’s current and future owners. The term “Deed Restriction” is commonly used in housing.
An “Easement” is a nonpossessory property interest that grants the easement holder permission to use another person's land. The Easement itself is a legal term for a type of property right held by the users of the easement.
A “Conservation Easement” is a legal agreement that is filed with the deed, which includes specific restrictions on how the land can or cannot be used. A “deed restriction” is utilized, to dictate the restrictions, and the “easement” portion of the agreement is the stipulation that a Land Trust organization (or its successor) is granted the responsibility to ensure that the terms of the agreement are adhered to, and they have the authority to enforce these terms.
The term “Housing Easement” is an attempt at a novel descriptor that removes the term “restriction,” with the goal of connoting a similar “Conservation” approach to housing that Conservation Easements achieve with open space and agricultural land, but for housing. Like a Conservation Easement, a Deed Restriction would be the tool that’s used to stipulate the restrictions, but the enforcement is granted via “easement” to, in our case, a community land trust organization.