The cities of San Diego and Lemon Grove are poised to sell lots for $1 each to a nonprofit land trust that will build houses reserved for middle-class families.

Maximum prices, for new three- to four-bedroom houses, will be $350,000.

One project is 16 lots on vacant land in Nestor, near a trolley line and the Mexican border. The other is nine lots next to state Highway 94.

The sales price will be pegged to 120 percent of the area median income or less. For a family of five, that’s an income of up to $102,750.

Qualified families buy the homes but only lease land underneath. When owners want to sell, they can only sell to another family who meets the income requirements.

$1 lots in San Diego: Here’s the full story

What does it take for a middle-class family to be able to buy a house in San Diego, with the county median home price at $540,000 and the median individual salary at just $55,500?

In the case of the San Diego Community Land Trust, it means the city selling home lots for $1.


The nonprofit Land Trust is poised to build 16 three- and four-bedroom homes on an elbow of vacant land near the Mexican border.

The houses, with yards and garages, will sell for $350,000 or less — a far cry from what similar new homes go for on the open market. Construction cost would be roughly $212,500 per house.

The city of San Diego has committed to sell the 3.3 acres to the young nonprofit group, in the name of affordable housing.

The Land Trust is working on a similar $1-a-lot deal with Lemon Grove to build nine row homes on an abandoned subdivision there.


This program is unique in one major way: It’s trying to help working families who otherwise couldn’t buy a first home here. Most affordable-housing efforts in the region concentrate on apartments for people with low incomes.

“We have made the decision to focus on moderate-income ownership housing. We see that as the real need,” said Jean Diaz, executive director of the Land Trust.

“What do you do for people who have a job -- may have two or three jobs to try to make it — and they are trying to build equity?” Diaz said. “Maybe it won’t provide as many roofs, but it’s a part of the market that deserves some effort.”

Here’s why a city would give away land


In Southern California, where the home-building business is hot, it’s a rare move for cities to virtually give away land for single-family houses.

But city officials said they can make the case based on the current price-income imbalance.

“Affordable housing is one of the city’s top priorities,” San Diego spokeswoman Katie Keach said. “Because of the urgent need, this was an appropriate deal for the city and the community.”

In Lemon Grove, city officials see the nine extra homes helping a downtown revitalization push, said David De Vries, Lemon Grove development services director.


“The economists say we need housing to support the retail we want to see downtown. We want to see those vacancies in our downtown filled up,” De Vries said.

Also, both of the properties have troubled histories.

In Nestor, the city of San Diego was forced to pay $9 million in 1989 for the 16 former homes there after a city water retention basin overflowed and sent up to 6 feet of water rushing into living rooms. The land is still in a flood plain.

Diaz said the city appraised the land at $35,000 for the Land Trust deal, taking into account the flood issues and lack of commercial interest in the lots.


In Lemon Grove, the city already had redevelopment money tied up in the land. A developer got a city loan in 2006 to build townhouses there, then defaulted.

One sits on a San Diego Trolley line. The other is next to state Highway 94.

“I think a lot of developers had looked in the past and said, ‘It’s not worth the hassle,’” Diaz said. “But as a young, aggressive organization, we decided to take it on.”

The Nestor homes would be 1,450 to 1,650 square feet. In Lemon Grove, each attached home would measure 1,500 square feet.


Removing land price from the equation

Here’s how the model would work: The San Diego land trust gets ownership of the land and builds homes for sale — but keeps the land.

The sales price is pegged to 120 percent of the area median income or less. For a family of five, that’s an income of up to $102,750.

Qualified families buy the homes but only lease land underneath from the Land Trust. When owners want to sell, they can only sell to another family who meets the income requirements.


If there’s appreciation of the house’s value, the seller’s profit can only mirror the increase in the area median income over the same amount of time.

For example, if the original buyer paid $350,000, and the median income goes up 10 percent during occupancy, the new sale price can be 10 percent higher, or $385,000. In this case, the seller’s profit would be $35,000.

In the Nestor example, the cost of construction and fees is estimated at $3.4 million. That’s about $212,500 per house, though the sales price would be up to a maximum $350,000.

The difference goes to the Land Trust for future land acquisitions and to keep the nonprofit group running. Since these are the first deals, downtown planning entity Civic San Diego recently approved a loan of up to $425,000 to help finance the Nestor construction.


Affordable housing in San Diego usually looks much different.

Two low-income apartment complexes that opened in Otay Mesa last year with 87 and 123 units each cost $294,000 to $367,000 per unit to build. They were subsidized by loans from Chula Vista, tax credits and U.S. Department of Housing and Urban Development funds, in addition to a commercial loan.

“The costs associated with developing affordable housing are huge,” said Debbie Ruane, San Diego Housing Commission senior executive vice president.

“There’s tax credits, bonds, usually a couple different lenders. All of those folks have to get paid, and their attorneys. So, larger developments absorb the costs” more efficiently. And, affordable-housing builders often pay market prices for the land underneath.


People embrace land trusts during overheated markets

Nationally, the land trust idea captured people’s imagination during the past two housing booms.

Of the roughly 200 land trusts operating in the United States, 61 were created during the mid-2000s boom. Another 39 launched in the past seven years, according to the Grounded Solutions Network, a trade association. Models vary widely by location.

The oldest U.S. example goes back to rural Georgia in 1969. Civil Rights leaders organized the purchase of 5,000 acres for use as a farm collective and homesteads by African-American farmers.


“In the last three or four years, we’ve seen an enormous increase in the interest in community land trusts. That’s directly related to the cost of housing and the affordability crisis in so many cities around the country,” said Melora Hiller, Grounded Solutions Network CEO.

“It is just one tool, obviously, but it is a good tool for preserving affordability permanently — and making sure you don’t don’t have to keep investing public dollars in the homes.”

Some economists praise the land trust concept as having good intentions. But, they say it’s just a drop in the bucket for San Diego’s market, which is considered one of the least affordable in the nation.

“We need big. We need giant efforts,” said Gary London, a longtime San Diego real estate analyst. “The only way out of this hole is to build lots and lots of housing.”


Also, the restricted price cap on the Land Trust homes means the owners won’t be able to fully participate in real estate market rises. “Essentially, it’s just a fancy way of renting,” London said. However, they would still be able to take advantage of tax breaks open to homeowners.

More than a decade in the making

The San Diego Community Land Trust traces its roots to Southeast San Diego in 2006.

The Jacobs Family Foundation was trying to lift up the neighborhood around Euclid and Market avenues. Neighborhood forums kept hitting the same theme: People wanted to buy homes but couldn’t afford them.


The foundation paid for a small group of San Diegans to attend a land trust conference in Boulder, Colorado.

“We went back and presented it to the larger group,” said Elaine Kennedy, a foundation volunteer and union official who is now on the Land Trust board. “Some of us who were activists said, ‘Let’s try to spread it further.’”

Eventually, in 2008, a group filed papers to start a new nonprofit group. In 2013, the fledgling organization, buoyed by funding from the Catholic Campaign for Human Development, hired Diaz. A former investment banker, he is still the only paid employee.

The Land Trust’s 2015 tax filing said it had revenue of $139,000 and expenses of $111,000.


The group feels it is on the cusp of its public debut, after several years of quiet work.

Diaz said they could break ground in Nestor in the first quarter of this year. The Lemon Grove project could follow in the next quarter. They haven’t yet started taking applications from prospective buyers.

The Land Trust’s next projects might be even tougher to secure.

The group wants to do 25 new homes a year. But more pieces of virtually free real estate will likely be elusive. Future sites may require spending from the Land Trust’s acquisition fund.


“Any land we may get will probably have challenges,” Diaz said.

Jean Diaz, executive director of the San Diego Community Land Trust (left), and Tom Scott, board member and chief financial officer, stand at the Nestor site where the Land Trust wants to build its first 16 affordable houses. (Nelvin C. Cepeda / San Diego Union-Tribune )


Business

jen.steele@sduniontribune.com

Twitter: @jensteeley