Habitat for Humanity

by Belle Waring on February 15, 2005

This is an interesting Washington Post article about how rising property values have hurt homeowners who bought their homes through Habitat for Humanity.

Rising property values across the region have put the squeeze on taxpayers, but the bite has been especially acute for owners of Habitat for Humanity homes in Northern Virginia. In some areas, their homes have doubled and tripled in value in the past three years.

At least a dozen of the 47 Habitat homeowners in Northern Virginia pay more in property taxes and insurance than they do to pay off their mortgages, according to Karen Cleveland, executive director of the Northern Virginia arm of the housing nonprofit group. It is part of an international group that builds homes with volunteers and sells them to low-income buyers.

Now, you’re probably wondering why they just don’t sell. Here’s why:

In recent months, Habitat for Humanity of Northern Virginia has launched a campaign to persuade localities to provide tax relief for their homeowners. It is arguing that the Habitat homes shouldn’t be assessed at market rates because deed restrictions prevent their owners from selling the homes for profit or getting home equity loans until the 20-year mortgages are paid. If Habitat homeowners sell their homes before 20 years are up, they must sell them back to Habitat for the amount they cost — $80,000 to $120,000 in most cases, Cleveland said, which is the restricted value.

Perhaps someone can help me out here; why put this onerous restriction on the deed? I can sort of see that the nature of the charitable donation would be altered if it essentially became a cash gift rather than a house. And I suppose it makes some sense to restrict immediate sale. But 20 years? This seems to deprive the recipients of one of the main benefits of homeownership: capital appreciation. What would be wrong with letting this woman sell and buy another, cheaper house elsewhere in the area, rather than petitioning the local government for tax abatement? She and her family would be just as “housed.” On the other hand, she would seem to have a good case that her house is not actually worth the assessed price, since she can’t sell it for that amount. Thoughts?



david 02.15.05 at 2:57 am

I’d think:

1) fear of getting gamed by people who didn’t need the house
2) belief that the market needs low cost housing, and allowing resale works against that
3) belief that houses are something more than capital appreciaters
4) desire to see people who were chosen because they deserved a house living in it.

Guessing their ideas, not providing my own justifications. Interesting anti-market ideas no doubt calling for some anthropological inquiry.


george 02.15.05 at 3:19 am

The Habitat policy seems sound, though as you say it might be tweaked (reducing the 20 year lockout period or something). A cynic might say that Habitat does not trust its benificiaries to keep themselves sheltered if left to their own devices. (Probably true for at least some.)

This whole situation is a replay of late-70s California, when a roaring real estate market caused skyrocketing property taxes for seniors, the poor and others on fixed incomes. The result in California’s case was Prop 13, which limited assessments to 2% annual growth. Solved the immediate problem, but three decades later that law is the foundation of all California’s huge financial difficulties.


Donald A. Coffin 02.15.05 at 3:43 am

From a taxation viewpoint, the notion that the houses are not worth as much as other, comparable, but salable, homes in the same neighborhoods is sound. If there’s an enforceable deed covenant restricting the sale price (or the buyer), then I’d think that the comparison to other homes is invalid and that the purchas price should be used. Of course, that restricts local government tax revenue and might have the unanticipated consequence of communities refusing to allow Habitat to build. Here’s a question for real estate lawyers–is such a covenant enforceable?


the talking dog 02.15.05 at 4:10 am

Covenants restricting sales on a racial basis have been declared unenforceable, and a covenant to do something illegal or against public policy would be unenforceable.

These Habitat covenants would probably be enforceable, if enforceable under local law. Lookit: farmers often sell easements to localities and others to continue farming (rather than permit housing subdivisions), which is a deliberate restriction on maximizing the value of property. As such, it is, in fact, wholly unfair to tax these properties at full market value while the covenant is in place.

Habitat has some scriptural justifications for its actions; for one thing, these 20 year mortgages are INTEREST FREE. For another, they include the sweat equity of the homeowners (as well as volunteers). Habitat is meant to be a community in a far broader sense than simply the real estate broker sense… these homes are meant to be a lot more than just commodities.

Who knows? Maybe they will become a brake on some suburban sprawl…


paul 02.15.05 at 4:18 am

Part of the deal one strikes with Habitat is to invest sweat equity, ie labor, into the home’s construction. I think part of the reason for the covenants is to encourage Habitat owners to stay in their homes for a generation or so to serve as an anchor or sorts, to provide some continuity.

Ideally, the homeowners — who could not have become homeowners without Habitat — will stay in their homes, improve/maintain them, and serve as an example, rather than morphing into speculators, jumping from ‘hood to ‘hood.


CAG 02.15.05 at 5:47 am

Habitat is not just gifting poor families with a home, they are also trying to revitalize the broader community using its existing population base. Speculation wouldn´t make much sense in that context. I agree that a 20 year mortgage term as lockout sounds like a lot, but these mortgages are interest-free I do understand the logic. They probably have limited other ways (legally speaking) besides the term of the contract to enforce an anti-speculation covenant.


Thomas 02.15.05 at 5:55 am

Habitat’s owners may well have a good claim that their taxes should be lowered, but it isn’t because it’s unfair to value the property as if it weren’t subject to the deed restriction.

If contractual limits were taken into account in valuation, we’d all quickly learn to game the system. I’d give a family member a restriction on my home, and vice versa. I’d be able to claim that, whatever the home is worth to someone else, it’s only worth a fraction of that to me.

The right value for tax purposes–absent a special dispensation–is the full value of the rights associated with the property, which is the value of the property to Habitat and the homeowner.

On the merits, I think Habitat should changes its policies rather than expecting taxing authorities to change theirs. These homeowners would be better off selling the property and getting the heck out of the region.


California 02.15.05 at 6:44 am

I live in an area with excruciating housing costs and a tight building-approval process, so most new housing developments contain a substantial number of price-controlled ‘affordable’ units in order to get approved.
These units are sold to people who qualify as lower-income.
If the owner resells them, they get the original purchase price plus an appreciation factor equal to the general appreciation of housing in the area — if the city median has gone up 25% in, say, 3 years since they bought it, then they get 25% more than they originally paid. Only if they hold for 30 years can they sell at market price. Reasonably fair for everyone.
I think it would be fairer for Habitat put perhaps a 5-7 year resell-at-original-price condition to weed out short-term sdpeculation, then allow price appreciation equivalent to the local housing stock after that.


Sebastian Holsclaw 02.15.05 at 7:10 am

“At least a dozen of the 47 Habitat homeowners in Northern Virginia pay more in property taxes and insurance than they do to pay off their mortgages”

This is what fueled Proposition 13, limiting the increase of taxes on property to a fixed percentage per year unless the property was sold. The problem is that they should have made that the rule for residential properties (the group they were trying to protect) because business properties now have a huge incentive to never sell–they lease instead. And unlike people, they don’t die–forcing a transfer of ownership.


Anna 02.15.05 at 7:51 am

Maybe what H for H. should do is allow the houses to be sold at full price, but maintain an equity share in the house. Owners could sell when they needed to, but the pool of money for low-income homebuyers would keep pace with the need.

Or so I think.

This doesn’t solve the problem of who pays the property taxes, but maybe H for H could pay them out of their equity share $$.


Rich 02.15.05 at 9:23 am

I’m afraid I have to take issue with this:

“This seems to deprive the recipients of one of the main benefits of homeownership: capital appreciation.”

Continuous expectation of capital appreciation from home ownership (as opposed to mere insulation against inflation) turns the property market into, essentially, a pyramid selling scheme which takes wealth from first-time buyers and transfers it to those further up the chain. It’s not really a good thing for an economy for house prices to rise above inflation for a long time.

Rant over.


Anonymous 02.15.05 at 9:31 am

As an apprentice real estate appraiser (I am anonymous because I’m not supposed to offer opinions like this), I would suggest to these folks that they hire an appraiser to offer a market opinion. County assessors usually do what we call “mass appraisal”, that is, set generalized values for an overall neighborhood based on the market trends and set property taxes based on those numbers. (That’s oversimplified.) The assessors presumably don’t take things like H4H deeds into account on individual houses.

While this method of mass appraisal usually comes up with a value much lower than an individual appraisal would assuming a house in average salable condition, in the case of the H4H house, I would think a non-county appraiser would have to knock some (i.e. a lot) of the value off of a house if it was subject to restrictions like not being able to sell for twenty years. Armed with an appraisal disagreeing with the county assessed value, a homeowner should be able to challenge (with legal aid if necessary) the county’s determination and potentially win a reduction in tax liability.

This is all in theory, since I don’t know anyone who’s ever appraised an H4H house, but I do know a couple non-H4H homeowners (whose houses were in very bad condition, for example, compared to the rest of the neighborhood) who have gotten some gain from this method. I agree that H4H should change its policy, but assuming that’s not going to happen, this may be a possibility.


Tom T. 02.15.05 at 1:29 pm

Habitat for Humanity is already providing a below-market mortgage; why don’t they just pay the property taxes (or at least a portion thereof) as well?


Steve LaBonne 02.15.05 at 2:13 pm

I’m no Cato Institute fanboy, but I think it’s unconsionable for _anybody_ to be whacked by huge unvoted property-tax increases due to rising property values. Ideally I would take Ohio’s excessively Draconian law- which does not allow any levy, during its life, to bring in more actual $$ than when it was voted- and add some common sense to it (a commodity never in abundant supply in Ohio politics, alas) by building in a reasonable annual increase to compensate for inflation.


arthur 02.15.05 at 2:28 pm

(1) Taxes higher than mortgage payments may not be that onerous, considering that the mortgage payments are held artificially low by Habitat for Humanity’s charitable subsidy. If the mortgage payments are $1/year, of course the taxes will be higher.

(2) The home owner can sell the house and move somewhere less costly. Her profits from the sale are limited to the $80,000-120,000 price set by her contract with Habitat for Humanity. That should be enough to make a down payment. Again, not that onerous, considering that Habitat for Humanity gave her the house in the first place.


newtothis 02.15.05 at 2:30 pm

Taking a slightly different view….Comparing the cost of the mortgage to the cost of the taxes may be more a reflexion of how low the mortgage is than how high the taxes are? Can we take into account the wage inflation and increased job opportunities in an area of increasing home values? They may not significantly alter the financial picture but, added to a reasonable tax structure which takes into account the deed restrictions, it’s still probably a very fair deal for the homeowners.


nihil obstet 02.15.05 at 2:35 pm

Habitat’s policy appears to promote economically integrated communities, and I think that’s a good. I disagree with the commenters such as thomas who appears to argue that the poor should be continuously displaced from desirable to undesirable neighborhoods to maintain economic segregation.


Matt 02.15.05 at 2:35 pm

Another reason for restrictions on sale of the property is that it makes the houses unattractive to loan sharks & conpersons who offer mortgages with hidden costs to unsophisticated home owners.


Matt 02.15.05 at 2:36 pm

Another reason for restrictions on sale of the property is that it makes the houses unattractive to loan sharks & conpersons who offer mortgages with hidden costs to unsophisticated home owners.


jif 02.15.05 at 3:51 pm

I read this article yesterday as well- it’s part of a series the WaPo has been doing on the impact of a quickly rising market on people in the DC area (of which I am one). Initially I’d have to say that even if she sold it she couldn’t find a cheaper house in the area. (Except perhaps in the ghetto, and I’m not sure anyone would advocate for people selling their house in Alexandria in order to move into the $220,000 house in SE where her kids will be shot). So that plan doesn’t work if she hopes to keep her current employment- she’d have to move out of the area (well out of the area), and one would think that someone who was once homeless might have limited job prospects in rural Pennsylvania. Perhaps a better idea would be to change the property tax law to include a special category for HfH homes– that their value must continue to be assessed at their purchase value for tax purposes until they have paid off the 20 year mortgage. (ie they will pay taxes on an $90,000 home until it’s paid off).

The DC area housing market is something that makes me pretty cranky, considering that my partner and I are both holders of grad school degrees and are decently employed and can’t hope to even think of purchasing anything short of a bombed out shell in SE (and I don’t mean capitol hill). All of my friends and neighbors, who are predominantly educated, urban professionals in their 30s are in the same boat. We’ve actually looked at Baltimore, which would be an hour plus commute. If we can’t afford to think about buying, how could anyone with lower income do it?


Cranky Observer 02.15.05 at 3:58 pm

So, you spend the sweat of your brow and 10 years of hard work to develop your neighborhood into a community, and you are then forced by rising property taxes to sell your house and move to a cornfield subdivision 35 miles from nowhere. That’s a great set of incentives.



Answer Guy 02.15.05 at 4:16 pm

Lots of people in your boat, jlf, who are renting in DC, NoVa, or MoCo/PG who are by no means low-income are now looking at B’more.


alex 02.15.05 at 4:24 pm

jif–you might want to look into some places in Prince George’s County. I used to live on Franklin Avenue in Lanham, a five minute walk from the MARC station. Houses there were under–well under–$200k. It’s not perfect but it certainly isn’t any worse than Baltimore.


Chuchundra 02.15.05 at 4:45 pm

I work with my local HFH and one of the reasons for the restrictive covenant is due to the extremely high cost of real estate. When a family recieves a Habitat home here on Long Island, they are getting an asset that’s worth upwards of a $250,000 for a 20 year, zero percent interest mortgage of $65,000.

For the poor families who are chosen by Habitat, that’s more money than they may ever expect to see in their lifetime. The temptation to sell and take the equity in cash, even after five or ten years, would be enourmous. The point of Habitat is to give poor families a place to live, not gift them with a huge, economic windfall.


Answer Guy 02.15.05 at 5:12 pm

Prince George’s County does have a bit of a stigma attached to it. I’m sure a little of it is racism (PG being majority-black, even in most of its more affluent areas), but it’s not regarded as a well-run county.

Property taxes are capped there, which means that schools and other services are chronically underfunded. If you’re unlikely to use much in the way of city services (i.e. you’re young and don’t plan on having kids) PG county might be for you if you value a shorter commute time than Baltimore. However, houses there are generally considered a lousy investment if you’re looking at it from a capital appreciation perspective (the major advantage Baltimore City has over PG County.)


jif 02.15.05 at 5:23 pm

Thanks answer guy– we’ve actually looked in PG county, but the prices there are going through the roof as well. Not what montgomery or the district looks like, but townhouses in the low $300s in some parts. Lots of folks in that boat around here- and we’re comparitively well off, so I can’t imagine trying to get by on half our salaries.


Michael H. 02.15.05 at 6:03 pm

I have to say that the WashPost article has given me a very poor opinion of H4H. The problems that Mrs. James faces are completely avoidable. She should be able to get a home equity loan that would allow here to

  1. pay her property tax,
  2. pay for necessary repairs to the home,
  3. pay for job training for a new career,
  4. maybe pay for franchise for her own business,
  5. and keep her home.

Mrs. James cannot get such a loan because of the the restrictive covenant with H4H. But collectively H4H and Mrs. James can easily get such a loan. Maybe H4H deserves a cut of the action for creating the home.

But here’s the thing: H4H isn’t interested in solving Mrs. James’ problems. H4H is gaming the system. If they cosign a home equity loan for Mrs. James, that would undercut their appeal for tax abatement on behalf of the H4H home owners.


Tracy 02.15.05 at 7:08 pm

Let us assume that:
1 Habitat for Humanity has limited resources.
2 The people working at Habitat for Humanity are not omniscient and they know this.
3 The people working at Habitat for Humanity want to help poor people who need homes more than they want to help random people get richer.

These assumptions strike me as likely to be true. If we combine 1 and 3 we get the idea that Habitat for Humanity will try to target its work at people it regards as genuinely needy. 2 implies that Habitat for Humanity will have trouble distinguishing people who are genuninely needy from fraudsters.

This could lead Habitat for Humanity to rationally place restrictions on home ownership in order to render it less attractive to people trying to rip Habitat for Humanity off. By, e.g. pretending to be poor (and providing falsified proof), getting the house built and then turning around and selling it the next day. This is a rather less attractive scheme if you have to wait 20 years.


Cranky Observer 02.15.05 at 7:12 pm

I thought this had been covered fairly well in previous posts. If one assumes that the core purposes of a house are wealth accumulation and capital gains, then your analysis applies.

But if you assume that the core purposes of a house are to provide decent shelter for a family and to be part of the basis of a neighborhood, then mortgaging them to the hilt as soon as possible is not a wise strategy.



anon 02.15.05 at 7:17 pm

“At least a dozen of the 47 Habitat homeowners in Northern Virginia pay more in property taxes and insurance than they do to pay off their mortgages.”

How uncommon is this, really, in a period in which interest rates are so low, local governments are required to do more with less, and housing prices are increasing? I know I pay more in property + school taxes than my mortgage (even without adding city and county sales taxes to the tax side of the ledger), and I suspect most of my neighbors do, too.


Chuchundra 02.15.05 at 7:26 pm

It is not a wise to take on capital debt to finance operating expenses, e.g. a home equity loan to pay property taxes.

It is not the intention of HFH to provide a store of equity for their homeowners to tap into to finance a new business or job training or whatever. Their mission is solely to provide a decent place for them to live.

It is insane for someone’s property taxes to double in 18 months. Where is all that money going?


gmoke 02.15.05 at 7:56 pm

Sounds like H for H is working on a limited equity tip, common for low and moderate income housing in order to make sure that people use housing as housing and not as investment.


raj 02.15.05 at 8:13 pm

The rationale for the resale restriction was described upthread, but I am wondering about the property tax question. Are the HfH properties that are still under the resale restriction taxed at full value–without regard to the resale restriction? It strikes me that the value of the property may be substantially reduced because of the resale restriction, and, as a result, the value of the property should be reduced accordingly.


Michael H. 02.16.05 at 2:14 am

If the above thread has not quenched your thirst for the issues htmlraised in this post, take a look at my post on this subject:


Michael H. 02.16.05 at 2:17 am


Cranky Observer 02.16.05 at 3:25 am

> sad uncooperative game being played
> by Habitat for Humanity and Mrs.
> James. It is a game that squanders
> the potential bonus of the rising
> real estate value of Mrs. James’
> home.

If you accept the premise that the higest purpose of a house is to capture rising “value”, sure.

> Habitat for Humanity wants to do
> what is impossible: produce
> affordable housing in Northern
> Virginia.

“Impossible” as long as you ignore the fact they they have done it, yes.



Ophelia Benson 02.16.05 at 3:56 am

“This seems to deprive the recipients of one of the main benefits of homeownership: capital appreciation.”

It’s called Habitat for Humanity, not Speculation for Humanity, not Windfall Profit from Inflated Real Estate Prices for Humanity, not Make a Killing and Help Drive Other Poor People Out for Humanity. Not even, strange as it may seem, Capital Appreciation for Humanity.

This whole (tax exempt) capital appreciation thing which people now seem to think is a part of nature is why it’s so hard for non-rich people to buy a little habitat in the first place.


Michael H. 02.16.05 at 3:11 pm

One more comment on this issue.
I asked Karen Cleveland director of Habitat of Humanity of Northern why they would not approve a home equity loan for Mrs. James. She wrote back say that, in fact, they did (why was this not reported in the Post?)
This fact completely undercuts the argument that she needs tax abatement. Her home is worth 50% more than assessed value of the home when she bought it (for much less than the assessed value), real estate taxes are 1% of the assessed value of the home, so she can borrow against the equity of the home and still net a huge windfall profit at the end of the 20 year mortgage.
Also, the $950 per month she pays currently for mortgage and taxes would not even be enough to rent a small studio apartment in Alexandria.
Mrs. James certainly does not deserve another windfall profit in the form of tax abatement.


Pat 02.16.05 at 5:25 pm

It is insane for someone’s property taxes to double in 18 months. Where is all that money going?

Your federal tax cuts in action.


Steve LaBonne 02.16.05 at 6:29 pm

No, Pat, that answer won’t do. These are not deliberate tax increases voted (by the taxpayers or their elected representative)to fill particular needs- they’re a pure, unplanned windfall from rising property values, and consequently a high risk to generate more waste than socially useful spending.


Thomas 02.16.05 at 6:32 pm

pat, if that’s the case, then I’m ever more enthusiastic for the federal tax cuts. My property taxes haven’t gone up nearly so much. The suggestion that property taxes in Md are tied closely to federal tax rates and revenues could be interpreted to mean that too much of my money was going to Md.


decon 02.16.05 at 7:32 pm

It’s H for H’s decision. But someone might mention the concept of a shared appreciation mortgage (SAM) to them. I would imagine a 30 year SAM with H for H’s share of the appreciation decling over time would be superior in many ways to the current 20 year cliff.

One example of the SAM in action:



frisbeedog 02.16.05 at 10:04 pm

I read Crooked Timber 3 or 4 times a week, but generally don’t check the comments section. This is one of the most intelligent and educational discussions I have witnessed in several years. I wish YOU guys were the pundits on TV and radio….
Thank you

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