The ground lease may be the real estate industry’s “break glass in case of emergency” tool.
The arrangement works by separating a structure from the dirt underneath it—cutting the costs for the developer and the eventual resident. Though this decoupling creates a much-needed entry point to an impossible market, it also creates a unique brand of vulnerability—one where the most valuable part of a home is the one part the homeowner doesn’t actually own.
As affordable housing advocates and others revisit the tool, it’s important to understand when it can be a true mechanism for affordability—and when it risks derailing ownership entirely.
Don’t call it a comeback
Ground leases are hardly new, and their origins date to feudal England.
During this period, the king held title to all the land under his rule. But a monarch couldn’t work all that land, so he would rent it out to vassals (usually knights), who would then create improvements to it (say, a farm, a blacksmith, and a small castle) and pay the king back in taxes and fealty.
The key distinction here is that, while the vassal lived on the land, worked the land, and derived value from the land, it never left the king’s ownership.
Over the centuries, that arrangement continued to morph until it became what we know today as a ground lease.
In 1950s New York City, that modern interpretation became the go-to tool for developers as high interest rates and the high cost of land in the postwar era made it prohibitively expensive to build.
So rather than purchase land outright, these developers entered into long-term ground leases that allowed them to build without ever buying the dirt underneath. The ownership remained with the land owner, who was rewarded with monthly rent payments and equity as their plot continued to grow in value.
The affordable housing resurgence
If those conditions sound familiar, it’s because they are.
Since 2019, the price for raw land has surged 80% since 2019, according to a recent report from Realtor.com®. Meanwhile, interest rates have remained at uncomfortably high levels, making it even harder for developers to break ground on new projects.
As a result, there’s been a surge of renewed interest in the tool, especially in affordable housing circles. Today, community land trusts and other affordable housing advocates, such as the Yes in God’s Backyard (YIGBY) movement, are using ground leases to help lower the cost of housing for both builders and residents.
One such example is LEAP Housing in Idaho, which partners with churches to transform excess land into 99-year ground leases for new development. The group’s first project built two family-sized rentals on a church lot that it rents out for $1 per year—and residents pay rent that is roughly 50% below market rate.
It’s uniquely low rent for the rental owner and the landowner, made possible by both parties’ mission-driven approach. However, some experts warn that wider adoption could be a red flag for the market rather than a solution.
When ground leases go wrong
“I’ve always found that leased land is a sign that the development window is closing,” says Jonathan Miller, CEO of Miller Samuel, a New York City appraisal and consulting firm. “There’s more hair on those deals.”
His skepticism is steeped in experience. Miller has worked with several co-ops in New York City as they reached the end of their original 99-year lease, and he’s seen what can happen when that price is up for renegotiation.
One such example is Carnegie House, a co-op in New York City’s Midtown, which recently saw a 450% increase in its ground rent after the end of the original terms. The spike is so high that it’s pushing out some longtime unit owners who can now no longer afford their monthly maintenance fees.
Those high fees are also making it hard to sell, risking all the equity these owners have accumulated in their units. That imbalance is why Jake Krimmel, senior economist at Realtor.com, is skeptical of the fundamental fairness of the structure itself.
“There’s almost no equity or wealth-building upside compared to owning a normal home,” he says. “When homeowners sell at a capital gain, it’s because the land underneath the home has appreciated more in value than their structure has depreciated.”
In other words, it’s all downside—the responsibility, the cost, the hassle—of owning without the upside of equity.
The modern safety net
That’s not to say that the ground lease is dead. Mainstream iterations are trying to breathe new life into this centuries-old structure at a moment when the market might need it most.
One such example is Safehold, a publicly traded real estate investment trust that specializes in ground leases. It has seen a huge surge in recent years, growing from 12 deals in 2017 to 130-plus in 2022, according to a March 2023 press release.
Steve Wylder, Safehold’s executive vice president of investments, says this surge is driven by a need for creative capital in a high-cost environment.
“Our ground lease capital functions as a gap filler, helping to drive more permanent proceeds at a lower blended cost and move projects forward,” he explains. “We acquire the fee interest and enter into a 99-year lease with the developer/operator—our proceeds are typically at a premium to the underlying land cost/value, and our lease rate is well inside of the cost of conventional debt.”
By structuring leases with fixed or capped rent increases and no fair market resets, Wylder argues that Safehold has stripped away the features that historically created issues in ground lease transactions. And instead of the volatile mechanisms of the past, this modern iteration is designed to be a “highly financeable and saleable form of ground lease” that helps developers meet the demand for thousands of affordable units.
Miller is also careful not to dismiss the ground lease entirely. Instead, he advises caution to anyone who hopes to buy into a co-op or similar unit: Know the terms of your ground lease and the type of owner (i.e., nonprofit vs. private holder), and make sure that you and any future buyers will be comfortable with them as well.
