Preserving Affordable Rental Housing in Rural America

Preserving Affordable Rental Housing in Rural America

Because so few affordable housing options exist in rural communities, preservation is a vital component of strategies to address affordability issues.

In May 2017, the Board of Governors of the Federal Reserve System held a webinar on preservation of affordable housing in rural communities. Panelists participating in the webinar, Preserving Affordable Rural Rental Housing: New Tools and Promising Practices, highlighted the affordable housing challenges faced in rural communities, such as expiring affordability restrictions for properties participating in the U.S. Department of Agriculture’s Office of Rural Development (USDA RD) programs. The panelists also discussed new information tools that could help rural communities identify affordable housing developments at risk of becoming market-rate housing and partner with private and public stakeholders to preserve them as affordable.

Rural Affordable Housing Challenges

Individuals over age 65 make up a larger percentage of the population in rural communities and small towns than in the nation as a whole. Small towns and rural communities also have a larger percentage of aging housing units built before 1940. Although the percentage of cost-burdened renter households in rural communities and small towns is slightly lower than the national rate, cost-burdened renter households represent 49 percent of the renter population in these areas. Very few affordable housing opportunities exist for rural residents, especially for elderly individuals and people with disabilities, noted panelist Rick Goodemann, chief executive officer at the Southwest Minnesota Housing Partnership (SWMHP). According to Goodemann and panelist Bryan Hooper, deputy administrator for multifamily housing at USDA’s Rural Housing Service, several interconnected issues complicate the construction and rehabilitation of affordable housing in rural areas. Rural areas are isolated and developers may find that sending construction supplies is too expensive. Projects in rural areas also tend to be smaller, so developers may not achieve economies of scale.

The expiration of affordability restrictions on housing units may exacerbate local affordability issues. USDA RD provides affordable housing assistance in rural areas through programs such as the Section 515 Multi-Family Rural Rental Housing Loan Program, which offers competitive loans with terms up to 30 years for nonprofit and for-profit developers to create or renovate affordable rental housing. The portfolio for the Section 515 program alone includes 13,600 properties with 413,000 units. In addition to the lower rents generated by the loan program, eligible tenants may also receive USDA rental assistance, but the affordability restrictions and rental assistance end when a loan naturally matures and is paid in full. According to Hooper, USDA expects that between 50 and 100 Section 515 loans will mature each year through 2023. In a small community, the loss of only one affordable housing development can significantly impact the low-income population it serves, because those residents may have few or no other affordable alternatives. Although USDA RD can offer incentives for owners to retain the affordability restrictions on their properties, Hooper noted that USDA does not have the resources to preserve affordable rental housing on its own and needs the assistance of community partners. Nonprofit organizations like SWMHP have successfully rehabilitated and preserved at-risk affordable housing by partnering with USDA RD. SWMHP, which began acquiring Section 515 properties in 2003, has preserved 6 Section 515 properties with a total of 343 units as of May 2017.

Tools to Target and Retain At-Risk Properties

Connecting property owners who are uninterested in continuing to provide affordable housing with nonprofit agencies who can purchase the properties is one strategy to preserve Section 515 units. To help organizations seeking to preserve affordable housing identify the stock of at-risk properties, as well as increase awareness about the potential loss of affordable housing, USDA sponsored the development of an online tool, the Multi-Family Property Preservation Tool (PPT). PPT aims to dynamically predict when each USDA RD multifamily property will exit the Section 515 program and the Section 514 Farm Labor Housing Loan Program. PPT shows the geographic distribution of the properties funded by these programs, the term and closing dates for the properties’ loans and whether the loans are eligible for prepayment, and the properties’ expected exit dates from the programs.

USDA RD also partnered with PolicyMap, an online mapping and data service offered by the Reinvestment Fund, to develop a mapping tool that promotes a better understanding of at-risk properties and the economic and demographic conditions and trends in surrounding rural communities. According to panelist Elizabeth Nash, vice president of data and product development at PolicyMap, the mapping tool combines USDA RD’s multifamily housing data with public and proprietary data owned by PolicyMap to create maps that overlay USDA RD property locations and information, such as the year affordability restrictions are expected to expire, with data on income, demographics, and affordability at the census tract, county, or congressional district level. Overlaying this information can help identify communities that have a high proportion of low-income households and a large percentage of cost-burdened renters and where affordability restrictions for USDA RD properties are expiring. Considering these conditions together can help highlight the communities most likely to be impacted by a loss of affordable units, which helps local, state, and federal officials target their preservation efforts. Nash noted that communities can also enhance this tool by uploading their own data on affordable housing investments, which helps create a more accurate picture of affordable housing and preservation needs in rural areas.

USDA RD released a Preliminary Assessment Tool (PAT) to ease the property transfer process for owners who do not want to retain their properties as affordable. PAT makes underwriting more transparent by providing buyers, sellers, and USDA RD staff with relevant information related to each property transfer. PAT also streamlines the underwriting process by incorporating most industry standards and allowing users to input multiple forms of financing. According to Goodemann, PAT addressed one of the biggest issues that SWMHP faced, which was the need for more transparency during property transfers. “It did us no good to put together a project, receive funding, …and then not understand what was going to going to happen during the transfer process,“ said Goodemann. “The preliminary assessment tool works extremely well to project what is going to happen in that transaction so there are a lot [fewer] surprises.”

Increasing Awareness to Facilitate Preservation

Because so few affordable housing options exist in rural communities, preservation is a vital component of strategies to address affordability issues. One of the first steps to preserving affordable housing is increasing awareness of properties at risk of being converted to market rate. The mapping tools offered by USDA RD can help nonprofits and community organizations concerned with the loss of affordable units and its effects to target the most vulnerable affordable properties and help retain them. By making the transfer process more transparent, UDSA RD’s assessment tool can also encourage organizations to purchase and preserve affordable housing.