Rural housing crisis subject of recent Senate hearing

WASHINGTON – The crisis in affordable housing in the nation’s cities and suburbs has overshadowed what is going on in rural America, where rental housing options are not only sparse, but also declining.

“We know the shortage of affordable housing is an impediment to attracting new businesses, new residents and new talents,” said Sen. Tina Smith at a hearing Tuesday on rural housing in a Senate banking subcommittee. “The reality is if you don’t have safe, affordable housing in place, nothing else works.”

Smith, D-Minn., is leading an effort by a bipartisan group of lawmakers to overhaul more than 60-year old U.S. Department of Agriculture programs aimed at helping low-income rural residents keep a roof over their heads and find other solutions to shrinking affordable housing in the heartland.

One decades-old USDA program aimed at making both homeownership and rental housing affordable is the Section 515 Rural Rental Housing Loan program, which provides 30-year mortgages at 1 percent interest to those who provide affordable rental housing for low and moderate income families, elderly persons and persons with disabilities.

Tenants in those units can may qualify for another program, the Section 521 Rural Rental Assistance, which covers the difference between 30 percent of a qualified tenant’s income and the monthly rental rate.

But as the mortgages on the Section 515 housing units expire, many owners sell their properties or convert them into conventional rental units. These leaves Section 521 tenants ineligible for the help that helped them pay the rent.

“When the mortgage expires, then the rental assistance ends,” Smith said.

Some of the Section 521 housing has also fallen into disrepair, forcing tenants to leave.

Smith asked witnesses at the hearing what happened to tenants who lost 521 housing.

No one seemed to know.

“Everything is up in the air,” Smith concluded.

Minnesota was a pioneer of the rural housing programs. But, as of a few years ago, there were only about 450 Section 521 mortgage holders in the state, and about 9,760 tenants with rental assistance living in their properties. The number of those properties and rural tenants receiving USDA help is diminishing, witnesses at the hearing said.

Smith and Sen. Jeanne Shaheen, D-N.H., introduced a bill this week that would allow tenants to continue to be eligible for rental assistance even if the property they live in is no longer in the Section 515 program. The legislation would also restructure existing Section 515 loans and extend incentives for property owners to stay in the program.

But housing advocates, and Smith herself, say the legislation is only a good first step, and other proposals were discussed, including increased funding for the rural housing programs and administration of those programs and allowing manufactured housing to be eligible for Section 515 loans.

One witness, from a housing non-profit in South Dakota, suggested a USDA program that subsidizes mortgage payments for low-and medium income homeowners be modified so all of the subsidy does not have to be paid back when the property is sold.

“The subsidy payback at the end of the amortization can negatively  impact the ability of low-income families to gain generational wealth,” said Marcia Erickson, CEO of GROW South Dakota.

The American Rescue Plan, one of the pandemic relief bills approved by Congress, included $100 million for Section 521 rental assistance for previously unassisted units and households, allowing the USDA’s Rural Housing Service to extend rental assistance coverage to 27,000 units in 3,700 properties. But this additional funding will expired at the end of the federal fiscal year, which is Sept. 30.

“Rural communities are experiencing a housing affordability crisis,” testified Elizabeth Glidden, deputy executive director of the Minnesota Housing Partnership.

She said that in Greater Minnesota 24% of homeowners are “cost burdened,” or paying more than 30% of their monthly income on housing costs, a number that increases to 41% for rural renter households.

She also testified that two-thirds of renter households in Greater Minnesota earn less than $50,000 a year, which is under 50% of the state’s area median income.

In Minnesota, rural residents have fewer housing options and are more likely to live in substandard housing than their urban peers, due to older housing stock, and less compliance and enforcement of codes,” Glidden said.

She also said that more than 40% of homes in Greater Minnesota are over 50 years old, built prior to 1970 and that new construction permits remain low in many rural areas, with some communities going years without a new multifamily housing project.