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The Coming Rural Affordable Housing Crisis

2012 March 25
by Michael Goldman

A rural/urban divide separates affordable housing in America. The Housing and Urban Development (HUD) agency provides the largest source of funding for subsidized housing in the United States and appropriately gets a lot of attention. If you live in rural subsidized housing, however, there’s about a 50% chance your home was paid for by an obscure program called Section 515 run by the US Department of Agriculture’s Rural Development division.

The Rural/Urban Divide
More than 400,000 Section 515 rental units populate the United States with 8,762 in Washington that receive some funding through the program. The Seattle Housing Authority, for comparison, records 16,984 households served. In a few rural counties of Washington State more than 80% of subsidized units were built under this program. Urban counties, where other sources of funding are common, are less reliant on Section 515 funding. There, percentage of subsidized units dips into the teens and below.

< Section 515 Units as a Percentage of All Subsidized Units; Connecting the Dots, p. 19 >

Cities get subsidized housing from multiple layers of government and a number of mostly large non-profit developers. The result is a concentration of the development and policy talent required to navigate the array of bureaucracies needed to bring affordable housing projects to fruition. The economics of housing management favor portfolios of larger projects nearby to each other, encouraging further concentration of not just staff but properties, too.

In rural areas, subsidized housing owners tend to be small “mom & pop” operations. With smaller portfolios come smaller management costs, but there’s another reason Section 515 owners tend to be small: USDA Rural Development rules limit the ability of owners to move funds around within a portfolio. The larger owners can’t leverage their size the way a car insurance company leverages its size to cover individual claims with a pool of subscribers.

The Aging Stock of Rural Subsidized Housing
Rural subsidized housing isn’t just more uniform in funding and ownership, it’s more uniform in age, too. Construction of Section 515 units peaked in the late 1970s and declined to nearly nothing by the mid-90s. The 515 program, designed for the construction of affordable rural units and their maintenance in early years, has been unable to keep up with the greater demands of aging properties.

< Section 515 Rural Rental Housing Program; Connecting the Dots, p. 8 >

Now many of these properties face expensive repairs (or “capital needs” in the parlance) common to 20-40 year old buildings, like roof replacements. But property owners have found that the approximately $500 annual per unit subsidy granted under Section 515 can’t pay for the work required to keep these properties safe and livable. With their smaller size, the “mom & pop” 515 owners lack the resources of larger, urban operations to advocate for reform or seek alternative government funds.

Acknowledgement of the Problem
In 2005 the Government Accountability Office (GAO), the non-partisan accounting and research arm of Congress, issued a report on the potential future of Section 515 housing. According to the GAO,

“Unless Congress authorizes and funds a permanent preservation program, hundreds of multifamily rural rental properties that are currently structurally sound but repairable could reach the point where they would no longer be cost effective to maintain and then become permanently lost from the portfolio.”

A demonstration program initiated in 2007 responded to some of the GAO’s concerns but the rate of revitalizing is severely insufficient to tackle the ageing Section 515 portfolio. More diligence is needed from Congress.

A Solution
A short-term fix would allow the pooling of property accounts—particularly the $500 annual per unit subsidy—a reform to the rules set by USDA Rural Development. This would provide some economies of scale to experienced urban non-profits to counteract the cost of rural management. It would not, though, clear the backlog of properties under strain of disrepair. The funds allocated for capital needs are simply too small for buildings this old no matter how you slice and dice them.

In the long-term, larger non-profits holding more Section 515 properties means more effective advocacy for preserving these properties. Change could come in the form of new funding and reformed rules for USDA Rural Development or it could bring about an expansion of HUD into rural parts of our country – a significant step to end the urban/rural divide in subsidized housing.


Michael Goldman is graduating this spring with a Masters of Urban Planning and a real estate specialization from UW. He contributed to Mercy Housing Northwest’s rural housing preservation plan last summer and is pretty excited to witness the new Yesler Terrace develop in the coming years.


4 Responses leave one →
  1. Matt the Engineer permalink
    March 26, 2012

    Interesting piece. I had no idea 515 existed, and you’ve given a great sketch of what it does and how to save it.

    What’s missing is the why. Why are we subsidizing rural housing? In rural areas not only is the cost of services high, but the productivity of workers is very low. Generally, you subsidize what you want to happen – are we encouraging people to live in the middle of nowhere because the rent is low?

    I can imagine a few reasonable arguments of why this exists. If this is a subsidy to keep our farms competitive, I guess this is better than just putting mor subsidies in corporate agriculture’s pockets (though this is a false choice – I question the need for farm subsidies at all). If this is really a last-resort safety net for the truely poor, it’s hard to take the roof from their heads (though would it be so bad to put a bus ticket in their pockets and subsidize less expensive areas?).

  2. JoshMahar permalink
    March 26, 2012

    Matt touches on the first question that comes to my mind: why is it important to maintain these properties?

    Fundamentally, subsidized housing is intended to equal the playing field for lower income individuals in areas with burgeoning growth and opportunity. Otherwise, due to high housing costs, lower income people would be forced to live in far flung areas with few economic opportunities, reducing mobility and increasing the class divide.

    So putting resources into housing in rural communities, places that generally already have the lowest housing costs, seems counterproductive.

    Now, deeper down it seems that the Section 515 subsidy is really an indirect response to dying industries and wages in rural communities. The few opportunities that exist are becoming fewer and in an effort to maintain these communities we provide housing subsidies to reduce living costs, allowing families to stay put. However it doesn’t get at the fundamental issue of dying small towns.

    There’s certainly an argument to be made for maintaining and reengernizing rural communities. But strategies such as the Tieton Strong campaign seem like much better options than simply subsidizing housing.

  3. Steven Micklin permalink
    April 3, 2012

    What’s old is new again….. During the late 1960’s and 70’s, Lyndon Johnson’s Great Society program relocated rural Appalacian residents from their impoverished hamlets to the major metropolitan areas – mainly Chicago and Detroit with the idea of “that’s wheree the jobs are”. The program was a resounding failure – these folks were ill-equiped to deal with urban life and jobs. As a result, intractable slums were created, most notably Uptown and Junway Terrace neighborhoods in Chicago. They remain a slum area today! Without the natural support systems of their native communities, these folks feel into many social ills. A better solution, rather than creating a totally mobile, rootless society, is to find ways to create economically vibrant communities in our rural areas.

  4. UsesLogic permalink
    April 12, 2012

    Matt hits the nail on the head. Why is the government subsidizing housing in rural areas where rents are already at extremely low rates? And why would we pour our resources into encouraging people to stay in economically depressed small towns? Having lived in rural farming towns, suburbs of Chicago and Chicago proper, it makes no sense to me for the government to spend money this way.

    Housing in rural areas is cheap, there’s no way around it. Yes wages and good jobs are scarce, but that’s why the housing stock is inexpensive. Just making the housing cheaper isn’t solving the primary issue, which is lack of well paying jobs. A better allocation of money would be grants or tax incentives to encourage businesses to set up shop in town. However we have also seen this idea get abused (TIF Districts) by politicians and their friends.

    I honestly don’t know what the answer is. Making a “buy local” ordinance could help, but again it would be subject to abuse by local businesses and encourage inefficiencies. At the same time large international corporations are “efficient” to the point that they’ve laid off half the folks on the subsidized rent rolls due to cheap overseas labor. Repairing infrastructure that actually needs to be repaired is an obvious, but short term job creator. The rest is just spending money to spend it. Perhaps the money would be better spent on local job training/education? Maybe funding apprenticehsip type programs for local businesses ?

    If we can’t find and keep employers in small towns, the small towns will disapear, no matter how inexpensive the housing is. At the same time unemployment and underemployment in urban areas is rising to historic levels as well, so moving to the big city isn’t the answer it used to be either. The central theme is that we need to help people get educated and trained for jobs, and make sure those jobs are in their area. It will take a lot of work, between multiple government beauracracies, public and private investment, but it has to be done. America will go the way of the PIGS (Portugal, Italy, Greece, Spain) if we don’t find a way to keep our workforce employed. Watching jobs get sent to Asia and throwing money at apartments in the middle of no where is certainly not the answer.

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