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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.