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Worsening Rural Rental Housing Affordability Crisis Demands Continued Attention
Previous posts in this space have discussed the oft-overlooked housing needs of rural America and the need to shine a light on how rural areas, just like their urban counterparts, are struggling to meet the affordable housing needs of their residents. Fortunately, this year the plea for more focused attention seems to have been taken to heart: The opening of the 116th Congress saw the introduction of several rural housing bills (the Strategy for Rural Housing Preservation Act of 2019, the Rural Housing Preservation Act of 2019, the Violence Against Women Act Protections for Rural Women Act among others). Also, on April 2, the first hearing of the House Finance Services Committee’s Subcommittee on Housing, Community Development and Insurance examined how the federal government has acted to address the affordable housing issues plaguing rural America. Speakers included representatives from the National Housing Law Project (NHLP), National Rural Housing Coalition (NRHC), Housing Assistance Council (HAC), Rural Local Initiatives Support Corporation and the Council for Affordable and Rural Housing. In addition to supporting the draft bills before the committee, the speakers also highlighted some of the issues they see with how rural issues are being handled at the federal level. For instance, the committee was urged to hold oversight hearings on the Rural Housing Services’ (RHS’) administration of the prepayment approval process and its administration of the rural development (RD) voucher program. Lawmakers were also asked to consider rural housing in Indian areas, how housing finance reform can impact rural issues and the need for more and better information and data on rural and underserved areas.
Meanwhile, more research is emerging around rural issues. Recent reports have tried to quantify the affordable housing rental needs of rural areas. For example, HAC reports that in places with populations less than 10,000, 40 percent of renters pay more than 30 percent of their income for housing. Poverty is also a concern as counties where poverty rates have exceeded 20 percent since 1990, known as persistent poverty counties, are predominantly rural. Likewise, a recent Stateline article found that in the past decade, nearly one-fourth of the most rural counties have had a sizable increase in the number of severely cost-burdened households (those spending more than 50 percent of their income on rent). This increased focus on rural counties is welcome, because the lack of affordable housing is often mistakenly considered an urban issue. That said, it is important to note that the issues facing rural areas are not particularly worse than those in other parts of the country; rather, affordable housing challenges in rural areas may be more difficult to treat because rural areas suffer from a lack of resources. For instance, lower area median incomes impede the financing of affordable rental housing, a dearth of data makes it difficult to properly assess the problem and the misperception that housing is affordable in rural communities can present challenges in building public support.
LIHTC’s Importance in Rural America in the Face is Shrinking Federal Resources
That there are fewer resources available to address the rural affordable housing crisis than those to address the same issues in urban areas should come as no surprise. While there are programs geared specifically towards financing and supporting rural affordable housing, like the U.S. Department of Agriculture (USDA) Rural Development programs’ – Section 515 Rural Rental Housing Loans program, Section 514, Section 516, and the Multifamily Housing Preservation and Revitalization program – funding levels have not kept pace with need. In the case of Section 515, not only has USDA funding of new properties dropped to zero in recent years, the program is losing units—there has been a 7 percent decline in the number of Section 515 properties since 2006. With funding shortfalls and a loss of units, other programs like the low-income housing tax credit (LIHTC) have to fill the gap, not only in terms of production but also financing. Multiple subsidies are often needed to provide housing affordable to lower income renters; a study by HAC found that nearly half the units in the USDA’s Section 515 housing portfolio are LIHTC-financed.
States have the power to implement the LIHTC, with each incentivizing developers in its own way to build in ways that meet that state’s particular housing needs. The report Rural Affordable Rental Housing: Quantifying Need, Reviewing Recent Federal Support, and Assessing the Use of Low Income Housing Tax Credits in Rural Areas, released last year and authored by Andrew M. Dumont, a senior community development analyst at the Federal Reserve Board, shows that between 1999 and 2013, 17 percent of all LIHTC developments placed in service were in non-metro areas. From 1986 to 2014, approximately 8,000 LIHTC developments comprised of 272,000 affordable rental homes, were placed in service in non-metro areas. While the study of housing data found that rural areas appeared to be receiving their fair share of LIHTCs in the aggregate, a review of the number of cost burdened renters (i.e., households paying more than 30 percent of their income on rent) and the number of LIHTC developments and homes placed in service shows that this is not the case on a state-by-state basis. Examining the number of LIHTC homes placed in service between 1987 and 2014, 13 states – Arkansas, Hawaii, Iowa, Kentucky, Maine, Mississippi, Missouri, Montana, New Mexico, South Dakota, Vermont, West Virginia, and Wyoming – were found to be under-allocating their LIHTCs to rural areas by more than 5 percent meaning the “percentage of LIHTC homes in non-metro areas was 5 percentage points lower than the share of the state’s cost-burdened renters that lived in non-metro areas in 2014.” In two states, Alabama and Oklahoma, the number of LIHTC homes placed in service exceeded the non-metro share of cost burdened renters by 5 percent. The remaining states fell somewhere in between, indicative of states doing a “reasonably good job” of getting LIHTCs to rural communities.
A review of state qualified action plans (QAPs) shows that there was nothing specific that could indicate whether a state would ultimately under- or over-allocate LIHTC homes to urban areas versus rural areas. Dumont notes there were however, provisions in the QAPs that could potentially have a negative or positive impact on the siting of homes in rural areas, which over the long-term, could add up. Provisions identified by Dumont include, but are not limited to: defining “rural” in ways that do not reflect on the ground realities; no separate scoring criteria for rural areas; threshold criteria that do not consider the scale and location of rural projects; and plans that rely too heavily on tax credits to solve non-debt related barriers in rural areas. Because of this, and the report’s finding that the percentage of rural renters is expected to increase as a percentage of all rural households, with older renters making up a sizable portion of this increase, the author urges policymakers to be mindful of how these provisions impact developers’ decisions and whether they could be unintentionally causing harm to rural areas.
The affordable housing crisis in the United States is a long way from being solved and only a sustained focus will help stakeholders gain any ground. Ultimately, rural areas need more resources, both for programs that address housing production and preservation needs, and for the additional research that must be done to quantify affordable housing need and the ability (or lack of ability) of existing programs to meet these needs. Possible improvements are on the horizon. It is expected that the Affordable Housing Credit Improvement Act (AHCIA) will be reintroduced in Congress in the coming weeks. Originally introduced during the 115th Congressional session by Sen. Maria Cantwell, D-Wash. and Ways and Means Committee Chairman Rep. Richard Neal, D-Mass., the bill will likely contain two rural housing related measures – a basis boost for non-metropolitan counties and properties with USDA Rural Development assistance; and standardizing tenant income limits for LIHTC properties in rural areas. AHCIA in the last Congress had notable bipartisan support, including support from members of Congress representing rural communities and it is expected to attract similar bipartisan support when it is reintroduced.
In addition to the reintroduction of the AHCIA, other key policy developments to be mindful of include the confirmation of Mark Calabria as the new Federal Housing Finance Agency (FHFA) director, and what this could mean for the government sponsored entities (GSEs) Fannie Mae and Freddie Mac, especially their investments in rural areas. While Calabria may actually employ a measured process of implementing change, housing stakeholders are concerned about past statements of his to, among other things, end the affordable housing goals and Duty to Serve mandate of the GSEs. In late 2017, the FHFA authorized the GSEs to resume making LIHTC equity investments for the first time since being put into conservatorship. Their Duty to Serve mandate includes a requirement to serve rural areas, which helps to ensure LIHTC investments make it to these underserved rural markets. The GSEs reentry into the LIHTC equity market could be in jeopardy with new FHFA leadership and the loss of any resources will make it even harder to address the affordable housing crisis in rural America. With the decrease in funding of rural-specific programs like USDA Section 515 and the loss of affordable homes to expiring contracts and loan repayment, the LIHTC is needed now more than ever.