Curve

The affordable housing crisis just hit rural America in a big way

Rose McMackin
The Mortgage Reports editor

America’s problem with affordable housing — a concern long associated with big cities — has expanded to rural counties.

A new report from Stateline demonstrates the shortage of affordable housing is a dire and growing concern for rural communities — counties that do not contain a town of more than 10,000 residents.

“Nearly one-fourth of the nation’s most rural counties have seen a sizeable increase this decade in the number households spending at least half their income on housing, a category the federal government calls “severely cost-burdened,” reports Stateline.

The outsize impact of small changes

Rural housing markets — by function of their size — are very sensitive to change. Housing opportunities in these communities can be impacted by lingering effects of the Great Recession or, in other instances, more recent economic revitalization.

“It only takes a small change to have an effect on rural communities,” says Corianne Scally, an expert on affordable housing and community development at the Urban Institute.

An entire community might struggle after a manufacturing plant closes and an oversized portion of the population loses their paychecks.

In other communities, sudden, new demands for labor can cause an influx of housing demand that triggers a rent spike.

“Sometimes all it takes is just one new facility in one of these communities,” says Scally. “All of a sudden you need more labor on hand to start up that plant, you’re stretching the ability of the rental housing base to accommodate new people and you see prices increase.”

West Texas cities Midland and Odessa say the largest year-over-year rent increases in the country in 2018, reports the Houston Chronicle. Average rent prices jumped 31.9 percent and 30 percent, respectively. Growing job opportunities at oil and gas companies in west Texas are driving the rapid increases.

“Cost-burdened” in cities, suburbs and rural communities alike

According to the Housing Assistance Council, a national nonprofit focused on developing affordable housing options, roughly 47 percent of renters in rural areas are “cost-burdened,” meaning they spend a third or more of their income on rent. The percentage of cost-burdened urban renters is an only slightly higher 51.1 percent.

“Cost-burden rates are higher in urban areas mostly because wealthier families are willing to spend more on housing,” says John Cromartie, a housing research expert for the U.S. Department of Agriculture (USDA). “If you compare the burdens of renters making under $20,000 in both urban and rural areas, the rates are pretty much the same.”

Though rural areas tend to have an excess of space and relatively inexpensive costs of living. HAC reports, as of 2016, there were 6.6 million rural rental units. Just under 82% percent of them cost less then $1,000 a month.

Still, in areas with low, and often stagnant incomes, even these homes remain out of reach. Federal policies limiting the construction of new affordable housing compound the problem.

A crisis with no obvious solutions

The size and density of rural communities requires different affordable housing solutions than the urban areas.

“Size works against the idea of scaling up housing solutions,” explains Scally.

The implementation of large apartment complexes works against the inherent sprawl of rural communities.

Meanwhile, federal investments in affordable housing construction focus on suburban and urban areas areas at the expense of rural ones.

Programs like the Mortgage Interest Tax Deduction do far less benefit rural communities. The program cost the government $72.8 billion in 2018 and could be considered the nation’s biggest affordable housing investment. But, due to lower housing values, a proportionally small amount flowed to rural communities.

Additionally, one of the nation’s most successful rural-housing programs will lapse without federal action. Section 515 is a 1963 USDA program that subsidizes construction and affordable prices for rural rental housing.

The program provides financial support to landlords until the mortgage is paid off, typically on a 30 year timeline. After this, landlords are free to raise rent prices to match the market.

Section 515 fostered construction of 28,000 properties since its inception. However, the USDA program has not direct-financed any new rental housing in years. Meanwhile, properties are aging out of their affordability provisions, a loss that will continue to accelerate as more units reach their 30th birthday.

Lipsetz and other experts testified at a House hearing committee on April 2 to encourage action to save this program.