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The Housing Assistance Council (HAC) is pleased to present the following recommendations to the Millennial Housing Commission. Each of the following statements is predicated on a fundamental proposal: The federal government must commit to a comprehensive strategy for providing decent, affordable homes for rural Americans. Nearly 6.2 million nonmetropolitan households have some kind of housing problem: physical inadequacies, overcrowding, or cost burden (meaning they pay more than 30 percent of monthly income for housing costs).¹ Some of the worst housing conditions in the country are concentrated in rural places such as the Mississippi Delta region, Indian Country, Appalachia, and the colonias along the U.S.-Mexico border. This shortage of affordable, decent housing could be significantly ameliorated with a comprehensive federal housing policy that recognizes the unique needs and solutions of particular geographic areas including rural places. U.S. housing policy must prioritize serving people who are most in need, including poor rural households.

Affordable housing is an essential part of a healthy national economy.

The Center for Community Change reported recently that an investment of $5 billion in housing production would leverage funds resulting in 1.8 million new jobs and $50 billion in wages. In the mid-1990s the U.S. Department of Agriculture (USDA) calculated that a single-family home financed by USDA's Section 502 direct mortgage program generated 1.75 jobs, $50,201 in wages, and $20,560 in annual tax revenues to rural America. The federal investment in affordable housing not only provides American families with decent homes, but also benefits their communities and the country as a whole.

A strong federal role in rural housing is indispensable.

Housing Assistance Council (HAC) research on McKinney-Vento Act distributions found that funds were most likely to reach rural areas when set aside for them.² Similarly, HAC research on the HOME program of the U.S. Department of Housing and Urban Development (HUD) found that states directed a substantial portion (43 percent) of their HOME funds to cities and metropolitan areas that were also likely to be eligible to receive HOME funds directly from HUD, while providing rural counties with proportionately fewer HOME dollars and units than their share of poverty or substandard housing warrants.³ These conclusions do not mean that states are intentionally discriminating against rural areas – more likely, they are simply responding to the political clout of urban areas with sizeable populations and organized interest groups. HUD and USDA are better positioned to distribute and oversee funds without being subject to such pressures. It should also be recognized that the federal government has an important role in encouraging increased activity by private sector developers and lenders in affordable housing production. Their participation has been greatly encouraged by incentives such as housing loan guarantees from the Federal Housing Administration and USDA, the Low Income Housing Tax Credit, and the Community Reinvestment Act.

The needs of special rural populations must be addressed through targeted policies and funds.

No single type of assistance can address the needs of migrant farmworkers who occupy several different homes each year, Native Americans who live on trust land that cannot be mortgaged, elderly people who need services as well as homes, or residents of persistent poverty areas such as the Mississippi Delta, Appalachia, or the border colonias. Federal policy and funding must continue to support programs focused on these special populations, such as USDA's Section 514/516 farm labor housing program, HUD's Section 202 and 811 programs for elderly people and people with disabilities, the McKinney-Vento programs for people who are homeless, and the Native American housing programs administered by HUD and the Bureau of Indian Affairs.

USDA's rural housing programs serve their purpose admirably and must be funded at inflation-adjusted levels comparable to those appropriated in 1980.

Since the first rural housing program was created in 1949, approximately 3 million rural families have benefitted from USDA's housing aid. The programs include grants and loans issued directly by the government, which can provide subsidies deep enough to assist very low-income families. Combined with a network of local offices that allows USDA's Rural Development staff to work directly with rural Americans, the programs enable USDA to provide mortgage financing, rental housing production, rental assistance, and rehabilitation funds where the needs are greatest. Funding levels for these direct programs have dropped sharply over the last two decades, as federal funding was reduced and resources were shifted to guaranteed programs. In 1980 USDA's programs assisted over 130,000 rural households⁴ – a small number compared to the current 6,176,000 with housing problems, but far more than the 62,290 households aided in 2000.⁵ These highly effective programs and their delivery system must be retained with at least enough funding to reach 1980's production levels.

Loan guarantees must supplement, not replace, direct spending for rural housing loans.

Loan guarantees are not as successful as direct loans at providing housing opportunities to the rural families that are most in need. Since it costs the government less to guarantee a loan than to make a loan, the guaranteed programs can serve more people with less funding – but they serve only those who can afford near-market rates of interest, not those with the lowest incomes and the greatest needs. In FY 1999 the average income of Section 502 direct borrowers was $19,369, while for Section 502 guaranteed loans it was $33,285.⁶ To serve those with the greatest need, USDA's direct loan programs must be maintained, not replaced with loan guarantees.

Non-USDA programs that work well in rural areas must be continued with full funding.

In addition to USDA's programs, many others have proved invaluable in improving housing conditions for rural Americans. At the federal level, these include the Affordable Housing Program of the Federal Home Loan Bank System and several HUD programs: HOME, the Self-Help Homeownership Opportunity Program, and the Rural Housing and Economic Development program. The Low Income Housing Tax Credit and the Community Reinvestment Act have assisted many rural residents as well. Federal policy and appropriations must continue to support these programs. In addition, their reach in rural areas should be evaluated periodically, with attention to improving that reach if needed.

Decent, affordable rural rental housing is essential, and new affordable rental housing must be produced.

U.S. housing policy has tended to emphasize homeownership, but Americans should have the option of affordable, decent rental housing as well. More than 1 million rural renter households experience worst case needs; that is, they have very low incomes, are extremely cost burdened and/or inadequately housed, and do not receive federal housing assistance. Cost burden is the most significant problem for rural renters, more than one third of whom pay over 30 percent of their income for housing.⁷ There is no place in the country – no state, metropolitan area, rural county, or New England town – where the prevailing minimum wage is enough to afford the HUD-established Fair Market Rent for a two-bedroom apartment.⁸Vouchers to help tenants pay rent for market-rate housing are not always useful in rural areas. Housing vouchers are not universally available throughout the country because administering agencies do not exist everywhere. In other places, too often there simply are not enough rental units. Nor can the Low Income Housing Tax Credit (LIHTC) solve any major portion of rural America's rental housing needs. It is difficult to use the tax credit for the small projects needed in many rural places. In addition, the LIHTC has limited ability to help the rural poor without additional subsidies, and the subsidy once provided for many rural tax credit projects by USDA Section 515 loans is seldom available because funding for that program has been drastically reduced.

For these reasons, production of new rural rental housing is essential. This could be accomplished by creating a new rural rental construction program. Alternatively, Section 515 funding could be increased to a level sufficient to produce 30,000 units annually, the production level achieved in the early 1980s before funding cuts forced production down to merely 1,700 units in 2000.⁹ Section 515 is a proven production loan program that reaches the lowest income rural residents. The vast majority (over 87 percent) of current tenants have incomes that are less than 50 percent of area median incomes.¹⁰ Reports of scattered abuses in the 1990s led to drastic funding cuts, but changes have been made to address the abuses.

Existing affordable rural rental units must be preserved.

More than 11,000 projects encompassing nearly 290,500 units of Section 515 rental housing are at risk of subsidized loan prepayment, conversion to market rents, and displacement of tenants.¹¹ To protect the federal government's significant investment in this housing stock, funding must be made available to transfer ownership to owners such as nonprofit organizations that commit to keeping the units available for low-income residents permanently. Funds to help owners maintain their property are also needed. HAC estimates that in FY 2002 a minimum of $25 million is needed for equity loans to owners who wish to prepay, and an additional $50 million for maintenance.¹²

Homeownership for low-income rural families must be supported through government mortgage assistance and other housing subsidies.

Homeownership is one of the best methods of asset accumulation and it benefits rural communities. Federal housing policy must continue to support proven ways of increasing low-income rural homeownership including federal public-private partnership strategies such as USDA's Section 502 homeownership loan program and HUD's Self-Help Homeownership Opportunity Program; homebuyer education and counseling, both before and after families buy homes; and Individual Development Account programs that match funds saved by families towards purchasing a home or for other asset-building purposes.

Rural Americans must have access to affordable housing credit.

Rural households have a harder time than urban residents in finding mortgage credit, and they generally pay more for the credit they do receive.¹³ The Community Reinvestment Act (CRA), which has increased credit availability and community lending opportunities in many low-income rural and urban places, must continue to be vigorously enforced. Federal efforts to protect credit consumers from predatory lending practices, including homebuyer education and credit counseling services, must also be increased to reach more rural households.

"Smart growth" tactics must account for rural affordable housing needs.

Smart growth policies sometimes result in regulatory approval of the Not In My Back Yard (NIMBY) syndrome, prohibiting or restricting development of assisted, multifamily and small-lot single-family homes, while encouraging large-lot development. The federal government must promote smart growth measures focused on equitable development that addresses all community needs, including rural low-income housing.

Programs to build the capacity of local housing producers, particularly nonprofits, must be continued and fully funded.

Nonprofit organizations are an increasingly important factor in providing low-income housing. Rural nonprofits frequently begin to try to address local housing needs with no staff, little or no funds, and unspecified housing development plans. They often have the will, but little means, to engage in the increasingly complex task of affordable housing development. Initiatives such as USDA's Rural Community Development Initiative (RCDI), HUD's Office of Rural Housing and Economic Development (RHED) and assistance to Community Housing Development Organizations under the HOME program are valuable to meet this need. RCDI should be funded at a minimum of $6 million annually, and RHED at $25 million.

Homeless assistance strategies must account for rural homelessness.

Despite improved recognition of the problem of rural homelessness in recent years, federal homeless assistance policies remain biased toward urban communities. Rural homeless assistance organizations' competitiveness is compromised by their relative lack of experience, lack of access to matching funds, the increased costs of serving a dispersed population, and the difficulties in counting and documenting the relatively hidden rural homeless population. Assistance for homeless people in rural areas must be enhanced through increased formula funding or set-asides for rural homeless assistance.

Successful housing strategies require more than just "bricks and mortar," and successful self-sufficiency strategies must account for housing needs.

Many rural families need only housing assistance. But some households need access to childcare in order to acquire and keep adequate jobs. Others need transportation services, job training, adequate healthcare, or additional services. Many rural communities need economic and infrastructure development assistance. Housing programs and developers need not provide all these services directly, but the myriad needs of rural low-income households and their communities must be accounted for and ultimately addressed in order for their housing situations to improve and stabilize. Federal government agencies must continue and expand inter-agency cooperation efforts aimed at local housing, economic and community development needs.Housing delivery systems must be designed to meet housing needs well and to reach rural communities.

It is appealing to search for the fastest or the least expensive means of delivering housing assistance. The most streamlined process, however, will not always achieve the overriding policy goal of prioritizing the greatest needs. For example, until the early 1990s USDA maintained an office in nearly every rural county – an effective way of making aid applications both convenient and user-friendly. Computer technology alone cannot replace this system; low-income people often do not have computers or low-cost Internet access, or even (particularly in rural areas) a convenient library with a public system. Working successfully with low-income people, many of whom have unsophisticated educations, requires a human touch.

Agencies administering housing programs must have sufficient capacity.

Programs' effectiveness can be improved or worsened dramatically by staffing levels, staff training, and administrative resources. Agencies such as HUD and USDA's Rural Development must have staff and resources adequate for the jobs they are asked to do.

ENDNOTES

1. Housing Assistance Council calculations from 1999 American Housing Survey data collected by the U.S. Bureau of the Census and the U.S. Department of Housing and Urban Development.

2. Housing Assistance Council, McKinney Act Programs in Nonmetro Areas: How Far Do They Reach? Part One: Distribution of Funds 1987-1991 (Washington, D.C.: Housing Assistance Council, 1995).

3. Housing Assistance Council, The Use of HOME in Rural Areas (Washington, D.C.: Housing Assistance Council, 1998).

4. Housing Assistance Council, The RHS Housing Program in Fiscal Year 1999: "A Year of Apprehension" (Washington, D.C.: Housing Assistance Council, 2001), App. A.

5. Housing Assistance Council calculations from USDA data. At the time these recommendations were prepared, fiscal year 2000 was the latest year for which complete figures were available.

6. Housing Assistance Council, The RHS Housing Program in 1999, 10.

7. Housing Assistance Council, Rural Rental Housing: HAC's 1999 State of the Nation's Rural Housing Report (Washington, D.C.: Housing Assistance Council, 2000), 1.

8.Jennifer G. Twombly, Sheila Crowley, Nancy Ferris, and Cushing N. Dolbeare, Out of Reach: America's Growing Wage-Rent Disparity (Washington, D.C.: National Low Income Housing Coalition, 2001).

9. Housing Assistance Council calculations from USDA data.

10. HAC, Rural Rental Housing, 24.

11. Housing Assistance Council, Why Housing Matters: HAC's 2000 Report on the State of the Nation's Rural Housing (Washington, D.C.: Housing Assistance Council, 2000), 5.

12. Housing Assistance Council, Mixed News: An Analysis of the Administration's Proposed Fiscal Year 2002 Rural Housing Budget (Washington, D.C.: Housing Assistance Council, 2001), 5.

13. Leslie R. Strauss, "Credit and Capital Needs for Affordable Rural Housing," Housing in Rural America: Building Affordable and Inclusive Communities (Thousand Oaks, Calif.: Sage Publications, 1999), 125-126.