Rural Housing In
Patrick J. Kennealy
Graduate Research Assistant
Rural Sociology
202 Comer Hall
334.844.5628
kennepj@auburn.edu
December 2003
The state of American low-income rural housing
is complex. Since the beginning of the twentieth century, public and private
programs have been instituted to assist low-income rural families in their
housing needs. Much of the current rural housing assistance in
This paper describes the history of low-income
rural housing assistance programs in the United States, the current general
condition of low-income rural housing, and suggests that the extent to which
public rural housing funding is effective is related to the extent community
development agencies can apply such funding, sociologically referred to as
social capital.
HISTORY OF
Since the early 1950’s, the
The role of FmHA
was to finance modest housing and housing repairs for farming families that
lacked their own resources or could not obtain other credit at affordable rates
and terms (Belden and Wiener 1999). HUD had the same task for non-farming rural
families. However, as a result of USDA reorganization, HUD was technically
relieved of its rural housing focus, while FmHA was
eliminated altogether in 1994 (Belden and Wiener 1999). Both programs were
replaced by the current USDA Rural Housing Service (RHS). HUD continues to fund
rural low-income housing in a limited capacity, through its Section 8 and its
Federal Housing Administration (FHA) single family home mortgage program (USDA
2001). RHS currently functions to provide grants and loans to low-income
families and housing organizations to improve the overall quality of rural
housing.
FmHA/RHS has
financed or rehabilitated more than 2.7 million housing units since 1969 at a
cost of more than $70 billion (Belden and Wiener 1999). The need for subsidized
rural housing continues to remain, as of 1997, there were more than 1.5 million
occupied rural housing units that house more than 2.2 million tenants who pay
more than 30 percent of their incomes in rent (Belden and Wiener 1999). At the
same time, from 1994 through 1997, funding by RHS for subsidized housing
programs decreased from $3.072 billion to $1.436 billion (Belden and Wiener
1999). Unsubsidized programs grew from $800 million to $2.3 billion (Belden and
Wiener 1999).
Easing access to rural housing financing is
vital to developing and maintaining a robust national housing improvement
program. Investments or capital and credit must be available to housing
developers at a cost that allows them to develop housing affordable to those in
need (Belden and Wiener 1999). Unfortunately it is not possible to determine
how much credit and capital is currently available in rural
A driving force behind legislation
supporting public funding for rural housing and community development have been
special interest organizations such as the National Rural Housing Coalition
(NHRC) and the Rural Governments Coalition (Browne 2001). These organizations
favor and lobby for federal budget allocations to and through states to support
community development initiatives (Browne 2001). However, as the 20th
century came to a close, these organizations had, for the most part dissolved
(Browne 2001). During the 1980’s and early 1990’s, such interests groups were
somewhat successful in developing funding programs for Native American
communities, local government public works programs, and construction
opportunities for rural builders and contractors (Browne 2001). The state of
rural housing continues to be in need of improvement.
CURRENT HOME OWNERSHIP
ASSISTANCE PROGRAMS
The USDA and HUD are continuing to fund
low-income rural housing initiatives. RHSs’ Sections
502 and 504 loan programs are at the forefront of rural housing loan programs,
while HUD continues to fund housing through Section 8 and FHA funds. Loans are
based on income categories that are regionally variable. Very low-income refers
to incomes below 50 percent of the area median income (AMI); low-income is
between 50 and 80 percent of the AMI; while a moderate-income extends to $5,500
above the top of the low-income limit (USDA 2003).
RHS Section 502
Section 502 is the USDA’s main housing loan
program for single family housing. Nationally, Section 502 provides over $1
billion in direct loans and over $3 billion in loan guarantees for the purchase
of single family homes (USDA 2001).
RHS works with private lenders to offer
loans to individuals interested in building or purchasing a home (USDA 2003).
Interest rates are negotiated between the lender and the borrower. However, the
maximum interest rate is fixed and is specified in the Notice of Funding
Availability (NOFA) published annually in the Federal Register (USDA 2003).
Loan terms are for 30 years and are made for up to 100% of the appraised value
of the home (USDA 2003). RHS guarantees 90% of the worth of the loan to the
lender (USDA 2003).
Qualified lenders for Section 502 include
any state housing agency, Farm Credit System Institutions, and lenders approved
by HUD, the U.S. Veterans Administration, Fannie Mae or Freddie Mac (in certain
circumstances), and others participating in other USDA Rural Development and/or
Consolidated Farm Service Agency guaranteed loan programs (USDA 2003).
RHS Section 504
Section 504 provides home repair loans and
grants to very low-income families. Funds available are for repairs,
modernizations, the removal of health and safety hazards, or to make homes
accessible for the disabled (USDA 2003). Loan rates are set at one percent and
repayments may extend 20 years. Loans for up to $20,000 are available while
grants are available for up to $7,500. Grants and loans may be combined for up
to $27,500 in assistance (USDA 2003). More funding may be available with
National Office Approval (USDA 2003).
RHS Section 523
Section 523 is the Mutual Self-Help Housing Program
that makes homes affordable by enabling future homeowners to work on homes
themselves. Parties eligible for 523 loans are individuals who will complete at
least 65 percent of the work on building his or her own house (USDA 2003). 523
loans may also be made to private or public nonprofit organizations that
provide sites for Self-Help Housing and supervise enrollees (USDA 2003). Loans
may be approved for up to $200,000, or more with National Office Approval. They
are for two years and bear a three percent interest rate. Eligible participants
must be low or moderate income (USDA 2003).
RHS Section 524
Section 524 loans are made to private or
public nonprofit organizations to develop housing sites for low or
moderate-income families. 524 loans bear the market rate of interest at the
time of approval or at the time of the loan closing. Section 524 sites may be
sold to low or moderate income families by using a mortgage finance service
(including RHS) that serves the same eligible family (USDA 2003).
CURRENT RENTAL AND
MULTI-FAMILY HOUSING ASSISTANCE PROGRAMS
RHS Section 514
Section 514 is the Rural Housing Service’s
Farm Labor Housing Program. 514 Loans may be used to buy, build, improve, or
repair housing and amenities for farm laborers whose income is earned by engaging
in on-farm processing or aquaculture (USDA 2003). Funds may be used for the
following:
·
Purchase a site
·
Purchase a
leasehold interest in a site
·
Construct
housing, day care facilities, or community rooms
·
Purchase durable
furnishings
·
Pay Construction
loan interest (USDA 2003).
514 loans may be granted in
amounts of up to $400,000, or more with National Office Approval (USDA 2003).
Funds may also be used in urban areas for nearby farm labor (USDA 2003).
RHS Section 515
Section 515 provides Rural Rental Housing
Loans for the landlords of multifamily dwelling where very low, low, and
moderate-income families reside (USDA 2003). Section 515 loans are direct and
primarily used for mortgages. However, 515 loans may also be used to improve
land, water and waste facilities, etc. 95 percent of tenants, in new Section
515 projects, must have very low-incomes (USDA 2003). However, in existing
projects, only 75 percent of tenants must have very low-incomes (USDA 2003).
Loans are for up to 50 years and are at a one percent interest rate (USDA
2003).
RHS Section 538
Section 538 provides Rural Rental Housing
Guaranteed Loans to fund construction, acquisition, or rehabilitation of rural
multifamily housing for very low, low, and moderate-income occupants (USDA
2003). Tenants may also be elderly, handicapped, or disabled with incomes not
in excess of 115 percent of the AMI (USDA 2003). Loans are made from private
lenders to housing developers and are guaranteed up to 90 percent by RHS (USDA
2003). Loan terms may be up to 40 years with fixed rates, as negotiated between
the lender and borrower. Rates must be within the maximum established under the
Notice of Fund Availability (NOFA) published in the Federal Register (USDA
2003).
HUD Section 8
Section 8 provides rental housing assistance
very low, and low-income families, in the form of
direct payments to a private landlord (NHLP 2003). The tenant pays 30 percent
of their household income for rent, with HUD paying the balance, through the
local housing authority to the landlord, in the form of a voucher (NHLP 2003).
Tenants obtain Section 8 payment vouchers from their local housing authority
and rent a HUD qualified apartment that does not exceed HUD’s Fair Market Rents
for the area (NHLP 2003). If the rent exceeds the fair market value for the
area, the tenant must pay the difference (NHLP 2003).
SOCIAL CHARACTERISTICS OF RURAL HOUSING
Mortgages and Credit
A shortage of mortgage credit in rural
areas, contrasted to urban and suburban, compounds the quality issues of rural
housing. According to the U.S. Census (1994) such a credit shortage is
illustrated by the fact that 7 percent of home purchasers in nonmetropolitan areas, while only 3 percent in metropolitan
areas, obtain first mortgages from individuals (Belden and Wiener 1999). Many
of the individual creditors are the home sellers.
Existing housing conditions in rural
Although personal property loans are easier
to obtain than mortgages, they have inherent disadvantages. With a personal
property loan, the mobile homeowner is unable to build home equity and receive
the tax incentives for purchasing real estate (Belden and Wiener 1999). Mobile
homes also tend to depreciate in value over time while site-built homes tend to
appreciate.
Minorities
Other social themes pertaining to rural
housing persist. Minorities have historically suffered from mortgage and
housing credit shortages more severely than do whites. A 1977 report on equal
housing opportunity found that many African American and Hispanic rural residents
felt that they have had more difficulty than whites of similar financial means
in obtaining home and mortgage credit (Belden and Wiener 1999). However,
research and formal documentation of such discrimination is lacking (Belden and
Wiener 1999).
Native Americans in general have been living
in the worst rural housing in the country (Belden and Wiener 1999). The problem
of rural housing credit shortage on native lands is compounded. Not only do
such communities suffer from the standard rural housing credit issues, they
also are faced with the fact that native lands are held in trusts and cannot be
taken by foreclosure in the event of mortgage default, rendering standard
mortgages unavailable (Belden and Wiener 1999). Furthermore, the market value
of existing homes tends to be less than other rural areas and the
infrastructure on native lands tends to be less complete, with relatively
substandard roads and utilities (Belden and Wiener 1999).
Older Rural Adults
Adequate housing for older adults is a growing issue
for rural communities. Since the American population as a whole is aging and
many older adults are physically unable to maintain their own homes, new
housing assistance programs must continue to be developed to assist this
population. According to the U.S. Census, the over-65 age cohort continues to
be the fastest growing group in the country. The U.S. over-65 population is
expected to climb from 36 million, or 13 percent of the adult population, in
year 2000, to over 60 million, or 22 percent of the adult population in year
2030 (Nolan and Blaine 2001).
We continue to see rural housing
characterized by high interest and mortgage rates and low wages, relative to
metropolitan areas. Social issues such as aging, education, race, and native
land exploitation continue to persist in rural
SOCIAL CAPITAL
The Rural Housing Service provides multiple
funding opportunities for low-income rural families. However, the method by
which opportunities are provided assumes that interested rural people and
housing organizations have the social capital, or valued social relations
between people, to take advantage of such opportunities. More specifically,
this is the capacity for rural communities to organize and act (Gittell and Vidal 1998). More importantly, do such organizations
have links to larger communities or larger systems of social capital? Clearly
some do, as there are thriving rural American communities.
Linkages to larger systems are key to utilizing public and private resources. This aspect
of social capital may be referred to as ‘weak ties’ (Gittell
and Vidal 1998). A deficiency in many
low-income communities, rural and urban, is the linkage to the larger
metropolitan financial, political, technical, social, political, and
opportunity structure (Gittell and Vidal 1998). The
weakness of weak ties is characterized by the exodus of the most civically and
financially successful individuals and businesses, resulting in social and
economic vacuums ([Bates 1994; Wilson 1987] Gittell
and Vidal 1998).
In more applicable terms, do rural housing
cooperatives and low-income housing developers have access to qualified
contractors, even if they have the financial capital?
Addressing rural housing development entails
more than funding and providing public financial opportunities to rural
communities. It entails assisting rural community leaders and advocates in
developing social capital coincided with a general desire for community
enhancement. It entails creating incentives for contractors and business people
to operate in rural communities. Although USDA RHS funding may be helpful for
many rural communities, a more comprehensive macro approach to rural housing
and community development is necessary.
The trigger for building of social capital
in rural housing and community development organizations is needed. The
enhancement of inter-, intra-, extra-, and weak communities ties can occur as
long as it is publicly supported.
In her work, Common Purpose: Strengthening Families and Neighborhoods to Rebuild
America (1997), Professor Lisbeth B. Schorr describes case studies of successful public service
programs. Schorr points to programs, such as Head
Start, as examples of the successful establishment and use of social networks
and capital. A study of Head start, a public comprehensive child development
program, concluded that its success results from its staff entering into an
involved and compassionate relationship with each participating parent and child
(Schorr 1997). Schorr
notes, however, that although such programs or demonstrations have been successful
in helping some people, few other large scale social service project have been
successful at achieving their ideal goals. Schorr
asserts that effective programs are undermined by larger social systems when
they expand beyond the grassroots level (1997). Schorr
explains:
It is now absolutely clear that the
attributes of effective programs are undermined by their systems’ surroundings,
especially when they attempt to expand to reach large numbers.
This mismatch between the attributes of
effective programs and the imperatives of prevailing systems is what stands in
the way of successful demonstrations becoming part of the mainstream. It is
what stands in the way of reaching millions with what has proved to work with
hundreds. Unless we come to grips with this mismatch, successful models will
continue to flourish briefly and then disappear or be diluted or dissected when
special funding and special political protection end, or when the initiatives
can no longer find leaders who are both wizard and saint (Schorr
1997:18-19).
Schorr
further describes that the replicating, sustaining, and scaling up of effective
programs has been dismal (1997).
Schorr holds that
expanding programs fail when they threaten the basic political and bureaucratic
arrangements that have rooted over the decades (1997). That is why some public
service programs have been effective under ‘protective bubbles’ of foundation
funding or small scale public funding and have not been effectively applied on
a large scale (Schorr 1997).
Rural housing cooperatives and organizations
may benefit from the comprehensive style of case management afforded by Head
Start. What if private, or non-public, housing agencies and rural low-income
families could have more access to involved community development case
workers?
The Cooperative Extension System has taken
on that role to some degree, through educational programs (Rasmussen 1989). However,
it has been argued that Extensions primary interest is in promoting
agribusiness (Hightower 1978). There are private consulting firms that provide
the same service. But, they must focus on maintaining their revenues and
profits in an environment already characterized by scarce resources.
CONCLUSION
The state of
Rural housing continues to be characterized
by high interest and mortgage rates and low wages, relative to metropolitan
areas. Social issues such as aging, education, race, and native land
exploitation continue to persist in rural
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