February 27, 2018

Preparing for the Wave: Preserving Rural Affordable Housing

Rural affordable housing preservation

By Russ Kaney, Director, Programs, Rural & Native American Initiative

Enterprise, Motivation, Education, & Training, Inc., The Texas State Affordable Housing Corporation, The Federal Reserve Bank of Dallas and the Rural Rental Housing Association of Texas partnered to create the Rural Housing Preservation Academy, made possible by the generous support and vision of Capital One Foundation. This blog tells the story of the problem the Rural Rental Housing Preservation Academy is helping to solve.

A few years ago, I started having more and more conversations with people all over the country about the increasingly dire problem of what to do about USDA Section 515 rural affordable housing apartments that are at risk of becoming market rate, losing rental assistance or both.

Despite the program’s success over the past 50 years as the principal source of financing for affordable rental housing in rural communities — for seniors, veterans, low-income families, and persons with disabilities — funding for Section 515 loans has been cut dramatically in recent years.

Since its peak in 1982, the program’s funding has been slashed by more than 96 percent from $954 million to just $35 million in FY2017. More Section 515 financed apartment homes were created in 1979 (38,650) than in the years from 1994 to 2009 combined.

HAC Chart with header.jpg

There are now 384,456 Section 515 financed apartment homes nationwide. Given the reality of the funding situation, community development and affordable housing practitioners, advocates and funders have switched their focus over the years from new construction of Section 515 properties to their preservation. Section 515 loans are 50-year or 30-year loans and feature interest rates subsidized to as low as 1 percent.

A huge wave of these maturing mortgages issued during the program’s peak years from 1975 to 1985 is heading our way, and when the loans are paid in full, the rental assistance that goes with the loan is terminated. This is a big problem because more than two-thirds of all 515-financed homes have rental assistance, making them affordable to the lowest-income residents whose average income is roughly $10,000.

With an estimated need of $5.5 billion over the next 20 years to maintain and preserve existing Section 515 developments, many owners lack resources and the motivation to maintain, upgrade or transfer properties due to tax consequences, lack equity in the property and are unable to receive a return on their investments.

Yet, these properties are not only home, but a lifeline of stability for many: incredibly, 62 percent of all Section 515 households across 380,000+ homes in over 13,700 properties are seniors or people with special needs.

And, roughly $12 billion has been invested in these lifelines, assets that provide a public good and the foundation of opportunity for the residents who call them home. The public interest will be best served by ensuring their long-term affordability and maintenance. Once a property leaves the 515 program, it is highly unlikely that another property will ever replace it with similar affordable resources. This is where The Rural Rental Housing Preservation Academy comes in.

The Rural Rental Housing Preservation Academy

The Academy offers a series of no-cost training and peer learning sessions designed to help rural housing providers and nonprofits acquire and/or preserve USDA housing in their respective communities. We chose Texas for our first Rural Rental Housing Preservation Academy because Texas is home to the most Section 515 properties of any state, 678 comprising roughly 22,000 homes, nearly 14,000 of which receive rental assistance.

We hosted our first session in January and held our second session at the end of February. We’ll host four more over the next several months, ending in September. Our training sessions are open to existing owners and operators interested in preserving Rental Assistance (RA) in their properties or parties interested in acquisition for the purpose of preservation of RA and the affordability of the homes.

The training sessions will span from basic introduction and overview of the Rural Development programs to exploring financing options, new financing models and property management. Enterprise will bring in experts and practitioners that have proven success in preservation and are thinking outside of the box when it comes to funding to help deliver the training sessions.

Technical Assistance Available

In addition to the delivery of the trainings, the Rural Housing Preservation Academy is also accepting applications from participants to receive no-cost targeted one-on-one technical assistance to support their efforts in preservation. The assistance will be tailored to the needs of the recipient based on what their goals are and the support they identify in being critical to move their project forward. Up to ten organizations will be selected to receive technical assistance as funding allows.

Academy Sessions

The next session dates and locations are listed below. See a complete description of the academy, including details about each session.

Session 3: Preservation Financing and Deal Structuring
April 11 - 12, 2018
Federal Reserve Bank of Dallas - San Antonio Branch
402 Dwyer Ave, San Antonio, TX 78204

Session 4: Preservation Financing and Deal Structuring - Continued
June 6 - 7, 2018
Texas State Affordable Housing Corporation
200 East MLK Jr. Blvd., Austin, TX 78702

Session 5: Property Management
August 1 - 2, 2018
Temple Chamber of Commerce - Community Room
2 N. 5th Street, Temple, TX 76501

Session 6: Supportive Policy
September 11 - 12, 2018
Texas State Affordable Housing Corporation
2200 East MLK Jr. Blvd., Austin, TX 78702