Rural Rental Housing


Background and Funding Overview

The Need to Preserve Section 515

Close to 400,000 low-income families and elderly households live in rental housing financed under Section 515.  For many rural areas, Section 515 provides the only decent, affordable rental housing in the community.

While section 515 developments are an important source of rental housing in rural America,  the overall portfolio is aging with some 89 percent of the properties that are at least 10 years old, and 64 percent that are at least 15 years old.  Their major infrastructure systems are at or near obsolescence and need rehabilitation or replacement.

In November 2004, USDA released the Comprehensive Property Assessment and Portfolio Analysis of Rural Rental Housing (CPA).  The purpose of this report was to assess the status of the Section 515 portfolio in terms of prepayment options and long term rehabilitation needs.

This report had at least four key findings including:

1.    Only 10% of the units in the Section 515 portfolio are in ‘hot markets’ and could become market rate housing if the owners were to prepay;
2.    90% of the units are not in markets where prepayment is an option and are in need of additional funds to ensure adequate operation;
3.    The average age of Section 515 housing projects is 26 years.  Their major infrastructure systems are at or near obsolescence and need rehabilitation or replacement.  Most are in need of renovation; and
4.    The projected cost for ensuring adequate operations and addressing long term rehabilitation needs is $2.6 billion for 20 years.

USDA Demonstration Program

In response to the USDA report, Congress provided funds for a demonstration program aimed at preserving rural rental housing developments. In Fiscal Year 2010, a total of 299 Section 515 projects were preserved and renovated, representing an investment of $169.9 million, through the use of loan deferrals, zero percent loans, soft seconds, subsequent 515 loans, credit sales and grants and vouchers.  The investment provided assistance to preserve and renovate a total of 4,310 units.

The RD Voucher Program is offered to tenants in Section 515 properties where the mortgage is prepaid or the Agency takes foreclosure action.  Since inception of the program in 2006, over $25 million has been obligated for Vouchers.  More than 8,000 Vouchers have been used, and most residents remain in the former Section 515 property.  Fewer properties have prepaid the RD mortgage in the last few years, but voucher holders renew their vouchers at a rate of 95%.

The current restructuring program relies heavily on funding from other sources.  USDA data indicates that every dollar provided by Agriculture is matched by a dollar from some other source including tax credits, state and local financing, and other federal grants.  In this difficult economic climate, raising capital from other sources may prove more difficult.

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