SECTION 515 RURAL RENTAL HOUSING LOANS
Background and Funding Overview
The Need for Affordable Housing in Rural America
There is a particular need for more affordable rental housing in rural America. Thirty-five percent of rural renters are cost-burdened paying more than 30% of their income for housing costs. Almost one million rural renter households suffer from multiple housing problems, 60% of whom pay more than 70% of their income for housing. More than 900,000 renters live in moderately or severely inadequate housing and 1.9 million people are rent-overburdened., paying in excess of 30% of income for rent.
The lead federal agency for providing assistance to our nation’s small town and farming communities is the United States Department of Agriculture and its rural development mission area. The Rural Housing Service of Rural Development provides many of these needed programs, including Section 515 Multifamily Rural Rental Housing Loans.
The Success of Section 515 Rural Rental Housing
Section 515 of the Housing Act of 1949 is the principal source of financing for rental housing in rural areas. Under Section 515, non-profit and for-profit entities can receive one-percent loans for acquisition, rehabilitation or construction of rental housing and related facilities. While for much of the history of Section 515 the loan term was 50 years, the term of the loan was recently reduced to 30 years in a cost cutting move. Most Section 515 loans have gone to for-profit entities such as developers, who combine the subsidized loan with rental assistance and tax subsidies to finance housing.
Section 515 housing also is generally well managed. Property managers often invest much of their own free time and creativity in providing tenants with a safe and cohesive community. According to USDA, the Section 515 portfolio is also financially sound, with a loan delinquency rate of just 1.6% and only eight properties in inventory. The projects are small with an average unit size of 28.
Over 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. Some 57% of Section 515 households are elderly or disabled; 26% are headed by persons of color; 73% are headed by women.
The average annual tenant income in these properties is about $9,200. Seventy-five percent of tenants received a rental assistance subsidy, either through project-based rental assistance, the Section 8 program, or through vouchers. Although rents are extremely low, averaging little more than $325 per unit per month, 20% of tenants were nevertheless rent-overburdened and 7% pay more than half their income toward rent. More than 100,000 rural rental housing units do not have rental assistance.
Historically, Section 515 has been the key tool for improving the quality and quantity of rental housing in rural areas: at its peak in the early 1980s, the program created about 1,000 new properties a year. However, since the mid-1990s the program has faced severe budget cutbacks, limiting USDA’s ability to finance much-needed rehabilitation of existing properties and the construction of new properties to serve the 900,000 rural renters who live in substandard housing.