It’s time to address rural America’s housing crisis

As candidates in the upcoming presidential election offer strategies to address a national housing crisis, there is an urgent need for new solutions for the housing shortage in rural America. The current set of federal policies often takes a “one size fits all” approach based on urban and suburban market economics. Consequently, one in four rural households cannot afford the home they live in, let alone a move up the ladder of the American dream.

There are plenty of examples where federal housing policy is stacked against rural homeowners and renters. The most egregious is also the nation’s largest federal housing support, the home mortgage interest deduction. Last year, the US spent $35 billion on this subsidy to help homeowners to pay less in taxes.   

Few rural families qualify for the deduction, not because they make too much money or their home values are rising, but perversely because their incomes and home prices are too low to qualify. Worse yet, the nation spent more last year on mortgage deduction than it did on nearly all other federal housing programs combined – including public housing, rural rentals, Section 8 vouchers and others designed to assist families with lower incomes. 

By limiting rural homeowners’ access to the mortgage deduction and other programs, we are making it harder for them to maintain and improve their property. This has worsened the “value gap” for rural residents, which occurs when the home’s appraised value is less than what it takes to make the property habitable and is a frequent obstacle to homeownership for rural renters. 

The misalignment extends to the rental market, too. In rural America, multifamily rental properties are often smaller and have many fewer units than urban and suburban projects. However, most federal multifamily financing programs favor scale and volume. 

There are steps that federal policymakers can take to address the misalignment, including:

1. Craft tax policy that accounts for the economics of rural America’s housing markets

With the Tax Cuts and Jobs Act of 2017 set to expire at the end of 2025, the next Administration and Congress have an opportunity to better address rural America’s housing needs as part of the next major tax overhaul. Specifically, policymakers should: 

Designate rural and Tribal areas as Difficult to Develop Areas (DDAs). Doing so will increase the allowable equity cap for Low Income Housing Tax Credit (LITHC) projects in DDAs, in turn helping to ensure that the smaller developments common in rural America are able to cash flow.

Pass the bipartisan Neighborhood Homes Investment Act (NHIA) to establish a federal tax credit to finance the construction and/or preservation of affordable, owner-occupied housing in select underserved markets, including rural communities, and help to close the “value gap.”

2. Empower the Department of Agriculture (USDA) to more forcefully shape the next generation of housing policy

Though the USDA already administers multibillion dollar programs vital to affordably housing rural Americans, the agency is largely ignored in the housing platforms that have been put forth by the leading presidential candidates. To strengthen and expand these crucial programs, policymakers should:

Meaningfully invest in the Section 515 multifamily rental program, which is losing thousands of units each year and has not seen new construction in well over a decade. 

Scale the Section 502 direct home loan program, which has provided loans to over 2 million low-income rural borrowers since inception. The program not only promotes affordable homeownership and bolsters local real estate markets, it also costs the government less per household than an equivalent rent subsidy. 

Ensure that new funds to encourage housing supply target rural communities. The Biden-Harris Administration and the Harris-Walz campaign have proposed a multibillion-dollar Housing Innovation Fund to incentivize communities to expand housing supply, to be administered by the Department of Housing and Urban Development.  USDA should co-administer any such program with the responsibility to ensure that one quarter of the funding reaches rural communities in proportion to rural America’s share of the nation’s housing stock.

3. Streamline federal housing programs and grow rural communities’ capacity to use them

Broadly speaking, rural communities have smaller governments, fewer well-resourced organizations, and less philanthropic investment. As a result, most rural communities simply have less capacity to successfully navigate the nuanced and complicated maze of federal housing policy, in turn making it harder for them to fully capitalize on these crucial programs. To address this, policymakers should:

Streamline the administration of federal housing programs, mindful that every additional layer of financing, application process, and cash match requirement reduces the likelihood that a rural community will be able to fully benefit from the program.

Enact a multibillion-dollar Rural Partnership and Prosperity Program, modeled on the bipartisan legislation in the House and Senate, to invest directly in the capacity of the mission-driven organizations that are doing the hard work of creating and preserving affordable housing in rural communities nationwide.

Despite popular narratives that imply otherwise, rural communities are vibrant, innovative, and worthy of investment. But they are also underserved by most federal housing policies. For these communities to reach their full potential, policymakers must take the tools, policies and infrastructure we already have and refine them so that they can do justice to the millions of people who call them home. 

David Lipsetz is the President and CEO of the Housing Assistance Council.

This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.

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