This research effort was a multi-year collaboration between the Center for Urban and Regional Affairs (CURA), Housing Justice Center, and Minnesota Housing Partnership (MHP). The CURA-funded research was lead by Ryan Allen with support by CURA Community-Based Research. For MHP, this 2023 report illustrates the intersection and cross-collaboration between the organization’s three program areas: our research, policy, and community development departments. 

Go to the USDA Section 515 Report

“From MHP’s community development work in rural communities, we know many rural residents need deeply affordable rental housing, and USDA 515 rental housing are often the only affordable options in many communities. Preserving these USDA 515 properties is critical both for their rental assistance and to update these aging properties, before it is too late.”

Jill Henricksen, Community Development Manager, MHP

Like urban areas in the U.S., rural areas currently face a housing affordability crisis. Approximately 6.9 million (27%) of rural or small-town households are considered “cost-burdened” (paying more than 30% of their monthly income on housing costs). Since 1949, USDA’s Section 515 program has been an effective strategy for creating affordable rents in rural areas of the U.S. The program provides low interest loans for building multifamily rental housing, restricting the amount of rent that can be charged to tenants. Section 515 rental housing is frequently coupled with Section 521 Rental Assistance, ensuring these homes are affordable to rural residents with extremely low incomes.

In 2020, Section 515 properties accounted for almost 19% of the nearly 50,000 subsidized units located in greater MN. They also accounted for more than 20% of subsidized housing in the majority of MN counties.

Section 515 properties are required to maintain affordability restrictions for the life of the loan (50 years), but properties lose affordability when their mortgages mature. In MN, the peak of mortgage maturations will occur in 2030. As properties in the Section 515 program mature out of the program in the next 10 to 30 years, the Midwest stands to lose thousands of affordable rural rental homes. With no clear contingency plan for maintaining affordability in these properties, many of the properties may exit the program, reducing the number of affordable housing units in rural areas where the stock of affordable housing is already scarce. 

The report provides a background to the Section 515 program, insights from Section 515 stakeholders, and a set of recommendations for policymakers to ensure the program’s viability in the coming years.

“People perceive that access to affordable housing is only a problem in urban areas, but in reality the scarcity of affordable housing is reaching a crisis point in rural areas as well. As we show in this research, in many cases Section 515 makes up a substantial proportion of the subsidized housing. In some rural communities, it is the only supply of subsidized housing. Ensuring the continued vitality of rural communities will likely mean creating a plan for how to keep these housing units affordable.”

Dr. Ryan Allen, Report Author, Director, the Urban and Regional Planning program, and associate dean for research at the Humphrey School of Public Affairs

Major Findings Include:

• The Midwest will see large proportions of its Section 515 properties mature out of the program earlier than the U.S. overall. The peak of mortgage maturations for Section 515 properties in the Midwest will occur in 2030, about 10 years before the peak in mortgage maturations occurs for Section 515 properties in the U.S. In Minnesota, we estimate that 2,125 Section 515 units will mature and potentially leave the program by 2030.

• The unique characteristics of Section 515 properties in the Midwest suggest that some policy responses may need to be tailored to fit the unique needs of the program there.
  • The average size of a Section 515 property is smaller in the Midwest than in the U.S. This smaller scale suggests that owners may have less capacity to absorb costs related to capital maintenance and complex real estate transactions compared to owners of larger properties.
  • Midwest Section 515 properties are more likely to be used by seniors than in other states. Thus, some of rural Minnesota’s most vulnerable households are at risk of substantial rent increases and potential dislocation.
  • Nearly 40% of Midwest Section 515 properties are owned by nonprofit organizations, about double the proportion of in the U.S. Nonprofit organizations active in rural areas are often small and less able to manage large amounts of financial risk or complicated tasks associated with raising capital and navigating government programs.

• Changes in the housing market in many rural counties and in the Section 515 program itself have made it less attractive to private owners and investors. On the other hand, mission-driven owners have maintained a strong interest in the 515 program as one of the few affordable housing resources available to rural communities.

This is a solvable problem, and now is the time to act.

Report recommendations include:

• Create unique funding support for small scale Section 515 properties, including supporting needed capital maintenance.

•  Streamline the property transfer process, from owners who want to exit the program to buyers willing to maintain long-term affordability, by making it easier, faster and less risky for preservation buyers to acquire Section 515 properties, especially for small sized properties.

• Prioritize preservation of properties based on locations in hot and cold housing markets and those with looming mortgage maturations.

“For far too long, the USDA 515 program has been the most important housing resources for rural communities that nobody is talking about. Now these critical sources of safe, stable, and affordable housing are at risk of disappearing forever. As this report shows, the time for action is now if we want to prevent displacement of low income renters and to save these irreplaceable resources in rural communities. The good news is that there are practical solutions to ensure that rural Minnesota communities can remain great places for people to call home.”

Margaret Kaplan, Executive Director, Housing Justice Center

Materials:

Executive Summary

Story Map – with interactive maps showing impacts over time by county

Full Report, Qualitative Analysis

Full Report, Quantitative Analysis

Report Maps