Housing advocates are turning to this year’s farm bill in an effort to steer rural communities away from an affordable housing cliff ahead.

Without action from Congress, rural communities stand to lose more than 100,000 affordable rental units in the next decade as federally subsidized loans used to build the apartments are paid off, ending landlords’ obligations to keep rents low. In a second blow for those renters, they will lose their eligibility for the Agriculture Department’s rental assistance. 

“It’s a big problem, and it’s going to only get worse,” said Sarah Saadian, senior vice president of public policy at the National Low Income Housing Coalition. 

“The heyday or the peak of rural housing was in the ’70s and ’80s, when their rental housing program was nearly a billion-dollar program, and it’s been cut really dramatically over the last several decades,” Saaidian said in an interview. “All of those properties that were built at that time are now reaching the end of the maturity on their 515 mortgage, or the 515 loans that USDA provides in order to get those properties built.”

Advocates are pushing Congress to include provisions in the farm bill that would decouple the two programs, allowing the Agriculture Department to provide rental assistance even after a building’s owner has paid off the subsidized mortgage. 

Owners of about a quarter of the affordable apartments in the USDA’s 515 portfolio, which takes its name from the section of the 1949 law that established the program, are expected to pay off their mortgages by 2033, freeing them to set rents as they wish. The exit rate picks up from there. By 2050, rural communities are expected to lose 333,780 of the 400,000 affordable apartments in the USDA’s portfolio as the loans mature, according to the department’s Rural Housing Service. 

Faced with declining funding and rising construction costs, the USDA hasn’t been replacing rental units with new ones as owners pay off mortgages. Instead, the department has pivoted to loans for preservation and repairs, which cost less and can keep properties in the program and keep them affordable longer.

Sen. Tina Smith, D-Minn., said her constituents are pushing for Congress to take action on affordable housing in rural communities. She sits on the Agriculture Committee, which oversees the farm bill, and the Banking Committee, which has jurisdiction over housing.

“As you prepare for a farm bill, you’d expect to hear about conservation programs and crop insurance and the commodity programs,” Smith said in an interview. “But I’ve been struck by how many times the issues of housing come up as being really crucial to whether or not rural communities can work.”

The farm bill, which is reauthorized about every five years, is the federal government’s main vehicle for agriculture and nutrition policy. The legislation isn’t required to include housing provisions, but lawmakers like Smith see an opportunity to add them.

“The farm bill has many titles, and one of those titles is the Rural Development title, which is kind of a catchall for a lot of programs that address economic development issues that communities face in rural places,” Smith said. “That’s important because there’s opportunity there, I believe, to make real headway on the issue of rural housing.”

‘The $31 billion gorilla’

The department’s 515 mortgage lending program offers low-interest, 30-year loans to build or rehabilitate multifamily rental properties. In exchange, property owners keep rents affordable for the duration of the loan, with the option to enter into a rental assistance agreement with the USDA to further bring down costs for tenants. 

Tenants in USDA-backed properties on average make about $13,600 a year, according to the Housing Assistance Council. The 400,000 apartments that the policy makes affordable are a small part of a national housing shortage estimated by Freddie Mac at 3.8 million homes. Tenants in about two-thirds of the 400,000 apartments receive additional rental assistance.

Until 1997, loans were typically for 40 or 50 years, the reason so many are likely to be paid off in the coming years.

“The biggest issue in rural housing is the rapid loss of the 515 units due to mortgage maturity, prepayments, foreclosures,” said Jonathan Harwitz, policy director for the Housing Assistance Council. “That is the 800-pound gorilla, or really the $31 billion gorilla over the next 30 years to preserve.”

From 2023 to 2027, an average of 74 properties with about 1,800 apartments are likely to leave the program each year as the mortgages are paid off. The exit rate is expected to pick up in 2028 with about 81,800 apartments leaving by 2032, a rate of about 16,400 a year. By 2036, an additional 88,300 apartments are expected to have mortgages paid off and another 92,500 units by 2040, according to an analysis by the Housing Assistance Council.

The department’s Rural Housing Service estimates that 83 percent of current units will leave the program by 2050 without robust intervention. When a building’s mortgage is paid off or goes into foreclosure, the obligation to keep rents affordable and eligibility for additional USDA rental assistance also ends.

Harwitz said Congress should take a two-pronged approach in the farm bill to address the problem. First, Congress should authorize programs aimed at keeping USDA-backed rental properties in the 515 program and affordable for longer. That would include authorizing programs previously established through the appropriations process that allow refinancing of 515 mortgages and encourage nonprofits to purchase the properties.

“In a split Congress, particularly with Republicans being in the majority in the House, programs that are not authorized are in greater danger in appropriations,” Harwitz said. “The easiest lift with a great system impact is to authorize programs that have been funded for years, have bipartisan support and would be in danger if they are not authorized in the current Congress.” 

Decoupling USDA mortgages from rental assistance would likely face greater opposition but have the bigger impact, Harwitz said. 

“That, we would argue, would have a tremendous impact and is worth the investment because it potentially leverages an enormous amount of nonfederal resources, but in the context of the farm bill, where things that cost dollars will be the hardest,” he said. 

Smith said she hopes to decouple the two programs by adding a provision to rural housing legislation she’s drafting with Sen. Mike Rounds, R-S.D., with an aim to include it in the farm bill. Rounds declined to comment on decoupling rental assistance and USDA-subsidized mortgages. 

“What’s interesting about this legislation that we’re looking at is, it mostly is not about increasing spending, it’s about making existing programs work better,” Smith said. “This would not contribute to more expense. This would just protect people who are able to use these rental subsidies from losing them because, through no fault of their own, the place that they live is no longer covered by a USDA mortgage.”

Congress provided $70 million to subsidize construction and rehabilitation loans for 515 properties and $1.5 billion on rental assistance for those properties in fiscal 2023.

Smith and Sen. Jeanne Shaheen, D-N.H., proposed legislation in the last Congress to decouple the mortgage and rental assistance programs. The Congressional Budget Office in a 2019 analysis of a House version of the legislation said it would cost $813 million over five years but would have no effect on the deficit during that period. 

‘Really strong potential’

The Republican House majority and its concern about federal spending are adding to the pessimism about including the provisions. But the Republicans’ strength in rural constituencies as well as the dynamics of committee jurisdictions, especially in the Senate, are offsetting that somewhat. 

“It’s always going to be challenging to get authorization for new dollars just because Republicans in general tend to not be so focused on expanding resources. Especially you see that this year where so much of the conversation already around FY24 is about deep cuts to domestic programs,” said Saadian, of the National Low Income Housing Coalition. “It’s hard to imagine that there are a lot of Republicans that are eager to spend more money.”

The Agriculture panel in each chamber is in charge of writing the farm bill, while the Senate Banking Committee and the House Financial Services Committee oversee housing policy.

There is significant membership overlap on the Senate Agriculture and Banking panels. Smith, who chairs the Senate Banking Subcommittee on Housing, Transportation, and Community Development, sits on both panels, as do Senate Banking Chairman Sherrod Brown, D-Ohio, and Sens. Raphael Warnock, D-Ga., and John Fetterman, D-Pa.

“I think that whatever the challenges have been in the past, that there’s really strong potential here,” said Harwitz of the Housing Assistance Council.

Housing affordability cuts across blue and red districts, said Natalie Maxwell, managing attorney at the National Housing Law Project. 

Eighty-seven percent of counties have at least one rental property with a USDA-subsidized mortgage, according to the Housing Assistance Council. A quarter are located in six states — Republican-led Texas, Missouri and North Carolina and Democrat-led Michigan, Illinois and Minnesota, according to the Government Accountability Office.  

“The thing about the 515 programs is these properties are all over the country. They are in both Republican districts and in Democratic districts,” Maxwell said in an interview. “So it’s one of the few areas where I would really say the policy proposals that we’re talking about here really are bipartisan proposals, because people across the country are dealing with affordable housing challenges.”