Federal Policy | Analysis | Local Policy | Rural Housing | September 25, 2020

Combatting the Housing Crisis in Rural America

Written by Mike Kingsella

Reading time: 8 minutes

The housing crisis in America is not one unique to big cities on the coasts. As shown by Up for Growth’s Housing Underproduction in the U.S., nearly every corner of the country bears part of the burden for the national 7.3 million home shortage. This is true for heavily rural areas and smaller cities, too. Though challenges in small cities and rural America may be different (though not as different as you may think) from urban and quickly growing suburban communities, they are no less severe.

Up for Growth is committed to supporting a pro-housing agenda that works for communities of all sizes, in all parts of the country. Our membership not only reflects the diversity of the housing spectrum; it also reflects geographic and community diversity. This is a topic I’ve discussed in the past, including in a previous Insights Report.

For this week’s report, we asked several of our members that work primarily in rural communities or smaller cities about the housing challenges they face and the policy prescriptions that would help them the most. We interviewed John Niederman of Pathfinder Services in Huntington, Indiana, on behalf of Up for Growth member Prosperity Indiana. We also get the perspective of Josh Hanshaw of the Habitat for Humanity affiliate in Lincoln, Nebraska. Finally, Chris Hall, General Counsel and Director of Regional Initiatives for the Greater Portland (Maine) Council of Governments, was generous enough to answer our questions.

Though they represent different types of communities located hundreds of miles apart, some similarities in their experiences emerge. Niederman and Hanshaw indicated that various local, state, and federal tax incentives or programs are not currently geared to create affordable housing options in their communities. Hall shared that zoning restrictions are making it harder to build the housing needed to keep up with housing demand in Maine.

A few of the key takeaways from our conversations are below.

The appraisal gap, lack of investment in distressed communities confirm need for Neighborhood Homes Investment Act

According to Niederman, the “appraisal gap is very present in rural Indiana communities,” which makes it very difficult for “those who want to move into rural communities – the communities that want and need new families to make up for” population loss or stagnation. Niederman also notes that it is very difficult for non-profits to provide funding for rehabilitation for affordable single-family homes – a need that will only grow as foreclosures and evictions increase as a result of the economic impacts of COVID-19.

“The other impact [of the COVID-19 pandemic] could be an increase in blighted and abandoned properties,” Niederman said. “These create a tremendous strain for communities because they face the difficult (and expensive) choice of tearing them down or rehabilitating them.”

Financing for low and moderate income housing in rural communities and smaller cities is a persistent challenge. Hanshaw says that “local, state, and federal governments need to make additional resources available to nonprofit and for-profit developers that set aside housing for low-income Nebraskans.”

These observations underscore the important of passing the Neighborhood Homes Investment Act (H.R. 3316). The legislation, sponsored by Reps. Brian Higgins (D-NY) and Mike Kelly (R-PA), provides tax credits to the rehabilitation of older homes in distressed communities – up to 35% of development costs. NHIA targets low-income communities to maximize the impact of the tax credit on the areas and families that need it the most. Eligible neighborhoods must have poverty rates that are 130 percent or greater than the metro or state rate; have incomes that are 80 percent or less that area median income; and have home values that are below the metro or state median value.

The Neighborhood Homes Investment Act was included in the House-passed H.R. 2, the Moving Forward Act, which also included several other Up for Growth Action-supported legislative proposals. The Moving Forward Act has yet to receive a vote in the Senate.

All communities benefit from the YIMBY Act

Hanshaw and Hall both cited how exclusionary zoning is making it difficult for their communities to build the housing needed to accommodate current and future populations. “Zoning flexibility would be helpful in developing both single and multifamily developments,” said Hanshaw.

According to Hall, Cumberland County housing prices have risen faster than area median income. “Housing starts have not keep pace with the increasing number of households in the region,” Hall explained. “Per person occupancy of housing units has declined. And single family detached housing units continue to dominate the housing stock, both new and existing, in our region. As a result of all this we still have a housing market with more demand than supply, and less housing choice than needed, especially for middle- and lower-income households.”

Hall’s solution? “Zoning changes allowing increased housing density is essential to expanding housing choice… better integration of transit investments with land use policies focused on expanded housing choices is critical.”

Exclusionary zoning and restrictive land-use policies are two of the focus areas of the Yes In My Backyard (YIMBY) Act. Passing the YIMBY Act can spur some of the changes in housing policy that would benefit communities of all shapes and sizes.

Housing will not be solved without significant investment and financial incentives

Local, state, and federal incentives and financing options are needed to spur affordable housing development – and essential for smart economic development strategies.

“Policy makers need to recognize that economic growth cannot occur without adequate housing for all incomes; housing solutions are perhaps more important for rural communities to compete for the limited population growth occurring in Indiana,” Niederman commented.

For rural communities, a greater investment – particularly for smaller developments in rural communities – in the HOME Investment Partnerships Program would have a significant impact. Niederman also believes that subsidies for larger units under the Low Income Housing Tax Credit (LIHTC) program could be beneficial for communities like his.

At the state and local level, tax abatement and relief were cited as essential for investment in affordable housing – and expanding homeownership. “Tax abatement would be particularly effective in spurring housing development in a high-property tax state such as Nebraska,” said Hanshaw. “Lowering property taxes helps low-income homeowners actually achieve the dream of homeownership. Expanding property tax relief to nonprofit developers while the property is in the developer’s inventory would save thousands of dollars per year that could be reinvested into new or existing housing.”

These observations suggest that every level of government has a role to play in financing, or at least spurring investment in, housing that is affordable for low and moderate-income Americans.

As Up for Growth and its members work to make housing more affordable and available to everyone, we cannot forget about the rural communities and small cities that face their own unique housing challenges. Incorporating solutions focused on these areas of the country into existing proposals and programs, as well as future policy development, is essential for sound and inclusive housing policy.