[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
THE AFFORDABLE HOUSING CRISIS IN RURAL
AMERICA: ASSESSING THE FEDERAL RESPONSE
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON HOUSING,
COMMUNITY DEVELOPMENT,
AND INSURANCE
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
__________
APRIL 2, 2019
__________
Printed for the use of the Committee on Financial Services
Serial No. 116-13
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available via the World Wide Web: http://www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
37-396 PDF WASHINGTON : 2019
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HOUSE COMMITTEE ON FINANCIAL SERVICES
MAXINE WATERS, California, Chairwoman
CAROLYN B. MALONEY, New York PATRICK McHENRY, North Carolina,
NYDIA M. VELAZQUEZ, New York Ranking Member
BRAD SHERMAN, California PETER T. KING, New York
GREGORY W. MEEKS, New York FRANK D. LUCAS, Oklahoma
WM. LACY CLAY, Missouri BILL POSEY, Florida
DAVID SCOTT, Georgia BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri SEAN P. DUFFY, Wisconsin
ED PERLMUTTER, Colorado STEVE STIVERS, Ohio
JIM A. HIMES, Connecticut ANN WAGNER, Missouri
BILL FOSTER, Illinois ANDY BARR, Kentucky
JOYCE BEATTY, Ohio SCOTT TIPTON, Colorado
DENNY HECK, Washington ROGER WILLIAMS, Texas
JUAN VARGAS, California FRENCH HILL, Arkansas
JOSH GOTTHEIMER, New Jersey TOM EMMER, Minnesota
VICENTE GONZALEZ, Texas LEE M. ZELDIN, New York
AL LAWSON, Florida BARRY LOUDERMILK, Georgia
MICHAEL SAN NICOLAS, Guam ALEXANDER X. MOONEY, West Virginia
RASHIDA TLAIB, Michigan WARREN DAVIDSON, Ohio
KATIE PORTER, California TED BUDD, North Carolina
CINDY AXNE, Iowa DAVID KUSTOFF, Tennessee
SEAN CASTEN, Illinois TREY HOLLINGSWORTH, Indiana
AYANNA PRESSLEY, Massachusetts ANTHONY GONZALEZ, Ohio
BEN McADAMS, Utah JOHN ROSE, Tennessee
ALEXANDRIA OCASIO-CORTEZ, New York BRYAN STEIL, Wisconsin
JENNIFER WEXTON, Virginia LANCE GOODEN, Texas
STEPHEN F. LYNCH, Massachusetts DENVER RIGGLEMAN, Virginia
TULSI GABBARD, Hawaii
ALMA ADAMS, North Carolina
MADELEINE DEAN, Pennsylvania
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
DEAN PHILLIPS, Minnesota
Charla Ouertatani, Staff Director
Subcommittee on Housing, Community
Development, and Insurance
WM. LACY CLAY, Missouri, Chairman
NYDIA M. VELAZQUEZ, New York SEAN P. DUFFY, Wisconsin, Ranking
EMANUEL CLEAVER, Missouri Member
BRAD SHERMAN, California BLAINE LUETKEMEYER, Missouri
JOYCE BEATTY, Ohio BILL HUIZENGA, Michigan
AL GREEN, Texas SCOTT TIPTON, Colorado
VICENTE GONZALEZ, Texas LEE M. ZELDIN, New York
CAROLYN B. MALONEY, New York DAVID KUSTOFF, Tennessee
DENNY HECK, Washington ANTHONY GONZALEZ, Ohio
JUAN VARGAS, California JOHN ROSE, Tennessee
AL LAWSON, Florida BRYAN STEIL, Wisconsin
RASHIDA TLAIB, Michigan LANCE GOODEN, Texas, Vice Ranking
CINDY AXNE, Iowa Member
C O N T E N T S
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Page
Hearing held on:
April 2, 2019................................................ 1
Appendix:
April 2, 2019................................................ 27
WITNESSES
Tuesday, April 2, 2019
Anders, Gideon, Senior Attorney, National Housing Law Project.... 5
Eastwood, Tanya, President, Council for Affordable and Rural
Housing........................................................ 11
Keasling, Stan, President, National Rural Housing Coalition...... 7
Lipsetz, David, Chief Executive Officer, Housing Assistance
Council........................................................ 8
Saavedra, Andres, Senior Program Officer, Local Initiatives
Support Corporation............................................ 10
APPENDIX
Prepared statements:
Cleaver, Hon. Emanuel........................................ 28
Anders, Gideon............................................... 29
Eastwood, Tanya.............................................. 43
Keasling, Stan............................................... 56
Lipsetz, David,.............................................. 66
Saavedra, Andres............................................. 75
Additional Material Submitted for the Record
Heck, Hon. Denny:
Written responses to questions for the record from Tanya
Eastwood................................................... 80
Written responses to questions for the record from David
Lipsetz.................................................... 85
Written responses to questions for the record from Andres
Saavedra................................................... 91
THE AFFORDABLE HOUSING CRISIS
IN RURAL AMERICA: ASSESSING THE.
FEDERAL RESPONSE
----------
Tuesday, April 2, 2019
U.S. House of Representatives,
Subcommittee on Housing,
Community Development,
and Insurance,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 2:07 p.m., in
room 2128, Rayburn House Office Building, Hon. Wm. Lacy Clay
[chairman of the subcommittee] presiding.
Members present: Representatives Clay, Sherman, Gonzalez of
Texas, Maloney, Heck, Vargas, Axne; Duffy, Luetkemeyer,
Huizenga, Tipton, Zeldin, Gonzalez of Ohio, Steil, and Gooden.
Ex officio present: Representatives Waters and McHenry.
Chairman Clay. The Subcommittee on Housing, Community
Development, and Insurance will come to order. Without
objection, the Chair is authorized to declare a recess of the
subcommittee at any time. Also, without objection, members of
the full Financial Services Committee who are not members of
the subcommittee are authorized to participate in today's
hearing.
Today's hearing is entitled, ``The Affordable Housing
Crisis in Rural America: Assessing the Federal Response.'' I
now recognize myself for 5 minutes to give an opening
statement. And subsequently, we will recognize the ranking
member.
I would like to start by welcoming everyone to the first
hearing of the Subcommittee on Housing, Community Development,
and Insurance in the 116th Congress. I am honored to serve as
the Chair of the subcommittee, and I look forward to working
with Ranking Member Duffy and all of the distinguished members
of this subcommittee on both sides of the aisle. There are a
number of issues that I am hopeful that we can work on in a
bipartisan way, and rural housing is one of those issues.
Although my congressional district is not considered rural,
the State of Missouri certainly is, and in many ways is
symbolic of rural States and communities across this great
nation. And though we are not considered rural, USDA's National
Financial and Accounting Operations Center and Customer Service
Center are housed at the Goodfellow Federal Center, which is
squarely within my district.
Also, I know how critical it is to understand the distinct
housing needs of rural communities and the importance of USDA
rural housing programs in meeting those needs. Unfortunately,
there is a serious and growing crisis with regard to Section
515 Rural Rental Housing loans and Section 514 Farm Labor
Housing loans and the rental assistance contracts tied to those
loans.
As the loans mature or are prepaid, the rental assistance
terminates, leaving residents at immediate risk of
displacement. We shall hear more from our witnesses about this
problem.
Also, the foreclosure crisis has been very harmful in rural
areas, and the Missouri Farm Bureau has stated that this
Administration's tariffs are hurting soybean farmers and that
estimates are at $600 million in lost trade revenue. There has
yet to be a comprehensive strategy by the USDA or Congress to
address this crisis.
In fact, we do not even have sufficient data to fully
understand the scope of this issue. That is why I have released
a discussion draft that would be a first step towards
addressing this crisis. It would require USDA to come up with a
strategy for preservation and prevention of tenant
displacement.
It would also set up an advisory council of key
stakeholders to advise USDA on this plan. And it would require
USDA to regularly and publicly report detailed information
about these properties.
As chairman, I fully intend to ensure that the subcommittee
engages in the housing issues facing Americans. Remember, if
you ask most Americans what is their most prized possession,
persistent goal, and cherished dream, it is home ownership. And
that is why the American lexicon is filled with metaphors about
homes, housing, and the proverbial ``roof over our heads.''
My mission is to promote sound policies through smart
legislation, intelligent collaboration, and sound policy to
actually help make that dream a reality again. And I am really
looking forward to working closely with you as we fight to
reform the housing finance system to ensure that underserved
borrowers in our more challenged neighborhoods have access to
mortgages, insurance, and fair appraisals to give them a real
chance at home ownership.
I look forward to hearing from the witnesses today about
this discussion draft as well as other legislative proposals to
address this and other rural housing issues.
And at this time, I will recognize the ranking member of
the subcommittee, the gentleman from Wisconsin, Mr. Duffy, for
5 minutes.
Mr. Duffy. I want to thank Chairman Clay for hosting
today's hearing. I also look forward to working with him on
these important issues. Although he comes from a more urban
district, and I come from a rural district, he recognizes that
this is an important issue for so many Americans.
I also want to highlight to my colleagues that I am
circulating a letter that Members can sign onto that would help
fund the Multi-Family Preservation and Revitalization Program,
so I ask you to take a look at that and, hopefully, sign on.
Under Sections 514 and 515 of the U.S. Housing Act, we
created a loan program that helped provide housing options for
domestic farm laborers, low-income families, elderly persons,
and persons with disabilities in rural parts of the country.
Those loans will be maturing in the next decade.
The multifamily developers and owners of those properties
will have fulfilled their contracts and will then be able to
rent those properties as they see fit; they won't be under
contract. So, according to the GAO, there are north of 14,000
of these properties and as many as 427,000 units that could be
impacted.
According to the Housing Assistance Council's testimony, we
have 109 Section 15 properties with 2,200-plus occupied units
in my district. And by 2030, 29 of those properties with 471
occupied units will have exited the program, which will have a
real impact on our community. We also ran some numbers for the
State of Wisconsin, and we have 370 properties with over 6,500
units that would also exit the program. Again, significant.
Some of the people living in these units also participate
in the Section 521 rental assistance program in which residents
pay a maximum of 30 percent of their income towards their rent
and the government then subsidizes the rest. We also have
public housing stock that has gotten so much into a state of
disrepair that they are being demolished.
In, I think it is Cairo, Missouri, 200 families were forced
to uproot their lives and move to a different city because of
the sad state of public housing stock. A recent HUD IG report
stated that over 50 other public housing authorities have been
designated as troubled.
Housing regulations continue to hamper new development. A
study by the National Multifamily Housing Council and the
National Association of Home Builders found that regulation
from the government accounts for an average of 32.1 percent of
the multifamily development cost, 32.1 percent of the cost from
regulation. An average of 7 percent of the costs come from
building codes that have changed over the past 10 years.
Suburban sprawl has also contributed to the cost of buying
a home in rural America. If you bought your home 20 years ago
on the edge of a city, more than likely you now live in the
city. We are now seeing record low unemployment levels and yet
we still see a struggle to find housing options.
We have just highlighted some of the problems with rural
housing and it is meant to highlight that there isn't one
single solution, and I think our panel will agree on that. But
I do think we need to see what happens in the demonstration
program that was included in the appropriations bill earlier
this year.
There is a bill that is part of this hearing that would
decouple the rental assistant contracts from the multifamily
contracts and I think we should explore that further. I think
that is probably a pretty good idea. But I do have some
trepidation about other language in some of the other bills
that we will be discussing.
The most concerning for me is the language that seems to
force an owner to continue to take housing vouchers when they
are no longer under contract. That should concern us all in a
country that believes in the rule of law. I believe if you
fulfilled your contract, the government should no longer be
able to place requirements on you as an owner.
This was also mentioned in testimony from the Council for
Affordable and Rural Housing, and I fully agree, when they
said, ``They cannot support any bill that would require
obligations of a borrower in a mortgage program to follow that
owner or that property ad infinitum.'' It has a little
something to do, I think, with property rights. We should all
support those.
We should also think about incentives for owners to
continue to provide housing to our farmers, low-income,
elderly, and our disabled, and I am looking forward to hearing
from our panel on how we do that.
Maybe we should look at how we can streamline and
consolidate who is actually handling these loans. Is HUD the
most appropriate agency? We recently streamlined the family
self-sufficiency program and consolidated oversight at HUD. We
potentially could do the same here.
I think we have areas in the housing realm that we can work
on together. And I appreciate, again, Mr. Clay holding this
hearing and his willingness to work together. This is a
problem. that I think all of us recognize, and we have to work
together to resolve the problem. And I look forward to the
panel discussing the best solutions on how this Congress can
move forward to resolve this issue in rural America.
I yield back.
Chairman Clay. I thank my colleague from Wisconsin, and I
ask unanimous consent to allow 1 minute per side for additional
opening statements.
Without objection, I want to recognize the chairwoman of
the full Financial Services Committee, Ms. Waters of
California, for 1 minute.
Chairwoman Waters. Thank you very much, Chairman Clay. I
am very pleased that you are focusing on rural housing as the
first hearing held by this subcommittee. It is one of the many
housing issues that has been overlooked for far too long, and
it is an issue that I am hopeful we can work on in a bipartisan
way.
We know rural Americans are more likely to live in poverty
and are more likely to live in moderately or severely
substandard housing. The need for investment in rural housing
is clear, particularly when it comes to preservation of the
aging stock of affordable housing. But Federal investment in
rural housing programs is insufficient and the Federal response
to the growing preservation issues with USDA housing has been
wholly inadequate.
In particular, there are 400,000 families living in
properties backed by USDA Sections 515 and 514 loans who could
be at risk of displacement in the coming years if we do not
figure out a strategy for preserving these properties and
preventing displacement. These are rural families with an
average income of $13,000, the majority of whom are elderly or
disabled, and they deserve better from us in Washington.
Mr. Chairman, the Housing Subcommittee today is taking an
important step towards creating the conditions for a broadly-
shared American renaissance, both in rural areas and urban
areas. Thank you for holding this hearing, and I look forward
to hearing from the witnesses.
Chairman Clay. Thank you so much.
Chairwoman Waters. I yield back.
Chairman Clay. I now recognize the ranking member of the
full Financial Services Committee, Mr. McHenry from North
Carolina, for 1 minute.
Mr. McHenry. Well, thank you, Chairman Clay, and thank you
for having this as your first subcommittee hearing.
I thank the ranking member of the subcommittee as well for
his leadership in this policy area.
I would like to highlight an important point of this
discussion on rural housing. As we look at this issue, we have
to be aware of housing shortages generally in rural areas,
particularly for families living below the poverty line. But it
doesn't stop there. Middle- and lower-middle-income families
also are experiencing housing shortages in rural areas.
For example, there is a shortage of workforce housing in
rural areas. This is an issue of concern in my district, in my
State, and across the United States. And industries are
questioning whether or not they can even locate in rural areas
because of this shortfall in housing. So, as we look at
solutions, I would also raise this as part of a comprehensive
approach to rural housing.
I thank you all for being here on the panel, and I think
the chairman and the ranking member of the subcommittee.
Chairman Clay. Thank you.
Today, we welcome the testimony of Gideon Anders, senior
attorney of the National Housing Law Project; Stan Keasling,
president of the National Rural Housing Coalition; David
Lipsetz, CEO of the Housing Assistance Council; Andres
Saavedra, senior program officer of the Local Initiatives
Support Corporation; and Tanya Eastwood, president of the
Council for Affordable and Rural Housing.
Witnesses are reminded that your oral testimony will be
limited to 5 minutes. And without objection, your written
statements will be made a part of the record.
Mr. Anders, you are now recognized for 5 minutes to give an
oral presentation of your testimony.
STATEMENT OF GIDEON ANDERS, SENIOR ATTORNEY, NATIONAL HOUSING
LAW PROJECT
Mr. Anders. Thank you, Mr. Chairman, and Ranking Member
Duffy.
I am Gideon Anders, a senior attorney with the National
Housing Law Project (NHLP) and I am honored to have this
opportunity to present this brief overview of the 14-page
statement that we have submitted to the subcommittee.
In the 50 years that the National Housing Law Project has
been operating, we have advanced the housing rights and
interests of low- and very-low-income households through policy
advocacy, litigation, technical assistance, and training. My
tenure at NHLP has focused exclusively on the Rural Housing
Service (RHS) housing programs, which are the subject of
today's hearing.
Let me start by urging the subcommittee to hold oversight
hearings on RHS's administration of the rental housing
prepayment process and of the voucher program. The Emergency
Low-Income Housing and Preservation Act of 1987, commonly known
as ELIHPA, was intended to preserve RD rental housing and
protect its residents from displacement. RD is simply not
meeting either one of these objectives because it is not
following ELIHPA. It is allowing many prepayments in clear
violation of the Act.
It is also not running the voucher program consistent with
ELIHPA. It allows owners to raise rents after prepayments and
tells residents that vouchers are the only way that they can be
protected, even when a prepayment is subject to use
restrictions. This is wrong.
ELIHPA use restrictions were intended to protect residents
against displacement. Vouchers were intended to protect
residents when use restrictions were not made a condition of
the prepayment. We estimate that about 60 percent of the
residents receiving vouchers don't need them. RD's practice is
encouraging prepayments.
Over 545,000 units of housing have been financed subsidized
by 515 and the 514, 16 programs at a substantial multibillion-
dollar Federal investment. Unfortunately, over 100,000 of these
units have already been lost. By 2050, the entire RHS housing
stock will be gone.
NHLP supports the draft bills that are before you because
they address the RHS prepayment and maturing mortgage crisis.
First, we endorse the proposal to decouple the rental
assistance subsidy from the RD loan programs when mortgages
mature. It will give RHS authority to continue to subsidize the
housing after the loans are paid off. HUD has been doing this
for years and the GAO recently recommended that RHS do the same
thing.
The additional cost of the program will average only about
$15 million for the first 5 years. Yes, it will cost more after
2028 when a large number of RD properties mature, but there is
no better way to protect residents in RD rental housing and
preserve the investment that has been made in rural housing and
communities.
No one that I have talked to has suggested an alternative.
What do we do? Do we simply abandon 413,000 housing units and
allow for the displacement of mostly elderly persons who occupy
these units? I say no.
Second, rental assistance contracts should be extended from
their current one-year term to a 20-year term that is subject
to annual appropriations. This will enable owners to secure
private and tax credit financing to rehabilitate an aging
inventory. HUD does it under the Project-Based Section 8
Program and it works there.
Third, until a decoupling program is in place, eligibility
for RD vouchers must be extended to cover residents and
developments with maturing mortgages and residents of famer
labor housing. Moreover, the program should be made permanent
and allow RD to adjust voucher subsidies to meet increased
rents and respond to changes in household income or size. This
will not increase the program cost if RHS stops issuing
vouchers to people who don't need them.
Fourth, RD must formulate and adopt the plan--as you
suggested, Mr. Chairman--for preserving its housing stock. A
draft bill before you proposes that and requires RD to present
it to Congress and to report annually and measure the successes
or failures that the agency has made in meeting that plan.
Fifth, we also support Representative Panetta's bills to
permit nonprofit sponsors of famer labor housing to access low-
income housing tax credit programs, and a bill that requires
the voucher program to be subject to the Violence Against Women
Act.
Chairman Clay. Mr. Anders, your 5 minutes has expired.
Mr. Anders. Thank you.
[The prepared statement of Mr. Anders can be found on page
29 of the appendix,]
Chairman Clay. Mr. Keasling, please observe the 5-minute
rule. You may proceed.
STATEMENT OF STAN KEASLING, PRESIDENT, NATIONAL RURAL HOUSING
COALITION
Mr. Keasling. Thank you, Mr. Chairman. My name is Stan
Keasling. I am president of the National Rural Housing
Coalition and it is a pleasure to be here to testify before you
today. I am also the CEO of the Rural Community Assistance
Corporation, which is a nonprofit working across the western
United States to support the development of rural communities
and the sustaining of rural communities.
Rural America is in need of more housing. The declining
investment in the renovation of existing housing and in the
construction of new homes in our small towns has had a critical
impact on housing in rural America.
The census data shows that, between 1999 and 2008, the
average annual production of new single-family homes in non-
metro areas totaled 221,000 units. In the last 10 years, that
same number was only 68,000 units, a two-thirds reduction in
the amount of new housing being constructed in rural America.
In addition, of the 25 million units located in rural and
small communities, over 5 percent, or 1.5 million units, are
considered to be either moderately or severely substandard. As
a result, in many rural communities, economic growth is impeded
not by the lack of jobs but by the lack of housing where
workers can live.
USDA's Rural Housing Programs also provide much-needed
access to affordable rental housing. Today, approximately
422,000 units exist in the Section 515 portfolio. The average
age of that portfolio is now 34 years and, as a result, the
increasing costs of preserving that portfolio continue to rise
with an estimated 20-year replacement and repair cost today of
over $5.6 billion.
For these reasons, we urge you to reject the
Administration's Fiscal Year 2020 budget proposal and to reject
the staff reductions that are included in that budget proposal.
The proposal to reduce staffing by 25 percent again this year
is just unacceptable, and we hope that you will not move
forward in accepting that budget.
We also think that it is important to provide and support
the single-family housing programs of USDA, both the Section
502 Direct Loan Program in addition to the guarantee program
and the Self-Help Housing Program. Combined, 502 Direct and
Self-Help Housing provide housing opportunities for the lowest-
income families in rural America and an opportunity to live the
American dream and to obtain home ownership.
Renovating and preserving the existing stock of rental
housing financed by USDA and the rising tide of maturing
mortgages documented by HAC research is a dual challenge for
USDA. It is important to note that extending or deferring an
existing loan through the MPR program or providing a subsequent
loan through 514 and 515 has the added and important benefit of
making it possible to extend rental assistance throughout the
loan term.
For this reason, we support a substantial appropriation of
$75 million for the MPR program and $200 million for the
Section 515 loan program. We support efforts included in
Chairwoman Waters' and Chairman Clay's proposal to encourage
the transfer of properties to nonprofit owners that will keep
the properties affordable for their useful life. We support the
chairman's draft bill, the Strategy and Investment in Rural
Housing Preservation Act, to provide incentives to owners to
keep their properties affordable for the long term.
We think that the demand for farmworker housing in rural
America is significant and requires additional contributions.
In Texas, the shortfall is over 28,000 units today. We support
Congressman Panetta's bill to modernize and make USDA decision-
making more transparent on farmworker housing under Sections
514 and 516.
We also support Representative Gonzalez's bill to include
rural housing vouchers as a covered program under VAWA. We also
support current funding levels for small grant programs like
RCDI and REDI, both of which are critical. Thank you.
[The prepared statement of Mr. Keasling can be found on
page 56 of the appendix.]
Chairman Clay. Thank you.
Mr. Lipsetz, you are recognized for 5 minutes
STATEMENT OF DAVID LIPSETZ, CHIEF EXECUTIVE OFFICER, HOUSING
ASSISTANCE COUNCIL
Mr. Lipsetz. Chairman Clay, Ranking Member Duffy, Mr.
Luetkemeyer, and members of the subcommittee, it gives me great
hope that the subcommittee's first hearing in the 116th
Congress calls us together to assess the Federal response to a
housing crisis in rural America, our small towns and rural
regions.
My name is David Lipsetz. I am the CEO of the Housing
Assistance Council, often referred to here as HAC. HAC is a
nonprofit intermediary, founded in 1971, that works in all 50
States to build and sustain local housing and community
development organizations. We provide technical assistance and
training, information and research, and below-market financing
as a certified community development financial institution.
For policymakers like yourselves and the public, HAC is
often referred to as the information backbone for rural
America. We remain independent and strictly nonpartisan, and
regularly respond to congressional committees and member
offices that want to know how a program or policy impacts
America's smallest towns. We stand ready to help you, providing
research and information, and are honored to be here today in
that capacity.
My colleagues are presenting extraordinary detail on USDA's
programs, so let me pull back for a moment and talk about the
broader context in which housing exists. It is no secret that
in recent decades public policy and private markets have pushed
opportunity and wealth to a select number of metropolitan
regions, mainly along our coasts.
This consolidation has stripped many rural regions of their
economic engines, financial establishments, and anchor
institutions. It has forced a generation of rural kids to seek
opportunity elsewhere. Small towns, frontier communities, and
rural regions stretch across every State and nearly every
congressional district in America. And it is in these places
where you are going to find, if you take a good look, the more
persistent and deepest poverty our nation faces.
You asked us here today to assess the Federal response to a
rural housing crisis. I suggest to you the response has been
modest at best and the Federal policy may actually be a driver
of parts of rural America's decline.
To cite but one example, the mortgage interest deduction is
the nation's largest housing program. It is not a subsidy
program, it is not a rental housing program. Mortgage interest
deduction is the nation's largest housing program and provides
six times more subsidy than all other affordable rental housing
programs provide combined.
I am not here to argue whether the deduction is good or bad
policy, only to point out that less than 10 percent of rural
home owners can take advantage of this program. And the vast
majority, the estimated $46 billion in subsidy we put to this
deduction, go to suburban and urban households. Repeat that
imbalance over the several generations in which we have had a
mortgage interest deduction in place and Federal policy's
response has given cities and suburbs a trillion-dollar head
start toward prosperity.
One issue that demands our immediate attention today
involves the young families, singles, elderly, and disabled in
small towns who are most likely to rent an apartment and least
likely to be served by private market housing. Congress
addressed this market failure several decades ago with USDA
Section 515 Rural Rental Housing.
The program generated more than 540,000 privately-owned
apartments that are affordable to low-income renters. The
remaining 400,000-plus apartments are at risk of aging out of
this system, as you have heard from my colleagues.
HAC produced the most detailed report on this topic to-
date, which shows there are 1,800 units to mature every single
year for the next 8 years. Following that, we are going to
enter an era in which nearly 16,000 apartments in the rural
areas that you represent will disappear from the program.
The good news is that we know what to do to address
persistent poverty and reinvigorate communities. The power of
capacity building and access to capital cannot be overstated.
For capacity-building housing and urban development programs,
such as Section 4, Continuum of Care and others are helping us
solve problems that are predominantly urban and suburban. We
can do the same for rural communities.
In conclusion, we are a stronger and more cohesive nation
when all of us are productive, when all of us have the basic
necessities to contribute to the success of the whole. Reform
to our housing programs and most especially to our housing
finance system will address these needs.
Thank you for your time. I look forward to answering your
questions.
[The prepared statement of Mr. Lipsetz can be found on page
66 of the appendix.]
Chairman Clay. Thank you.
The Chair recognizes Mr. Saavedra for 5 minutes.
STATEMENT OF ANDRES SAAVEDRA, SENIOR PROGRAM OFFICER, LOCAL
INITIATIVES SUPPORT CORPORATION
Mr. Saavedra. Chairman Clay, Ranking Member Duffy, and
members of the subcommittee, my name is Andy Saavedra, and I am
a senior program officer with the Local Initiatives Support
Corporation's Rural LISC Program. Established in 1979, LISC is
a national nonprofit housing and community development
organization that is dedicated to helping community residents
transform distressed neighborhoods into healthy and sustainable
communities of choice and opportunity.
In 1995, LISC launched Rural LISC, a national program
created to expand LISC's reach beyond urban areas to include
rural communities. Today, Rural LISC partners with 87 rural
community-based organizations in more than 2,000 counties
across 44 States.
Thank you for the opportunity to testify today on
affordable rural housing. I have spent my entire career
supporting nonprofit affordable housing organizations, working
to improve rural housing conditions for the poor, including 14
years living and working in the Mississippi Delta region.
Eighty-five percent of persistently poor communities, those
with 20 percent of the population being at or below the poverty
level for 3 decades, are in rural areas with geographic
concentrations in Central Appalachia, the Mississippi Delta,
Border Colonias, Native American lands, and southeastern
communities. LISC works with community-based organizations and
we have seen how resources can rebuild communities when they
have sufficient capacity and resources.
Two of the most important Federal capacity-building tools
are the USDA Rural Community Development Initiative, and the
HUD Section 4 Capacity Building for Community Development and
Affordable Housing program.
For example, Lake Region Community Developers of Laconia,
New Hampshire, used Section 4 to build their capacity to build
Gilford Village Knolls, an affordable senior rental housing
development, which is the first multifamily building in New
Hampshire to be passive house certified for energy efficiency.
Tunica County CDC used RCDI funds to help develop Cypress
Manor Subdivision in Tunica, Mississippi. Groups like that are
often the only groups in rural communities working to improve
housing conditions and modest capacity-building investments
from the Federal Government can achieve transformational
results.
HUD and the U.S. Department of the Treasury also administer
other important affordable housing and community development
programs benefiting low-income rural communities through CDBG
and HOME. Many public housing and HUD-financed and assisted
properties are in rural communities. Treasury administers the
low-income housing tax credit, which is the largest rental
housing finance subsidy source. Around 22 percent of all
exiting LIHTC-financed projects are in rural communities.
Lastly, Treasury's Community Development Financial
Institutions Fund, CDFI, administers important programs for
nonprofit developers and mission-based lenders, such as the
Capital Magnet Fund, which provides resources for production
and preservation of affordable single-family and rental
housing.
On rental housing preservation, LISC has helped preserve
515 housing and understands the complexity of closing those
transactions. An example of this is in Garrett County,
Maryland, where Garrett County Community Action Committee
renovated two aging 515 elderly projects along with new
construction to provide 90 units of affordable housing for
seniors in western Maryland. There is a great need to develop
legislative solutions to improve rural housing conditions and
help USDA address 515 preservation challenges.
LISC supports Representative Clay's legislation, which
would direct USDA to submit a plan for preserving their rural
rental housing stock, create an advisory committee to inform
the department on rural preservation, and provide the public
the needed data on the characteristics of the portfolio. This
data will help LISC and other stakeholders better identify
preservation opportunities and inform future legislative and
policy recommendations around this important issue.
We support Congressman Panetta's legislation to align USDA
farmworker housing programs with the low-income housing tax
credit amongst other important reforms. LISC supports
Representative Gonzalez's proposal to include the Section 542
voucher program as a covered program under the Violence Against
Women Act (VAWA) and proposals to broaden voucher assistance to
tenants in properties with maturing USDA mortgages. Those bills
provide sorely needed tenant protections.
We also support proposals to test out new models for
preserving USDA rental housing stock and believe USDA should
receive additional resources for existing programs that help
preserve USDA-financed rental housing legislation, including
515 and multifamily preservation program.
Affordable housing needs on Native American lands are some
of the most important and severe in the country and the
toughest to solve. In 2018, USDA announced a 502 relending
pilot program to help families living on tribal lands in South
Dakota and North Dakota receive a home mortgage. LISC is
working to assist--
Chairman Clay. Your 5 minutes has expired, Mr. Saavedra.
[The prepared statement of Mr. Saavedra can be found on
page 75 of the appendix.]
Chairman Clay. At this time, we will recognize Ms.
Eastwood for 5 minutes.
STATEMENT OF TANYA EASTWOOD, PRESIDENT, COUNCIL FOR AFFORDABLE
AND RURAL HOUSING
Ms. Eastwood. Thank you. Good afternoon, Chairman Clay,
Ranking Member Duffy, and members of the subcommittee.
I am Tanya Eastwood, the chairman of the board and the past
president of the Council for Affordable and Rural Housing, more
commonly known as CARH.
For those of you who are not familiar with us, we are a
national industry trade association, representing the
professional interests of both for-profit and nonprofit owners,
operators, developers, builders, and other suppliers of the
affordable housing industry, but specifically those focused in
the rural communities.
I am also the current Chair of Fannie Mae's Rural Duty to
Serve Advisory Council. And for the past 14 years, I have had
the honor to serve as the president and CEO of Greystone's
Affordable Development division based out of Raleigh, North
Carolina. While Greystone is primarily an FHA and agency
lender, my team's focus is primarily on affordable housing
development, specifically with the preservation of Section 515
properties.
In fact, Greystone consistently ranks as a top rural
affordable developer in the country and we have preserved over
13,000 Section 515 units in multiple States. And we currently
have about another 3,500 units that are underway. I appreciate
the opportunity to speak before you today with our firsthand
real-world experience, recognizing RD's preservation policies,
what works, areas of efficiencies and improvements that are
needed, as well as some of the current challenges that we face.
It is important to note that both CARH and Greystone have
excellent relationships with RD's national teams, and we are
very pleased with some of the recent process improvements and
commitments that we are now seeing. But collectively, we all
must do more as, indeed, affordable housing is in crisis and
affordable rural housing is an absolute necessity. We see rural
renters are more than twice as likely to live in substandard
housing compared to people who own their own homes.
In many communities, the Section 515 housing is the only
safe and decent and affordable housing option in those
communities, and 515 communities have already started to
drastically decline since the program's inception.
Specifically, according to RD's most recent report that was
just published a month or so ago, there are now just over
375,000 remaining 515 properties down from its peak of 533,000.
I mean, stop and think about that for a minute. Thirty
percent of the housing that was originally constructed using
515 financing is no longer in the program. I just find that
staggering. And to compound the issue, RD confirms that they
have not financed any new properties in the rural community
since 2011. That is 8 years with no new housing.
And to compound the issue even further, maturing mortgages
have now become the most pressing issue of our time. According
to that same published report by RD in February, almost 10,000
units, 10,000 homes of the most vulnerable populations, were
removed from the program in the past 2 years alone. As you have
heard today already, that loss is projected to only climb
annually until the program is effectively eliminated in 2050,
unless something changes.
You know, most celebrate when a mortgage is prepaid or
paid-off. But when a 515 mortgage ends, whether through either
prepayment or maturity, the associated project-based assistance
that supports those low-income residents also ends. This
necessity exposes these residents to higher market rents, or
worse, the project is converted to another use altogether,
eliminating the housing.
But neither the private nor the public sector can produce
or preserve affordable rural housing independently of each
other. This must be a partnership so that the housing and the
infrastructure needs of rural America can successfully be met.
CARH members believe there are several areas within the rural
housing arena that Congress and the Administration should
consider as priorities in order to chart a better course.
For starters, we strongly support decoupling of the Section
521 Rental Assistance for mortgages upon prepayment as well as
termination and maturity. Second, we recommend that Congress
adequately fund specific preservation RA as well as give clear
direction to RD to use it for that purpose.
We encourage Congress to modernize the 4 percent housing
credit and we would also like Congress to instruct RD to allow
income averaging, as included in the recent Tax Cuts and Jobs
Act. And finally, we request tax relief for older properties
and older owners that never caught up after the 1986 Tax Reform
Act so that they can sell and preserve these properties without
a large exit tax bill, avoiding the alternative of holding onto
the aging asset until they die.
The current draft legislation proposals presented with this
hearing certainly are a great start, but with some strongly
recommended modifications. I thank you for the opportunity
today, and I welcome any questions that you may have.
[The prepared statement of Ms. Eastwood can be found on
page 43 of the appendix.]
Chairman Clay. Thank you, Ms. Eastwood, and the entire
panel for your testimony. We will now enter into the Q&A
segment of this hearing, and I will begin by recognizing myself
for 5 minutes.
This first question is to all of the witnesses, or any of
you can chime in. While we have some data on the maturation and
prepayment of Section 515 and 514 mortgages so far and in the
coming year, there are still several unanswered questions in
terms of the scope of this issue.
For example, the effect that this has had on tenants so far
is unclear. Has USDA adequately shared information with owners
and the industry about properties nearing mortgage maturity and
options available to preserve affordability? We will start with
Mr. Anders and move down.
Has USDA adequately shared information with--
Mr. Anders. No. The short answer is no.
Chairman Clay. Okay.
Mr. Anders. We do not know exactly the extent to which
various State offices are dealing with maturing mortgages. We
do not know how many mortgages are being extended. We don't
know how many rental assistance contracts are being extended.
And I think we need to ask RD to provide that information.
Chairman Clay. Anyone else?
So, Mr. Anders, it means that they need to be more
transparent?
Mr. Anders. Yes.
Chairman Clay. They need to be more upfront to the owners
and the stakeholders in this process?
Mr. Anders. Definitely. Generally, to the public, yes.
Chairman Clay. Mr. Keasling?
Mr. Keasling. Not to disagree with my friend, Gideon, but
I am not sure that the department actually knows the answer
themselves. And much of the information is stored at the State
offices and is not easily collected and reported out. So,
obviously, they could use better processes.
Chairman Clay. Let me ask, the National Housing Law
Project has sued the USDA, alleging that it is violating
existing statutes that place certain restrictions on owners
seeking to prepay their Section 515 or 514 loans and thereby
accelerating the loss of affordable housing in rural areas.
Specifically, USDA appears to be incentivizing owners to
prepay their loans by offering rural development vouchers to
residents who should be protected by use restriction. Would you
walk us through your concerns with USDA's actions?
Mr. Anders. Sure. The problem is that RD, at least
currently because of, I believe, staff changes, does not
understand the interplay between ELIHPA and the Rural
Development Voucher Program. And what they are doing is,
whenever an owner asks permission to prepay a loan, they are
telling the owners and they are also telling the residents that
the project can be prepaid and, yes, they will put use
restrictions on the project, however, ``We will provide all of
the residents in the development with vouchers.''
The use restrictions, which were adopted by ELIHPA, were
supposed to protect residents without their requiring any
vouchers. That was a disincentive that Congress put into the
Emergency Low-Income Housing and Preservation Act of 1987 so
that owners would have to calculate the rents of residents
after prepayment the same way that they were calculated before.
And what RD is doing now is basically providing vouchers to
owners and it is basically telling the owners, you can convert
the housing from subsidized housing to nonsubsidized housing
while you get a cashflow from the vouchers that you are going
to get, which you wouldn't have gotten under the ELIHPA
program. And that is how it is encouraging prepayments.
It is also not properly evaluating whether prepayments will
have a major impact on minority housing opportunities. The
agency has to then take into position that instead of looking
at the impact of minority housing opportunities, we will look
at whether or not the impact is disproportionate, and that is a
different standard than looking simply at the impact upon low-
income minority residents.
And in doing so, what I have seen is the State offices are
saying, ``No, there is no disproportional standard because all
of the residents are being displaced.'' Or, ``No, there is no
disproportional standard because they are all going to get
vouchers.'' That was not the intent of the Emergency Low-Income
Housing and Preservation Act.
Chairman Clay. And, Mr. Anders, it sounds as though that
contributes to the number of lost units--
Mr. Anders. It definitely does.
Chairman Clay. Also by incentivizing it through the--
Mr. Anders. Yes. In fact--
Chairman Clay. Thank you.
Mr. Anders. In one of the cases we are involved in, in
Oregon, we challenged the RD decision because they made the
wrong decision. And after we challenged them, they immediately
went back and came up with a new decision.
In the first decision, they said, ``We will allow the owner
to prepay subject to use restrictions.'' After going back and
looking at the data, they went back and said, ``No. We will not
allow the owner to prepay. We will require the owner to market
the property to nonprofit and public agencies.''
Chairman Clay. Thank you, Mr. Anders, for your--my time
has expired.
I recognize the ranking member of the subcommittee for 5
minutes.
Mr. Duffy. I appreciate the chairman for yielding.
To the panel, is the Rural Housing Service a well-run
agency? Mr. Anders? And we will go down the line.
Mr. Lipsetz. Mr. Duffy, I am happy to address that in that
I, at one point, was the Associate Administrator of the Rural
Housing Service. It is an organization that does tremendous
work with very few resources. If we are going to have something
that functions well, we need to pay for it. We need to pay for
the systems and the staff to be able to do it.
And the reason why we have a significant amount of staff
and some very challenging systems issues at Rural Housing
Service is because the model for delivering affordable housing
in nonfunctioning markets where we cannot get private market
debt on these properties in a way that serves the community,
necessitates government intervention.
There aren't many places where we would make that argument.
But in this case, where you have credit elsewhere issues, we
would suggest that you will need that much staff, and more, to
get the job done.
Mr. Duffy. I appreciate the rationale, but you are
somewhat skirting the issue. You tell me why it maybe doesn't
work well. You don't have the money, you don't have the
resources. By the way you have answered the question, you are
ceding the point that it does not work well, whatever the
reason might be. I mean, the staff, the money, the skillset.
Fair enough? It doesn't work well right now?
Mr. Anders. It has been set up to fail by the funding
levels that it gets.
Mr. Duffy. And I just want to make--does anyone disagree
with that, that it doesn't work well?
Mr. Saavedra. May I?
Mr. Duffy. Yes.
Mr. Saavedra. I will say this about USDA as somebody who
lived in a small town of 7,000 people and worked with the USDA
and HUD. My old boss used to say HUD works critically, but HUD
works with programs, whereas USDA works with people.
I mean, having USDA staff locally, regionally, was very
important in terms of me doing my work, whereas my HUD field
office at the time was in Shreveport and couldn't really do
that much for me. So, structurally, there are good people out
there doing some good work, some criticisms aside. It is a
gray--
Mr. Duffy. I really meant that question to be a quick
answer and I appreciate the insight that you all gave me.
[laughter]
And I guess the point is, we all agree there is a problem.
I notice we have a problem on our hands or on our horizon. And
I guess my point is, before we dump more money to fix the
problem, we have to probably fix the agency that is going to be
responsible for fixing the problem, right?
Fix the agency or decide who is going to fix the problem
and make sure it is well-functioning and then put money into
it. Would anyone disagree with that assessment? No one is
telling me I should put money in first and then say, okay, how
do I make the agency function well? No disagreement?
Mr. Lipsetz. Sure. I would fundamentally disagree that, if
you are going to get a car to drive faster on really old tires,
one of the first things you should do is replace the tires.
Mr. Duffy. Right. But I am not talking about investing--we
are talking about a lot of units that are about to expire.
Before I give you money ans say, how do I fix that, I should
make sure the agency works well. We are talking about two
different silos of money.
Mr. Lipsetz. And one of the ways in which I think you fix
it--because this program has been an extraordinary private
market, public partnership. And these are private owners. And
to keep private owners in the program, incentivize them to stay
in. There is not a market incentive right now to do so.
Mr. Duffy. I get that, but I guess my point is, if we are
going to put--this is going to take dollars and I want to put
money into a program that I know is--an agency that I know is
going to work. And if we need to have a conversation about how
we make the agency work better or who should be responsible for
administering these dollars, that is a conversation I am
willing to have.
But you are going to find it hard-pressed to get me to put
a lot of money into an agency that doesn't have a great track
record thus far. And you might give me reasons why it doesn't
have a good track record, but that is one concern I have
upfront.
I only have 40 seconds left. I want to get to some of the
bills that have come up. Does anybody--
Okay. Does anybody have the viewpoint that we should force
owners into extending their contracts after those contracts
legally expire?
Ms. Eastwood. Quite the--
Mr. Duffy. Ms. Eastwood?
Ms. Eastwood. Quite the opposite. I think that is punitive
for the owners that they have done their--they have kept their
commitment based on the contract that they entered into 20, 30
years ago. They have honored those commitments and should have
the right to then have their property rights returned to them.
Mr. Duffy. Does--
Ms. Eastwood. Are there things that we can do to
incentivize them to stay in the program and to continue under
those restrictions? Absolutely. But straight-out continuing
just in exchange for vouchers, no.
Mr. Duffy. Does anybody disagree with that?
Mr. Anders. Well, I don't believe any of the bills that
are in front of you require owners to extend their contracts.
All of the proposals before you are voluntary.
Mr. Duffy. You don't disagree with the concept, though?
Because I think that the problem becomes if you enter into an
agreement with the government and you don't want the government
at some point to later change that agreement, and I think that
would be a prohibitor of--
Mr. Anders. Yes. But none of the proposals that are before
you, in fact, encourage--
Mr. Duffy. And does everyone agree that we should decouple
the rental assistance contracts from the multifamily contracts?
Is that a good thought process for us?
Ms. Eastwood. Absolutely.
Mr. Anders. I definitely believe so, yes. I think it is
the only way in which--
Mr. Duffy. Does anyone disagree? If I could just for one--
this is a space that we have to deal with, and we all know we
have to spend some money here. But to get your best advice as
we go through the process would be welcome. We have great minds
and a willingness in the Congress to make this work. And thank
you for your testimony and insight today.
Chairman Clay. All right. I thank the gentleman from
Wisconsin. It sounds like it is an area we are going to work
together on.
Mr. Duffy. I hope so.
Chairman Clay. Yes. I recognize the gentleman from Texas,
Mr. Gonzalez, for 5 minutes.
Mr. Gonzalez of Texas. Thank you, Mr. Chairman. And I
would like to thank the panel for being here on such an
important issue that is impacting America.
An astounding 92 percent of homeless women have experienced
severe physical or sexual violence while almost 50 percent of
all homeless women report that domestic violence was the
immediate cause of their homelessness. Additionally, upwards of
25 percent of women in rural areas live more than 40 miles from
programs that can provide that type of assistance.
I want to, first of all, take the time to thank
Congresswoman Wagner and Congresswoman Sylvia Garcia and
Congressman Trey Hollingsworth for their support and hard work
on the VAWA Protections for Rural Women Act of 2019.
Unfortunately, the Rural Housing Voucher Program was not
originally included under the VAWA, leaving individuals holding
these vouchers extremely vulnerable to homelessness, and
without help that might be available in other settings.
This legislation is designed to fill the gap in housing
support for rural victims. All other rural housing programs are
currently included as covered housing programs under VAWA,
programs such as HUD's rental assistance programs and low-
income housing tax credit programs.
My first question is for the panel at mass, if anyone
thinks that applying the Rural Housing Voucher to VAWA
Protection is a bad idea. Well, that is good to hear.
[laughter]
Mr. Anders. Mr. Gonzalez, I believe it was simply an
oversight because the voucher program is not technically
authorized by the Housing Act of 1949. It was authorized, at
least the way it is operating now, under an Appropriations Act.
And I think it was an oversight and I clearly believe that it
should be extended.
I should also point out that right now RD is using HUD
documents, which, in fact, enforced VAWA in the context of the
voucher program.
Mr. Gonzalez of Texas. Thank you.
Mr. Anders. It is a question of continuing it.
Mr. Gonzalez of Texas. Mr. Anders, can you tell me how
VAWA and housing programs intersect?
Mr. Anders. Sure. There are some people who are much more
expert than I am in that. But basically what happens is there
are questions of what happens when you have women who are
victims of domestic violence, or men for that matter, that
there are ways of allowing them to move to another unit, that
they get away from the person who is an abuser, allowing them
to break their leases, and various protections which allow the
person to take advantage of all the protections that are
included in VAWA.
Mr. Gonzalez of Texas. Thank you. And what kind of
challenges have you seen in rural areas that are more
pronounced or different than challenges that you face in urban
settings?
Mr. Anders. I, unfortunately, do not have any experience
in it. And I could get back to you with one of my colleagues
who really works in the area more so than I do.
Mr. Gonzalez of Texas. Perfect. Thank you. I yield back.
Chairman Clay. The gentleman has yielded back. And I
recognize the gentleman from Missouri, Mr. Luetkemeyer, for 5
minutes.
Mr. Luetkemeyer. Thank you, Mr. Chairman. I come from a
rural area. My town is 336 people when you count the dogs,
cats, and pregnant ladies twice.
[laughter]
So, I think I can qualify as somebody who probably
understands what you are talking about when you are talking
about rural housing. So, just to try and talk about--I think,
Ms. Eastwood, you were talking a while ago in your testimony
about something with regards to incentivizing the property
owners to extend. I take it that when you say you are losing
units these people are not extending their contracts or not
continuing to rent to individuals that normally they would be
renting to. Is that correct?
Ms. Eastwood. That is right. One of the main challenges is
really getting our arms around what is happening with these
units is really the complexity of the data. It is not just as
simple as the mortgage maturing. And those units--
Mr. Luetkemeyer. So, these units are not being torn down?
Ms. Eastwood. They are not being torn down.
Mr. Luetkemeyer. The owner is continuing to rent them, but
not necessarily to people who--is he throwing all the folks out
or is he continuing to rent sometimes to the people who have
been renting previously?
Ms. Eastwood. In most cases, the housing stays, and it has
continued to rent. But then those residents who have rental
assistance are exposed to their rents going up to market rent.
There are maybe situations where communities used to be rural
that are now no longer rural, that that owner may decide that
that use is better for some other purpose other than housing.
Mr. Luetkemeyer. Okay. So, how do you want to incent folks
to continue in the program?
Mr. Anders. Most owners, I think, that go into affordable
housing go in for the mission, right? But it has has to make
financial sense. And so, these properties are old, and they
need to be rehabbed. And really the main tool in today's
environment to do that is the Low-Income Housing Tax Credit.
That is really tough in the rural communities. They can't
compete very well QAPs. They score very well. So, how do you go
about doing that? And if there are things like the preservation
RA that has been discussed in some of the proposals. If there
are ways that you can incentivize that. Funding the MPR program
at $75 million is critical.
We do a lot of preservation and there are owners and
investors who are very motivated to keep the housing, but they
have to make financial sense. And I think our biggest barrier
is just the resources to do just that.
Mr. Luetkemeyer. One of the statistics that was on the
screen a while ago was that there is 16.4 percent rural
poverty, which is 3 percent greater than urban poverty. In one
of the testimonies I think I saw, or maybe it was on the screen
here a minute ago, that one in four in the rural area, 50
percent or more are paid their income in rental assistance.
What is the number for urban? Do any of you know off the
top of your head? Does that compete? Is that similar? So, one
in four people pay 50 percent or more of their income on rent.
Is that roughly the same in urban areas as well or is it higher
in--don't know? Okay. That is fine.
Let me talk a little bit about something a little bit
different, but I think it has an impact here. How many of you
have heard of Current Expected Credit Losses (CECL), sort of a
new accounting standard called CECL? Okay. I hope you get up to
speed on it because this is what it is about.
It is about anybody who lends in the home mortgage space--
in fact, it affects credit card companies and securities
companies as well--to have on their balance sheet a better
reflection of the risk in their mortgage portfolio. And you are
asked to reserve more money. As a result of that, you are
probably going to see the people in the financial services
industry have to put more money into reserves, which means they
are going to have to probably charge more.
For instance, the GSEs, we are working with them right now.
They have a $5 trillion portfolio. If they have to put a whole
lot more money in their portfolio, that means they are going to
have to raise the guarantee fees in order to be able to afford
to do that, which means people are going to have to pay more
for their loans.
When that happens, home builders, if you look on our
website when they had the--in this committee, we had testimony
back in December, every thousand dollars increase in home in
the cost of a loan means 100,000 people no longer have access
to credit. That is kind of a dramatic effect whether it is in
urban areas, suburbs, or whether it is in rural areas.
So, you all need to be aware that this is coming. Maybe
work with your financing folks. Understand they are going to
have to--understand how to reserve for this because it can have
a dramatic effect on what you are doing. And when you get done
with your studies, please let me know because I need to have
some numbers for me to be able to do this.
Mr. Keasling, I have 20 seconds left here. But you said
from, I guess, earlier in the early 2000s, we had 221,000 homes
that were purchased or built. And in the 10 years after the
crash, we had 68. Was that all due to the recession or is that
just normal ebb and flow of the cycle?
Mr. Keasling. Well, I think it is too dramatic just to be
the normal ebb and flow. And actually, both of those numbers
were the average production for the 10-year span. So, the
average before the crash was 221,000. The average after the
crash for 10 years was 68,000. And it is just a very dramatic
reduction, I think, in access to credit. And the challenges
that rural communities have in being able to--
Mr. Luetkemeyer. Okay. Perfect. Thank you. I yield back.
Chairman Clay. The gentleman yields back. I recognize the
gentlewoman from Iowa, Mrs. Axne, for 5 minutes.
Mrs. Axne. Thank you, Mr. Chairman, and thank you to the
witnesses for being here today. I appreciate it. I was looking
through some of the Section 515 and Section 514 properties in
Iowa and noticed that very few of them had been built in the
last 25 years. In fact, none since, I believe, 2011. And that
over the next 15 years, Iowa is projected to lose more than
2,500 units, or approximately 40 percent of this housing.
Mr. Lipsetz, in particular, do you think the lack of new
construction in rural areas is causing some of the population
declines that we are seeing in particular rural areas?
Mr. Lipsetz. Thank you. That is an excellent question.
Anecdotally, yes, in that a driver of household formation is
the quality of house and the amenities it is surrounded by. And
absent a new stock or vibrant stock, you are going to see a
younger generation leave without those things. That is
anecdotally around household formation. Our numbers look very
similar to what you described for loss of property in Iowa.
Mrs. Axne. Thank you. And to follow-up on that, I am sure
you are probably aware of our recent flooding that we have had
in Iowa. And my district was hurt the worst as a result of
that. We have towns that are irreparable at this point. They
are completely underwater.
And of course, we have been working hard to get FEMA there
and get people moved into temporary rental areas. But to follow
up on this, I know that FEMA makes use of local rental housing
after disasters. And my question is, do you think a shortage of
affordable rural housing makes it more difficult for areas
experiencing disaster to recover? And if so, is that
exacerbating our problem of our rural communities, you know,
quite honestly, being left behind and people moving to urban
areas?
Mr. Lipsetz. Again, an excellent question. I do note that
the way in which disaster recovery occurs usually is focused on
an urban center and deploying FEMA forces to that center and
distributing the two different kinds of assistance. And often
times you will find the outlying areas without the capacity,
without the infrastructure to be able to respond to FEMA
recovery or any of the Stafford Fund distribution and delivery.
And that is, to us, an issue that runs across many
different programs or disaster and other things like that, that
if you don't take the time to build the capacity of local
organizations to be able to address disaster or the rural
rental housing crisis or anything of those things, then you are
not going to have boots on the ground to be able to respond in
the time of real need.
Mrs. Axne. Thank you. Mr. Keasling, a question for you. I
was wondering if we could talk a little bit more about the
Administration's plans for the rural housing programs. And
considering that 2 million rural households pay over 50 percent
of their income in rent, and all of the testimony we have heard
today leads us to understand that, do you believe that it is
appropriate for the Trump Administration's budgets to have
proposed drastic cuts, as much as 25 percent, to the staff of
the Rural Housing Service?
Mr. Keasling. So, definitely, we do not support that and
think that it will have an extremely adverse effect on the
delivery of the programs. There is also a shift that is
happening between the allocation of staff in the State offices
and in the local area offices to national office functions, and
that is also further exacerbating the problem.
So, the combination of the cuts and the redirection of
staff is just--I think it is a huge problem that is going to
make correcting the agency and helping the agency to get a
handle on all the problems that it is trying to deal with even
more difficult.
Mrs. Axne. Thank you. And as a member of the House
Agriculture Committee as well, I just want to let you all know
I am looking forward to engaging more with Secretary Perdue to
ensure that the programs that we are discussing here today are
implemented and that our rural areas have access to the housing
that they need. Thank you.
I yield my time back, Mr. Chairman.
Chairman Clay. Thank you. I now recognize the gentleman
from Ohio, Mr. Gonzalez, for 5 minutes.
Mr. Gonzalez of Ohio. Thank you, Mr. Chairman, for holding
this hearing and for recognizing us. Thank you to the witnesses
for all the time that you put into today's hearing. I have the
privilege of representing Ohio's 16th Congressional District.
And as part of that, I have one of my favorite counties in the
world, which is Wayne County. And Wayne is home of J.M.
Smucker's and is our most rural county.
One of the things that we have been talking about with
local elected officials is precisely rural housing shortages
and homelessness in Wayne County. Kind of building off of the
ranking member's questions earlier, I want to start by
basically trying to think through how efficiently we are
managing our dollar and, quite frankly, whether the USDA is
even the right place for RHS.
So, I will start with a statement, which is that the 2018
fiscal year budget for RHS was $244 million out of a $22.5
billion total, so roughly 1 percent of the USDA's total budget.
When you hear that, Mr. Lipsetz, in particular, you
mentioned, hey, we are not funded well. And I hear you, but at
the same time I wonder, if we are only spending 1 percent of
the budget, how big of a priority is this inside of the USDA in
your estimation?
Mr. Lipsetz. As an Ohio native myself, it is great to see
you here. And in direct answer to your question, I not only
worked at USDA, I was at HUD for awhile. And I may be one of
the only people in the room, or maybe the city, who has had
those two distinct experiences.
And what I might suggest that it taught me is you grapple
with fundamentally different policy issues in the two places.
That understanding the function of a rural market is
significantly different than what you need to do as a
policymaker to provide housing in an urban market and a
suburban market.
We are a suburban nation, right? We have a population where
52 percent of America now lives in suburban environments. We
are pulling folks out of rural places to populate that. And if
you expect to be able to function in a rural market with what
is left, you need a different delivery model than HUD has.
HUD has--I am sure someone could help me here--7,000 or
8,000 staff. Rural Development has nearly 5,000.
Mr. Gonzalez of Ohio. But they are not working, though,
right? I mean, that is the--
Mr. Lipsetz. They work very differently.
Mr. Gonzalez of Ohio. I don't mean to interrupt, but I
guess my challenge is, I think we have all kind of come to the
realization that RHS--and again, thank you for your work, this
is not a criticism of your work or anybody's work. But it is
just not working the way that it needs to. The programs aren't
delivering the way that they need to.
And I guess in my head, I think one of the biggest problems
we have in this town is we have a million programs for a
million different things, and they are all well-intentioned. I
think folks generally are all trying to do the best that they
can. But when you have so much duplication, I am just concerned
that we are--I hear you. They are different markets.
But if you understand urban housing, surely you could
develop inside of HUD a similar expertise. Although, you are
suggesting no, so.
Mr. Lipsetz. Yes. I mean, it is the Housing and Urban
Development Department to its core.
Mr. Gonzalez of Ohio. Yes.
Mr. Lipsetz. And what I would suggest is that we think
about moving HUD programs over to USDA or at least use the USDA
model. Look, when we talk about efficiencies, we are also
putting consolidation in front of competition.
I am a market person who appreciates the way in which we
have to have private finance in the delivery of our housing
system. If we are consolidating for efficiency and efficiency
alone, the competition and the way to drive resources to
different types of geographies is going to exist in several
different places in our big company, the Federal Government.
Mr. Anders. Mr. Gonzalez?
Mr. Gonzalez of Ohio. Yes. Go ahead.
Mr. Anders. If I can just--
Mr. Gonzalez of Ohio. I am curious for this. I want to--
yes. So, anybody, please.
Mr. Anders. Personally, I believe that if you move the RD
programs over to HUD, they are going to be basically stopped.
Mr. Gonzalez of Ohio. But isn't that what is happening
now?
Mr. Anders. HUD does not have the capacity to deal
directly with borrowers. It has never done that, with one
exception, which is the 202 Program. It deals with
intermediaries in every case. RD does not do that. And it has a
totally different outlook in terms of how you serve rural
communities than does HUD.
The RD offices at one time had 1,800 offices throughout the
nation. Unfortunately, that has been cut to about 700, so that
has to deal with the staffing issue. And if you keep cutting
the staffing issues, yes, the agency's going to centralize and
it is not going to be serving as well as it has in the past.
Chairman Clay. The gentleman from Ohio's time has expired.
We now go to the gentleman from California, Mr. Sherman.
You are recognized for 5 minutes.
Mr. Sherman. Why, thank you. I want to focus on the role
that manufactured housing can play in providing housing to
rural Americans. I am told 22 million people live in
manufactured housing in our country. That the average price is
under $72,000, without the land of course. Some 76 percent of
manufactured homes are titled as personal property. Two-thirds
of the manufactured homes are in rural areas, hence the reason
I am focusing on that here in this hearing. And that 75 percent
of all new homes sold for under $150,000 are manufactured
housing.
Now, we have the Section 502 program. The question is, why
doesn't 502 support chattel financing, which is the method most
often used for mobile homes? And so, I will ask Ms. Eastwood to
comment on this and then we will see if anybody else wants to
comment.
Ms. Eastwood. So, we primarily focus on the multifamily
side, not on the single-family side.
Mr. Sherman. Okay. We will see if anybody else is--
Mr. Keasling. I would like to stick my foot in that water.
[laughter]
It seems to me that it is even more important that we not
have mobile homes--manufactured housing financed as chattel.
That, in fact, figuring out ways--I mean, the housing is most
durable if it is on a permanent foundation. And if you put it
on a permanent foundation, then you can get a conventional
mortgage. So, there are real advantages, it seems to me, to
constructing it and placing it in places in that--
Mr. Sherman. But, at least in my district, the tendency is
for the owner of the manufactured housing not to own the land.
You rent the land. That is not all that different from being a
homeowner subject to a community association that you have to
pay money to every month. In fact, some homeowners'
associations charge more than you sometimes pay to accommodate
a mobile home.
Now, I know that there are two pilot projects under Section
502: one that is exclusively for those who own a fee simple
interest in the underlying real estate; and the second pilot
project allows homes in a land-lease community, that is to say
chattel. Are any of the witnesses familiar with these two pilot
programs?
Mr. Keasling. I thought that the second model was actually
for resident-owned cooperatives where basically, the residents
of the mobile home owned, in common, the land. And therefore,
the tenant had the ability to place their home on a permanent
foundation again, which allows them to finance without--
Mr. Sherman. You are still, under the second program, a
chattel mortgage because the individual homeowner doesn't own
and fee simple the underlying real estate. But I gather from
your testimony that what we need to be focusing on here is that
permanent foundation. How expensive is it to attach a home to a
permanent foundation?
Mr. Keasling. Well, it is somewhat more expensive than to
leave it on just blocks or piers. But, as I say, I think the
long-term costs are a substantial advantage to placing it on
that permanent foundation. The second thing that I would say
is--
Mr. Sherman. Yes. But I will point out there are some
situations where you may want to move the home. Especially if
there is an oil boom or something in a particular town,
construction boom, that may only employ you there for a couple
of years. So, there will be times when you don't want the
permanent foundation but times when you do.
In either way, we need a program that will allow you the
flexibility to either have it not on a permanent foundation, on
a permanent foundation but you don't own the land, or on a
permanent foundation and you do own the land. With that, my
time has expired now.
Chairman Clay. I thank the gentleman for his observance of
time.
Let me now go to the gentleman from Colorado, Mr. Tipton.
You are recognized for 5 minutes.
Mr. Tipton. Thank you, Mr. Chairman, and I thank the panel
for taking the time to be here. Sorry. I had to step out for
another committee meeting.
But I just wanted to bring up something that we are facing
currently in Colorado in my district. We have been becoming
keenly aware that there is a need for affordable housing,
particularly in our smaller communities. And I believe that is
true across the country.
And when I talked to some of the housing advocates back at
home, a theme that comes up often is the need to be able to
provide affordable housing for growing senior populations. In
Colorado, as an example, the population of folks who are age 65
and over is projected to increase by a little better than half
a million by the year 2030.
Many of these people will, obviously, need to be able to
have affordable housing and they are going to be seeking it
out, probably, in some of the rural areas, simply because of
the costs in the urbans areas, seek out more affordable
housing, and it is just a dollar amount that they are going to
have to try and address.
Also, we have seen evidence in Colorado that people who are
nearing retirement age are also going to have a real difference
in terms of the amount that they have saved, and we are seeing
the same problem with Baby Boomers as well when it comes to
having resources as the population does age.
When we talk about national initiatives on housing, like
the ones that are being advanced by our colleagues across the
aisle, we ought to be able to make sure that we are taking into
account the needs of rural Americans as well and also taking
into account that for senior citizen populations who will need
affordable housing.
So, I have a general question that maybe each one of you on
the panel would like to address: What are some of the
challenges that communities are going to face in providing that
affordable housing for seniors in rural places, especially as
that demographic continues to grow?
Mr. Anders, would you have some short comments on that?
Mr. Anders. Sure. You have to realize that the 515 program
is currently serving-- over 60 percent of the residents of 515
housing are elderly people or people with disabilities. And the
real problem has been that Congress has basically starved the
515 program. In 1994, the program was funded at about $1
billion annually. It is currently being funded at about $35
million, and that is a major problem.
Congress has actually dealt with it in the 202 program
recently, where it has pumped more money into the 202 program
for the first time in years. It put about $105 million into the
program in the last 2 years. It has not done the same thing for
the 515 program, and that needs to be done at this point.
Mr. Tipton. Great.
Mr. Anders. The appropriations for the program just need
to grow.
Mr. Tipton. Okay. Any other comments on that?
Mr. Keasling. I would just say that the program needs
those appropriations in order to build new housing. And new
housing is definitely a need in rural areas, and that is the
only way you are going to respond. And frankly, the 515 program
is a very cost-effective way of doing that.
Ms. Eastwood. And I would echo that. With the aging
population in places, like he said, 67 percent are the elderly.
And to get new construction, new development that is out there,
you know, the numbers have to work. And the 515 program, it is
very hard to compete in today's financial environment with that
1 percent, you know, 50-year AM.
And those smaller communities that we are talking about
here today, there are smaller properties that are being built,
so you don't get those economies of scale. And so, to attract
that, you have have toget either favorable financing of some
form or fashion. And it is starving.
On the deals that we do, we spend an average of about $1.1
million of new debt, and these are all in recapitalization
reservations. So, on a a program that is currently only being
funded at $40 million, I mean, you do the math. It is not going
very far at all.
Mr. Tipton. Well, Ms. Eastwood, that kind of brings up a
question in regards to some of the multifamily properties in
Rural Housing Service, should we retain all of those? Are there
some we shouldn't retain? What are you thoughts on--
Ms. Eastwood. There are some that are ready to come out of
the program. There is either alternate housing, they are now in
the suburban areas. There is some that the market has--it is no
longer needed, you know? The area has dried up, the out-
migration has certainly happened. But I say that is more the
abnormal. There is certainly a built-up need for housing in
these rural markets and we are just not meeting that need with
the supply.
From the homeowners back in the day--people are going from
home ownership into rentals. There are demographic changes
where people are not buying their first home as early as they
did back in prior generations. So, that pressure, even with
out-migration, is putting a strain on the housing options that
are available in these communities.
Mr. Tipton. Great. Thank you.
My time has expired, Mr. Chairman. I appreciate it.
Chairman Clay. Yes. Thank you. And let me thank all of the
witnesses for your testimony today. You have certainly shared
what the possibilities are to this subcommittee and really
educated me on some of the aspects of rural housing that I was
not aware of, so I appreciate that. And hopefully, we can
hammer out something that is beneficial to the rural community
in this country.
The Chair notes that some Members may have additional
questions for this panel, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
This hearing is adjourned.
[Whereupon, at 3:33 p.m., the hearing was adjourned.]
A P P E N D I X
April 2, 2019
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