Volume 16, Number 1 – February 2019

What to Do About the Rural Housing Crisis?

In recent years, a good chunk of my consulting practice has brought me to rural communities around the US.  I love this work, and seeing these interesting and beautiful places is one of the most rewarding parts of my job.  But, I also get a close-hand look at emerging economic development challenges that may not yet be on the radar screens of folks elsewhere in the country.   I want to tackle one of these emerging challenges—rural housing—in this issue of EntreWorks Insights. I am no expert on this topic, but I am regularly hearing about housing as a big impediment to economic and workforce development in smaller communities.  As such, I’ve started to educate myself on what’s happening, and I’ll share some of my early—and still developing—thoughts here.  My purpose is not to offer my own unique “solution” to the problem, but to hopefully spark more discussions about what we can and should be doing to provide more and better housing in rural communities.

Issues of housing affordability and availability are reaching a crisis point in many communities across the US.  Places like Seattle and the Bay Area get a lot of attention for their high housing costs, but housing problems are emerging everywhere today.  And, the pressures in rural America are especially intense.  Let’s dig deeper.

Housing markets are affected by three factors:  demand, supply, and affordability.  Rural America is challenged on all three fronts.  Despite the fact that urban growth is outpacing rural growth, demand for rural housing has increased in recent years.   Some rural areas, such as the North Dakota’s Bakken Shale region, saw massive jumps in population.  Other regions grew more slowly, slowly pushing up demand for new housing.   Today, the economic recovery means that many regions, especially in the Great Plains and Mountain West, need to new housing for new workers in-migrating for open jobs.

As demand has grown, supply has stagnated.  A number of causes are at work. Rural populations are older, and older rural residents often age in place.  Overall in-migration and out-migration rates are also lower.  As a result, there is limited churn in rural housing markets. 

Rural housing supply is further constrained by two other factors:  declining quality of existing housing stock and higher construction costs in rural areas. The maintenance backlog on existing residence is large.  Federal sources estimate that nearly 6% of rural homes are substandard.  Higher relative construction costs also create barriers to new construction and aggressive maintenance.   A recent University of Minnesota study found that labor shortages, increased labor costs, and higher material costs have deterred developers from building new housing in rural regions.  Finally, declines in federal rural housing programs further exacerbate this situation.

Affordability is affected by the decline in federal funding for rural housing, and is of course worsened by rising poverty in rural regions.   A recent Urban Institute analysis of rural housing challenges finds, not surprisingly, that America’s poorest regions, such as the Mississippi Delta and border regions in Texas, also have the most pressing housing affordability problems.  

As these pressures have built up, the impacts of housing challenges are affecting multiple groups in rural regions.  Certainly, impoverished families and those in precarious economic conditions continue to pay the price, spending limited funds on increasingly pricy substandard housing. Meanwhile, community economic development prospects are also at risk as states and regions seeking to attract new workers and new residents have no place to house them.  Consider a few snapshots.  In New Hampshire,   the rental vacancy rate is 1.96% and median rental costs have jumped 20% in five years.  Without new housing, the state can’t attract and retain new workers.  Nebraska and other Midwest states face similar pressures.  For example, in Platte County, NE, it is estimated that there are 990 unfilled jobs.   Yet, there are only 65 homes available on the market.  The math just won’t add up.

These housing challenges continue to wrack impoverished rural regions, while also limiting the growth options for communities that have open jobs and business opportunities.  The crisis further hurts rural regions as they cannot benefit from the economic stimulus that comes from the construction of new housing.   These impacts are sizable.  For example, a recent study in Colorado found that home building accounted for 3.4% of gross state product.  

We need a new look at how we support housing development across the board—in urban, suburban, and rural settings.  As noted in this essay, rural regions face many challenges, but they are not alone.  Addressing the rural housing crisis will require a mix of solutions, and here are a few ideas that deserve more attention. 

• Increase Public Funds for Housing.  It’s unavoidable that we’ll need more money to address current housing challenges.  HUD and USDA programs fund a large share of affordable workforce housing in rural America, and they are not doing enough to address the problem.  It’s been estimated that USDA could face a $5.6 billion shortfall in capital needs for its current portfolio of properties by 2024. This gap must be closed.
• Develop New Incentives for Rural Housing Development:   High construction costs and less well-heeled customers mean that rural housing developers face something of a “market failure.”  Their returns from building rural workforce housing may be insufficient, encouraging continued focus on urban regions or in building higher-end housing.   The range of potential incentive options is large, and should include creation of new state and local funding pools, tapping into existing programs like CDFIs or Opportunity Zones, and better utilization of other incentives such as the Community Reinvestment Act and the Duty to Serve program focused on Fannie Mae and Freddie Mac-backed mortgages in rural markets.
• Promote New Kinds of Housing in Rural Regions:   Owner-occupied single-family homes remain the norm in most rural places.  These traditions don’t need to change, but we do need to think about other kinds of housing options for rural regions.  New kinds of housing for seniors could be especially important—not only to provide better and safer living options for seniors, but to also open more existing housing stock for new residents and families.  Similarly, an expanded commitment to increased manufactured housing production is needed.  These types of units fill an important niche, and are a critical part of the rural housing mix.  There is lots of great work underway in this sector.  Check out the I’M HOME Network for one example.

As we continue much-needed public conversations about how to build a more prosperous America for all citizens, we must not forget that housing needs to be a key part of these conversations—not just in high cost gentrifying urban areas but in rural regions as well.  This is smart policy for economic mobility and for economic development as well. 

What’s New at EntreWorks Consulting?

We’re gearing up for a busy and interesting year in 2019.  We continue with long-standing projects for current clients, such as the Pentagon’s Office of Economic Adjustment and the National Association of Counties, and we’ve just kicked off a new strategic planning effort for Pennsylvania’s Local Development Districts. 

You’ll also be able to find Erik Pages of EntreWorks Consulting as he hits the road for various speaking engagements in early 2019.  These include upcoming talks and training programs such as:

• Shepherdstown, WV:  Training for the Conservation Fund
• Arlington, VA:  Training for the National Association of Development Organizations
• Reading, PA:  Presentation to the Greater Reading Chamber Alliance
• Florence, AL: Presentation to Shoals Shift.

We hope to see you on the road!  We also continue to provide more regular news and updates at the EntreWorks blog at http://entreworks.net/blog.  Recent posts have discussed the gig economy, the role of public libraries, and other timely issues of the day. You can also access blog updates at our Facebook and LinkedIn pages.