Thank you for the opportunity to submit testimony to the Subcommittee on affordable housing production, and thank you, Chairman Reed, for holding this important hearing. My name is Bill Picotte, and I am executive Director of Oti Kaga, Inc., a nonprofit housing development organization located on and serving the Cheyenne River Reservation in north central South Dakota. I also am President of the Board of Directors of the Housing Assistance Council (HAC), a national nonprofit group working to create more affordable housing throughout rural America. (1) My testimony focuses on housing production in rural and nonmetropolitan areas.
First let me say something about our own situation in South Dakota. That will set a context for my comments on the national scene. The family poverty rate for the Cheyenne River Sioux Indian Reservation is 40.9 percent, compared to 11.6 percent statewide and 10.0 percent nationally. Median family income for the reservation is $15,797, compared to $27,602 statewide and $35,225 nationally. Per capita median income for the reservation is $6,405, compared to $10,661 statewide, and $14,420 nationally. Yes, those are median incomes, something that may be difficult to grasp in a major metro area where the median household income is $50,000 or higher. The homeownership rate for Cheyenne River is 51.6 percent, compared to 66.1 percent statewide, and 67 percent nationally. The Cheyenne River Housing Authority's Indian Housing Plan currently documents a need for 1,747 housing units, including 1,104 new rental units, 309 new homeownership units, and supportive services, student, transitional, homeless, elderly and essential personnel housing.
These statistics demonstrate the extreme poverty and housing need faced by our residents. To help alleviate some of these conditions, Oti Kaga has undertaken development of both single-family and multi-family housing; loan-packaging services for Rural Development programs; a loan program; and housing counseling services. Essentially we are engaged in affordable housing production, the focus of today's hearing.
Founded in 1995, Oti Kaga views housing development as a fundamental approach to improving economic conditions on the Cheyenne River Reservation, in Indian country generally, and in all of rural America. We have used numerous production programs including Low Income Housing Tax Credits; the USDA Rural Housing Service's Section 502, 504, and 515 programs; the HUD Section 184 and HOME Programs; the Affordable Housing Program of the Federal Home Loan Bank; and aid from the Enterprise Foundation, Fannie Mae and other sources. To help with production, we have also established two loan funds. One provides small loans to our Section 502 and 504 applicants for credit check fees, appraisal fees, and other costs associated with applying for these programs. Then our Homeownership Assistance Program (HAP) Loan Fund provides loans to Section 502 and 184 loan applicants for down payment and closing cost assistance. Oti Kaga also provides loan-packaging services for the Section 502 and 504 programs through our "Increasing Access to Rural Development Programs" project, which is funded by USDA and the Housing Assistance Council. And we offer credit counseling and homebuyer education.
HOUSING CONDITIONS AND NEED IN RURAL AMERICA (2)
Production of new units is not the only way of meeting housing need, but it is an essential tool, especially in rural areas. The level of need is shown in data from the 2001 American Housing Survey, as compiled and analyzed by the Housing Assistance Council. For most of the 20th century, substandard quality was the primary housing problem in rural areas. But today sharply higher and increasing housing costs have made affordability rather than poor conditions the major problem in rural housing, especially for low-income people. While housing costs are lower in nonmetro areas than in cities, incomes are also lower. As a result, many rural households find it difficult to meet basic housing expenses. Among the 23 million nonmetro households, approximately 5.5 million, or 24 percent, pay more than 30 percent of their monthly incomes for housing costs and are considered cost-burdened. Of these nonmetro cost-burdened households, more than 2.4 million pay more than half their incomes toward housing costs.
Most cost-burdened households have low incomes, and a disproportionate number are renters. In fact, renters are 35 percent of nonmetro cost-burdened households while they comprise less than one-quarter of all nonmetro households. Research by the National Low Income Housing Coalition, supported in part by the Housing Assistance Council, shows that nowhere in the United States can a household afford a two-bedroom apartment at the fair market rent with income at the federal minimum wage. Even in very rural places, minimum wage incomes place fair market rents out of reach.
There have been many gains in rural housing quality, largely because of federal programs. But substandard housing still exists in the United States, especially in rural areas and central cities. The frequency of housing inadequacy among nonmetro units is slightly higher than for all housing units. Approximately 1.6 million, or 6.9 percent, of nonmetro units are considered either moderately or severely inadequate. Fully 12 percent of low-income households in nonmetro areas live in physically inadequate housing, and poor housing conditions are disproportionally more common among renters and minority households than among owners and whites.
Federal housing assistance has played an important role in the production of low- and moderate-income rural housing since the mid-1930s. Yet, according to a methodology developed by the Housing Assistance Council, only 7 percent of nonmetro households receive some type of federal or other publicly-supported housing assistance. (3) One little known but successful production approach is that of the USDA Rural Housing Service (formerly the Farmers Home Administra-tion). After having successfully produced over 3 million units since 1950, the USDA rural hous-ing programs have been sharply reduced in recent years. (See the chart below.) The role and impact of these programs in production has been dramatically transformed. A primary example is USDA's Section 515 rural rental housing program, which serves the poorest households.
In fiscal year 1994, Section 515 funded 11,542 units of affordable rural rental housing, but in FY 2001 the program funded only 1,621 units -- an 86 percent reduction. The larger Section 502 single-family loan program has also seen deep cuts. These programs need to be maintained and restored.
Making the rental shortfall worse is the fact that much of the current subsidized rental housing stock is at risk of loss. Many owners of rental developments with subsidized mortgages from USDA or HUD are seeking to opt out of the subsidy programs by prepaying their mortgages and converting their apartments to market rate rentals. Likewise, landlords can opt out of HUD's Section 8 rental assistance program in search of higher rents and fewer government regulations.
Several federal housing programs have also been affected by a shift in emphasis to indirect subsidies such as loan guarantees and tax incentives. One significant result of these policies has been a reduction in the number of lower-income households served. The USDA Section 502 homeownership loan program has recently shifted its emphasis from direct loans to loan guarantees. In FY 2000 just 3 percent of Section 502 guaranteed loans served very low-income households as opposed to 44 percent of the program's direct loans.
HUD programs are also very important to affordable housing production in rural America. The CDBG and HOME programs are vital. And let me cite one much smaller HUD initiative that was created by the U. S. Senate. This is the HUD Rural Housing and Economic Development program, which this year has a $25 million appropriation. Oti Kaga has competed for and won three RHED grants, which help local nonprofits with both bricks-and-mortar gap funding and capacity building dollars. The funds are highly competitive and go directly to community groups. The Bush administration has twice proposed eliminating this program, but the Congress - led by the Senate VA-HUD appropriators including Senators Bond and Johnson - has wisely rejected that approach. Doubling the program money to $50 million would be a much better idea.
STRATEGIES AND LEGISLATIVE IDEAS
A number of production strategies and proposals are appropriate. Increasing funding for the current RHS programs - and for HUD programs serving rural areas - is vital (as the Millennial Housing Commission recommends (4)). But there are also other very worthy ideas for new legislation. They include:
Rural rental housing may face the biggest crisis. To help meet the crisis restoration of the USDA Section 515 program is key. The Housing Assistance Council has estimated that $100 million is required to cover the development of at least one new Section 515 project in each state. Neces-sary portfolio maintenance requires approximately $50 million per year. A minimum of $25 million is needed for equity loans to owners who wish to prepay. In short, $175 million would cover minimal essential activities under Section 515. We believe the program should be funded at $550 million, and suggest that Congress begin by appropriating $350 million for FY 2003.
Production of new units will not solve all rural housing problems. For rural Americans who can find decent existing homes, financial aid to make costs affordable may be the best solution; for others, affordable existing homes can be made decent with more rehabilitation funding. But for millions of rural residents with limited incomes, those solutions are simply not available. On Cheyenne River we need production of at least 1,700 new homes. Vouchers will not help, since we do not have many liveable empty units waiting to be rented or bought. We need production. Rural America needs production. Additional units of decent, affordable housing are very much needed, and federal funding is essential to make new production happen. Thank you very much.
Oti Kaga Projects developed to date include the following:
A four-unit renovation project developed with Rural Development Section 502 funds.
Elk View Homes
A ten-unit single family, detached, lease/purchase project developed with LIHTC, Indian HOME and Affordable Housing Program funds. Construction was completed in late 1998.
South Main Apartments
A twenty-unit multi-family housing project developed with LIHTC, Rural Development Sec. 515 (including 100 percent rental assistance), and Affordable Housing Program funds. Construction was completed in November 1999.
A sixteen-unit multi-family housing project developed with LIHTC, Rural Development Sec. 515 (including 100 percent rental assistance), and Affordable Housing Program funds. Construction was completed in February 2002.
A fifteen-unit multi-family housing project developed with LIHTC, Rural Development Sec. 515 (including 100 percent rental assistance). Construction is scheduled for completion in December 2002.
1. HAC has just published an issue of its magazine, Rural Voices, that is devoted to rural housing production. The
issue and other information on rural housing are available on HAC's web site, www.ruralhome.org.
2.Portions of this and the following sections are drawn from Lance George, "Why Rural America Needs Affordable Rural Housing," Rural Voices, Summer 2002.
3. The number of rental households receiving assistance is estimated from those households who report their income as part of their rental lease, pay a lower rent because the government is paying part of the cost of the unit, or
live in a building owned by a public housing authority. These estimates include federal, state and local government
assistance. Data on government subsidized owners in the AHS are limited. The number of homeowners who
receive public mortgage assistance is estimated from those households who indicate they obtained a mortgage
through a state or local government program that provides lower cost mortgages or have a primary mortgage from
the USDA Rural Housing Service. This methodology is assumed to provide an underestimate of the number of
4.See Millennial Housing Commission, Meeting Our Nation's Housing Challenges, May 30, 2002, p. 71.
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