USDA Section 515 program

Rural Rental Affordability in Minnesota

Based on Research by Ryan Allen, Susan Bergmann and Max Geitz

March 9, 2023

Section 515 = Rural Rental Affordability

Like urban areas in the U.S., rural areas currently face a housing affordability crisis. Approximately 27% of rural or small-town households, a total of 6.9 million people, are considered “cost-burdened”, paying more than 30% of their monthly income on housing costs.

A woman with orange hair wearing a red shirt and blue pants holds a large sign that says, "27% of rural or small-town households pay more than 30% of their income on housing"

A variety of federal programs provide affordable housing in non-metropolitan areas of the U.S. One such program is the Section 515 program, a housing program overseen by the Rural Development division of the USDA.

This program offers low-interest loans for building multifamily rental housing for very low (50% AMI), low (80%AMI), and moderate-income ($5,500 more than 80% AMI) households.

In return for low cost financing, borrowers of Section 515 loans are restricted in the amount of rent they can charge tenants, making the program important for rural rental affordability.

As of 2020, Midwest Section 515 properties accounted for 8.6% of the total number of Section 515 properties in the U.S. and 6.2% of the total number of housing units in the Section 515 program.

Jump to Interactive maps

In 2020 there were nearly 50,000 subsidized housing units in Minnesota outside of the Twin Cities metropolitan area, with Section 515 housing units accounting for almost 19% of that figure.

In 48 of 80 MN Counties, Section 515 accounts for more than 20% of all subsidized housing.

Click on the map to see the number of affordable units within each county.

Section 515 properties are required to maintain affordability restrictions for the life of the loan, 50 years, but may exit the program and revert to market rate rents after this time.

Click the play button to see the units that exist within the program during each time period.

According to the Housing Assistance Council (HAC) , as of 2022, Minnesota and other Midwestern states lead the nation in the number of properties already exiting the 515 program.

These losses are set to accelerate.

The peak of mortgage maturations for Section 515 properties in the Midwest is occurring in 2030, about 10 years before the peak in mortgage maturations occurs for the U.S. overall.

In the Midwest region, Section 515 properties are more likely to be used by seniors, with over 40 percent of Midwestern Section 515 projects designated for seniors compared to one-third of Section 515 projects in the U.S.

A large, light blue window with blue curtains surrounds text that reads, "More than 40% of midwest Section 515 projects are designated for seniors compared to 33% of Section 515 projects in the U.S." Standing in front of the window is a man with tan skin and brown hair, wearing glasses and a red, collared shirt putting his hands on an elderly woman with gray curly hair wearing a yellow sweater.

If this situation is not addressed, some of the most vulnerable low-income households in rural areas of the Midwest may experience increased rent and, potentially, displacement.

A man with brown hair, tan skin, wearing a blue button up shirt scratching his head. Above his head is a large speech bubble with the text, "If you have some of these small communities where there's only a couple multifamily properties and one [Section 515 property]...exits the program and converts to market rate, it's a concern. - Section 515 Housing Consultant"

Many Section 515 properties require significant amounts of capital investments because of their age and existing deferred maintenance related to insufficient capital reserves.

A woman with black, short hair and tan skin wearing a light red cardigan and a dark red shirt has her hand on her hip. Above her head is a speech bubble with text that says, "We're just going into this assuming that the properties are old and that they need...pretty significant repairs. - Government Official"

Long-term preservation of 515 properties may depend on increased ownership by non-profits and HRA’s. To increase ownership by these entities, the ownership process should be simplified and funding should be expanded.

Now is the critical time for action that will prevent critical harm to MN’s rural communities.