Searching For Affordable Homes in the Country

July 01, 2002
By  Linda D Fischer

Life in rural America has its ups and downs just like any place else. And, just like any place else, finding a good place to live at an affordable price is a challenge.

Experts on rural housing gathered recently at the 2002 Governor's Conference on Housing in Missouri to discuss the special challenges facing potential homebuyers and developers in the country.

"Lack of affordable housing is a major problem in rural cities," said Mark Stalsworth of the Missouri Housing Development Commission. "Development costs can be quite high in rural areas, sometimes higher than in urban areas."

One reason for the higher cost is a scarcity of contractors, Stalsworth said. Contractors go where they can find the combination of work and high wages, and that's in cities.

Joseph Bayer, president of First Integrity Mortgage Services in St. Louis, agreed.

"Labor is an issue," he said. "Where will you get labor if you're going to build from the ground up? In urban areas, you have contractors who have a labor force in place. In rural areas, you have contractors who build two or three homes a year and who do not have a labor pool to call on."

Another problem in country communities is a lack of planning and zoning, said Becky Eftink, rural housing specialist with USDA/Rural Development in Missouri. In very rural areas, there may not even be an infrastructure such as sewer and water lines.

Credit problems and "payment shock" also can keep low- to moderate-income people in the country from becoming successful homeowners, she said. "For instance, a young couple may go from a $300 a month rent to $1,000 a month house payment, and they don't have the experience to handle it."

What can communities do to lessen the problems?

Eftink suggested working with technical schools to build a work force for the housing industry. In addition, those in the industry could create job "shadowing" programs to spark interest among young people about careers in homebuilding. However, Stalsworth said some small communities have built their pool of homebuilders only to see them leave for more money in bigger towns.

Where there is little or no planning and zoning, community leaders need to study towns that have good planning and zoning and adopt similar ordinances, Eftink said. As for poor credit or "payment shock," she said many problems could be avoided if high schools taught financial literacy.

Bayer became interested in lending and in building houses in rural areas about five years ago after hearing an impassioned speech by a Federal Housing Administration official on the need for home loans in the country. He formed a partnership with a builder for the express purpose of constructing houses in rural Missouri.

"It's a slow process, to be quite honest," he said.

Part of the problem is that small rural banks generally do not offer the loans that lower-income people need, Bayer said. Because most of these banks just offer balloon notes, his St. Louis-based company started lending through a network of rural banks, which gave them the ability to offer new products in their areas.

Bayer's work in housing development has also given him a builder's perspective. If a rural community decides to expand its housing stock, there are issues to address and steps to take before proceeding, Bayer said. They are:

  1. Is the community in agreement that new housing stock is needed? If not, the project will never succeed.
  2. What will the target price of the house be? What price range can the community handle without having "payment shock"? This determines what kind of housing will be built.
  3. Is there available labor?
  4. The community has to accept that quality affordable housing costs money. If the market is low-income people, then the builder can construct quality houses, but they will have to be small.
  5. The community should take advantage of government assistance that is available for new construction in rural areas.
  6. There has to be a firm commitment on the part of the developer to follow the project through to the end. Some projects have been started and then abandoned when problems arose.
  7. Rural communities should consider manufactured housing. There are quality manufactured houses that can be built on a concrete foundation that "are a heck of a lot better than existing houses at the same price," Bayer said. Many communities have adopted BOCA (Building Officials and Code Administrators) codes so that they can limit manufactured housing. "That is a mistake," Bayer said.
  8. City officials need to be flexible. When the community has done all the planning, it needs to empower one leader to break down barriers and take charge of the project.

Another expert on the panel was Dottie Sheppick of Countrywide Home Loans Inc., which originates and buys loans that are guaranteed by USDA's Rural Housing Service. Lenders in the rural market are needed, she said.

"It can be difficult for first-time home buyers with very few resources to get a home loan in any area," she said. "In rural areas, it can be even tougher because there are fewer lenders and less competition."

A positive trend is that some rural banks are offering more mortgages that can be sold in the secondary market, opening up the doors to more potential homeowners, she said.

When lenders do have products to offer people with low or moderate incomes, they need to be creative in getting the word out, she said. She suggested conducting homebuyer fairs; using radio and newspaper public service announcements; working with rural service groups, such as Rural Housing Service; and having meetings or distributing fliers at county fairs, rodeos and restaurants.

"Go wherever people gather," she said.

Bridges is a regular review of regional community and economic development issues. Views expressed are not necessarily those of the St. Louis Fed or Federal Reserve System.

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