USDA’s Section 515 Rural Rental Housing Loan Program has long supported affordable housing in rural America. For this Housing Huddle, I spoke with Janel Salinas of Idlewild Development about the program’s legacy, current challenges, and what developers and owners should know to preserve these properties.
Can you explain what Section 515 loans are?
The Section 515 program was part of the Housing Act of 1949 and played an important role in shaping rural housing in the United States. It was introduced in 1963 to address shortages of safe and affordable housing for low-income families and individuals. The program provides direct loans for multifamily construction. Historically, these loans were structured with a 1% interest rate in exchange for reduced rents for low-income residents.
How has Section 515 shaped rural affordable housing since its introduction?
Section 515 created a rural rental housing backbone for America. At its peak, 13,000 properties were financed through the program. These developments provided affordable housing in communities where market-based housing wasn’t feasible—often in areas with no other affordable options. Many times, 515 properties were the only multifamily housing in their towns. The program helped support small economies, retain labor, and prevent displacement due to rising rents. It also allowed residents to stay in their hometowns near their families, schools, and communities.
What are some of the challenges facing the program today?
Many of these projects were built 30 to 40 years ago and are now in danger of being lost. USDA stopped funding new construction in 2011 and shifted to preservation. As loans mature, we risk losing these projects due to expiring restrictions and deferred capital needs. Financial and administrative issues need to be addressed—like ensuring the Multifamily Preservation and Revitalization (MPR) program is funded for preservation, even though it’s highly competitive. We also need to encourage investors to support rural deals, which currently receive lower pricing compared to urban ones.
Additionally, USDA staffing has been reduced, and many experienced personnel have retired or exited early, leading to a loss of institutional knowledge. Also, the transfer process and regulations are difficult to navigate.
What factors should owners consider when approaching this type of financing?
It’s important to understand where you are in your loan maturity so you can plan ahead. These deals take time to navigate, so you need to weigh your options—whether to keep ownership, refinance, or prepay the loan. These aren’t typical real estate transactions; there are many restrictions. You should evaluate your partnerships, consider rehab needs, and determine the capital required. Talk to your counsel, ownership team, and CPA about tax implications. Be patient and plan ahead—it can take two to five years to complete the process.
What federal-level shifts should developers and owners watch for in the Section 515 program?
Developers should get involved with federal policy and political cooperation to support tenants who risk losing their homes. The shift from construction to preservation is a good step. Also, advocate with your state financing agencies to allocate more funds and tax credits to rural markets. It’s important to recognize that construction and labor costs in rural areas are just as high as in urban ones. We also need to encourage investors to support rural markets, where pricing is currently low. Hopefully, USDA will receive funding for technology upgrades, like digital portals for applications, which would improve transparency and modernization.
