Maine could lose up to 2,500 affordable apartments in the coming years as a little-known, decades-old federal program winds down at a time when the state faces an affordable housing crisis.
The apartments are part of the U.S. Department of Agriculture’s Section 515 program, which, at its height in the late 1970s, financed the development of 35,000 rural, affordable apartments a year. In addition to providing 1 percent-interest mortgages to landlords looking to buy or build housing, the program also typically attached rental assistance to the apartments, so rural, low-income residents could afford a place to live.
But 40 years after the program’s boom, the mortgages are beginning to mature. As the properties leave the program, they can lose their rental assistance, leaving tenants’ fates uncertain as officials grapple with how to preserve the homes of people living in areas where there are few incentives for private development.
In Maine, there are 6,200 Section 515 units with rental assistance, and 2,500 could leave the program by 2030, according to Brunswick-based Genesis Community Loan Fund. More than 2,000 of the at-risk units are in the 2nd Congressional District.
Sixty percent are reserved for the elderly or disabled. Losing them would intensify the housing crunch for the state with the nation’s oldest population.
And half of all residents living in properties subsidized by the program in Maine are single women. Single men make up 20 percent of Section 515 residents, according to federal data.
What’s more, tenants of Maine’s at-risk apartments have an average annual income of less than $13,000. The rental assistance limits their rent to 30 percent of their income.
“For many communities, these are some of the only quality rental housing available for extremely low-income households,” Genesis Executive Director Liza Fleming-Ives said. In 2018, the USDA gave Genesis a grant to help other nonprofits and local housing authorities figure out how to buy up the properties, which are often owned by aging “mom and pop” landlords looking to retire.
The idea is that local nonprofits and housing authorities could preserve the rental assistance for tenants by buying the properties and extending the mortgages into the future. Otherwise, current owners might wait until the mortgages expire, leave the program and sell their properties to private buyers not interested in keeping them affordable.
The USDA has taken other steps to try to ensure the properties stay affordable for low-income residents, including placing restrictions on owners’ ability to sell the properties before the mortgages mature. The department also offers owners incentives to stay in the program, including additional low-interest loans for repairs and upgrades.
But the USDA’s preferred solution is for nonprofits to buy the properties, especially in places that generate little interest from private buyers. To do that, nonprofits have to find funding, which is limited, several housing experts said.
The purchases can be expensive. The USDA requires that nonprofits have the financial resources to not only buy the property, but also fund capital improvements and maintenance for 20 years.
The biggest challenge in keeping the properties in the program “is securing the funding and resources for nonprofits,” Fleming-Ives said.
It means subsidized-property owners can be less likely to accept a nonprofit’s offer.
“It’s very difficult to sell,” said Richard Fickett, 84, who with his wife owns six Section 515 properties. Several years ago he was in talks to sell a 64-unit property in Cherryfield to a local nonprofit, he said. But the group could only pay him what he owed on the mortgage, meaning Fickett would walk away from the deal with no profit.
“They had no way of raising more money,” Fickett said. “I don’t think I’d let [the properties] go for zero.”
Cathie Whitney is the founder and CEO of C&C Realty Management, which manages 24 properties financed through the USDA.
“I know some of our owners are frustrated because they want to be able to sell, and would be happy to see the housing continue in the program,” Whitney said. “But the process just seems to stimey them at every turn.”
The government began providing low-interest mortgage loans to people building affordable housing in rural areas in 1963. In total, the program financed the development of more than 530,000 units across the country. But by the mid-1990s, due in large part to a new federal housing policy approach that emphasized tax credits over direct spending, the program was drastically scaled back. By the beginning of the past decade, the program no longer issued mortgages.
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Many of the property owners who took out the mortgages in the 1970s and 1980s are now in their 70s and 80s themselves, and looking to retire and pass on the properties to someone else.
Lester Hersey, 76, bought USDA-subsidized properties in Mapleton and Washburn in the early 1980s, and he and his wife have been managing the properties since. The mortgage on the 12-unit Mapleton property will mature in 2025.
“We’re trying to transition right now,” Hersey said, adding that he has had talks with local housing authorities. He is confident that he will be able to sell before the mortgage matures, but he wonders about other properties and owners.
“My feeling is the government is going to have to participate in this and make some options available to people,” Hersey said. “Otherwise, they will lose the subsidized housing.”
‘There are few replacements for what’s there’
Nationwide, a few thousand apartments are projected to exit the program annually over the next decade, due to maturing mortgages and the possibility of owners paying off the mortgages early.
The potential mass exodus is a “ticking time bomb,” said David Lipsetz, CEO of the Housing Assistance Council, a Washington, D.C.-based nonprofit.
Between September 2017 and September 2018, 194 apartments in Maine left the Section 515 program, according to federal data.
Nationwide, the program has already lost roughly 20 percent of the units it has built, and “the remaining units are extremely important to the communities they are left in,” Lipsetz said. “There are few replacements for what’s there.”
Both local and national legislators have proposed measures that would help maintain the properties’ affordability. Last year, the U.S. House passed a bill that would decouple rental assistance from the USDA mortgages, allowing the mortgages to mature without the threat of rental assistance ending. But the Senate has not yet taken up the legislation.
In Maine, Assistant Majority Leader Ryan Fecteau, D-Biddeford, introduced a bill last year that would create an affordable housing tax credit worth $80 million over four years. Ten percent of that credit, or $8 million, would be reserved for the purchase of at-risk affordable units. The bill is expected to be voted on in the coming weeks.
(Though nonprofits don’t pay taxes, they can still take advantage of tax credits by selling them to for-profit developers and using that money to fund the purchases. Those credits can also entice for-profit co-investors.)
Meanwhile, the waiting list for affordable units in Maine is currently 17,000 people, according to the Maine Housing Authority. Some will wait five years or more.
The potential loss of the USDA-subsidized apartments would hit Maine harder than its rural neighbors. Maine has three times the number of these units as New Hampshire, despite having roughly the same population. Maine has five times the number as Vermont.
New affordable housing tends to be built in service centers, such as Portland and Bangor. Rural parts of the state don’t typically get new affordable housing, and those are also the areas most at risk of losing what they already have.
That isn’t just a problem in Maine, experts said. The government’s shift from direct spending to a tax credit-based approach has created difficulty for rural areas, said Corianne Scally, a housing researcher at the Urban Institute.
Applying for tax credits takes a great deal of time and money, so developers “need a lot of units” to make the development profitable, Scally said. “It’s really a limitation for getting the program to work well for rural places that might just need a dozen units, instead of 100.”
The ramifications of properties leaving the program will vary across the state, said 71-year-old Lawrence Van Peursem, who founded Maine Development Associates in 1978. Today, the company owns and manages 1,000 USDA-subsidized units in Maine.
“It’s really a tale of two cities,” Van Peursem said. In up-and-coming communities, low-income residents will be able to find other options when properties leave the program, he said. But it won’t be so easy for people, especially seniors, in other areas.
“You look at places like Mars Hills, Fort Kent, Eastport, what will those people do?” Van Peursem asked. “That’s going to be a huge problem.”
Aroostook County is home to 470 of the at-risk units, more than any other Maine county. Aroostook is followed by Penobscot County with 314 units, Oxford County with 310 and Hancock County with 205.
If those units are lost, it’s unclear how they would be replaced, said Scally of the Urban Institute.
“There really aren’t savvy developers who are chomping at the bit to develop small-scale rental housing options for rural America,” Scally said.
Nonprofits have several advantages over for-profit owners in buying the properties and keeping them affordable. As their name suggests, they don’t have to earn a profit. They don’t have to pay federal taxes. And they have access to a variety of federal, state and philanthropic funding streams unavailable to the typical property owner.
But buying the properties can be a long, complicated process, which is why housing advocates believe efforts to preserve the properties must begin years before the properties are scheduled to leave the program.
“This requires action now,” said Laurie Miller, the executive director of Old Town Housing Authority, which has bought two USDA-subsidized properties in recent years with the aim of preserving their affordability. “This is all just coming to a head.”
Miller is hiring four new staff members and constructing an addition for the Old Town Housing Authority building, so her organization has the capacity to acquire more USDA-subsidized properties at risk of becoming unaffordable.
“I’ve had people that have properties in the Orono and Old Town area who have approached us wanting us to buy them, and I’ve had to say ‘no’ because I don’t have the manpower,” she said.
Maine Focus is a journalism and community engagement initiative with the Bangor Daily News. Questions? Email email@example.com.