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.
[iframe url=”https://docs.google.com/spreadsheets/d/e/2PACX-1vTrjjO4ePYXy95Nyglb5iz6EasYbsfm55w19E2etK-nDxUfb7gzMU99Is1N4Qxxuym9Xfji9G0sNICe/pubchart?oid=873869262&format=interactive” seamless frameborder=”0″ scrolling=”no” height=”443″ width=”600″]
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.