This article is part of a continuing interview series that spotlights important views from experts in the community and economic development field.

Even with nearly 20 percent of the population living in rural America, housing challenges in these areas are often overshadowed by those of their urban counterparts. Many rural markets have historically faced a declining employment base, often leading to unemployment, underemployment, and persistent poverty, according to Federal Reserve research. More recently, federal, state, and local economic conditions have led to reduced funding for rural community and economic development programs. Furthermore, rural America has been hit hard by high rates of mortgage delinquencies and foreclosures, just as urban areas have.

Sibyl Slade, senior regional community development manager at the Atlanta Fed, spoke with Joseph Belden, deputy executive director at the Housing Assistance Council (HAC), to learn more about the impact of the economic downturn on rural markets and implications for future housing needs in those areas. HAC is a national nonprofit working to improve housing conditions for the rural poor. It offers assistance through rural housing development loans and grants, training, technical support, and research on rural topics.

Sibyl Slade: Joe, what can you tell us about how the recent housing crisis has played out in rural markets?

Joseph Belden: Rural America has had high rates of poverty and substandard housing for decades. Today housing quality is less of a problem than affordability and availability in many areas. The lack of quality affordable housing options has become a more pronounced issue since the downturn, and while many rural areas have experienced less boom (and thus less bust), there are still challenges. In 2010 the U.S. Department of Agriculture (USDA) reported that 19 states had higher foreclosure rates in rural counties than urban counties. Five of these states are in the Atlanta Fed's District—Alabama, Florida, Georgia, Mississippi, and Tennessee. In many rural areas, unemployment and underemployment have been the main factors causing homeowners to fall behind.

Another challenge, however, is limited access to quality affordable mortgage financing. Rural areas have fewer financial institutions and thus less competition and increased costs to consumers. Since Home Mortgage Disclosure Act (HMDA) data only account for information collected from financial institutions that are required to report lending data, and many that serve rural communities are not subject to that requirement, the data do not tell the full story of mortgage financing. It does, nonetheless, illustrate one aspect of housing challenges for rural America.

Slade: Have there been any unexpected findings or trends around rural development issues that emerged in HAC's recent research?

Belden: Very recent HAC research shows that rural America has a group of 429 persistently poor counties—places that have had 20 percent or higher poverty rates since 1990 (i.e., in the 1990, 2000, and 2010 Censuses). Interestingly, if you measure this from 1980, the number of persistently poor counties goes down to 382. So some things are getting worse. In such places, community and economic development needs continue to be both broad and complex. Another interesting fact we're seeing is that many metropolitan areas actually have large rural populations in the “exurbs.” In fact, over half of all rural residents actually live in the outlying counties of metro areas. Additionally, we have also found that minorities now account for three-quarters of rural population growth, which may come as a surprise to some. This is discussed in HAC's April 2012 issue of Rural Research Note. It's on our site at ruralhome.org.

In terms of housing options, we find that manufactured housing continues to grow as a rural housing choice. Perhaps one issue for the future will be the continued availability of affordable financing products for this kind of housing stock. Often, manufactured housing is primarily financed by a personal property loan rather than a mortgage loan. Such products typically require low down payments, but they often have higher interest rates with shorter repayment terms.

Another obstacle for rural communities is the lack of local capacity to both build new homes and renovate existing housing stock. There may be few or no local for-profit, nonprofit, or public builders that understand how to undertake such projects or have knowledge about how to use available funds and programs. Often we find this lack of capacity is highest in areas with the greatest need.

Lastly, although it has been a very successful program, we have seen a decrease in the use of the USDA's Section 502 direct loan program in the last few years. I think there are several factors contributing to this trend, including a sharp decline in funding available in the program, effects of the economic recession, which resulted in a decreased number of interested and qualified buyers, staffing cuts at USDA leading to administrative challenges and delays for the program, and the outmigration of younger adults from many rural areas. The 502 program is also now being used mostly for the purchase of existing homes.

Conversely, there has been rapid growth in use of the Section 502 guaranteed loan program, with increased funding from Congress.

Slade: What programs or other efforts have been most successful in meeting rural housing needs?

Belden: As I mentioned, USDA's 62-year-old Section 502 direct loan program has quietly but successfully made homeownership a reality for over 2 million low-income families. It provides qualified applicants up to 100 percent financing to purchase an existing dwelling, purchase a site and construct a dwelling, or purchase newly constructed dwellings located in rural areas. Mortgage payments are based on the household's adjusted income.

Another USDA initiative, the Section 515 rental housing program, has provided funding for the construction of affordable rental options for over 400,000 households since the 1960s. The residents of these affordable rental homes have incomes averaging less than $11,000, and over half are elderly and disabled. One ongoing challenge is keeping those units affordable and available for low-income tenants.

In most of the USDA housing programs, mission-driven community organizations—primarily nonprofits—have played an essential role in putting those and other housing funds to work in rural places. An example of one successful local group is Florida Home Partnership (FHP), a nonprofit housing developer in the Tampa area. FHP has built over 400 homes in recent years, mostly using USDA's self-help, sweat equity program for low-income homeownership. HAC has loaned and granted substantial funds to FHP to help in this building. There are other such successful organizations around the country, but not enough of them. Often there are few if any such groups in those 400 persistently poor counties that I mentioned earlier.

Slade: How do you expect rural housing trends to change over the next decade? And what will this mean for future planning and policy needs?

Belden: We think several important factors will contribute to rural housing trends in the next 10 years: the aging of the rural population, continued outmigration of rural residents and particularly younger populations, rapid growth in some rural retirement or vacation destinations or in areas with new industry such as oil and gas exploration, possible cutbacks in rural housing programs, and a growing need for affordable rentals and assisted living, including a need to preserve those rentals that now exist. Policy and planning efforts will need to focus on each of these aspects to comprehensively address rural housing issues for the next decade.