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Jennifer Emerling / There Is More Work To Be Done
Jennifer Emerling / There Is More Work To Be Done
Experts of HAC: Alison Duncan on Lending and Development in Rural America
In this edition, Alison Duncan discusses what makes rural lending different from urban markets, how HAC supports emerging developers, and why patient, mission-driven capital is key to building affordable homes in small towns.
What’s different about lending in urban vs. rural areas?
Alison Duncan serves as a Loan Officer at the Housing Assistance Council, where she combines her background in affordable housing development and impact investing to strengthen rural lending.
There are several key differences. First, it is more difficult to determine the value of a property. Sometimes there are no comparable properties, as nothing has sold in the past few years. Or if there are sales, they are of old properties, not new construction. HAC uses an analysis of cash flow to determine value and to size loans appropriately for different projects.
Second, rural areas often have less capacity. Either there are no developers, or no general contractors, or the city or county does not have experience with federal funds. With few developers but a need for housing, HAC is often asked to support new developers in building affordable housing in rural areas. First-time developers are not always familiar with every aspect of development and may not be able to complete their plan. Construction costs are often higher, as contractors must travel longer distances to work, sometimes staying on site during the work week. The environmental review required to receive federal funding has proven to be the most difficult, as a local office must provide preliminary approval, and many rural local officials have never done that before.
With lower rents for apartments and lower sale prices for homes, projects often need a subsidy to remain affordable. Many rural developers must work with state and federal programs to cover development costs. These government programs can take a long time to fund and require a lender with patience. HAC provides longer commitments (locks in its interest rate for a longer period of time) for projects with committed state or federal funds.
Why is affordable housing important at this time?
There are well-known trends increasing housing costs nationwide. With more remote work options, people are moving from cities to rural areas, which have historically had lower-cost housing. This migration is driving up costs in rural areas, making it hard for long-standing residents to afford housing. HAC works to keep some housing affordable in rural areas across the country. Other reasons that affordable housing is important include:
- Housing costs have skyrocketed over the last few years — the pandemic escalated construction costs, and extreme weather events are increasing insurance costs. Housing costs were already on an upward trend over the past few decades – they now represent a higher percentage of a worker’s salary than they were for prior generations.
- Affordable housing supports job growth and economic development – it allows areas to attract and retain a workforce.
- Many Americans’ budgets are already stretched, and inflation is making it harder to afford the basics. Affordable housing becomes even more critical in these conditions.
- Affordable housing is aging and has a lot of deferred maintenance. It’s hard to make improvements with limited income from the property. Even worse, once repaired, some affordable housing projects are transitioning to market rate. Programs to support preservation of affordable housing are necessary.
Why did you come to HAC?
I had wanted to work in affordable housing finance for years. While studying finance in my MBA program, I learned about the complexity of the Low-Income Housing Tax Credit, and the fact that the industry needed smart, capable people who also care about its mission. Without much prior experience, my first role was in the development department of a housing authority. While there, I assisted with the redevelopment of two projects and learned about the design process, community engagement, and financing. After a few years, I was ready to apply what I learned to finance, which led me to HAC. I was grateful to find a low-income housing lender with such a focused yet far-reaching mission.
What is a project that you are proud of?
One of my favorite borrowers is Alexandria Development, LLC. It’s run by a woman who is developing affordable housing in her hometown. The owner of the business is retired and has an extensive background in banking and community development. She has built four duplexes (8 units) in three phases and refinanced a triplex with HAC funds. These 11 units are some of the only new, quality affordable rental housing in the town. The housing is in a high-poverty census tract, an area of economic distress, and in a persistent poverty county. The area desperately needs housing (32% of housing units were determined to be poor quality, overcrowded, or unaffordable in 2017), and housing development isn’t economically attractive in the area. Only someone who cares about the town and its people would put in the effort to improve the housing stock. I’m proud to help improve the available housing in her hometown of Warrenton, Georgia.
What does HAC do that other lenders wouldn’t?
HAC makes loans to emerging developers with a shorter track record. This is more common in rural areas because there are few developers to begin with. We appreciate the effort required to develop affordable housing and work with developers over time to ensure that they have a sufficient support team to complete and manage a project.
