The United States Department of Agriculture Rural Housing Service: Study of Section 502 Modest Housing

The U.S. Department of Agriculture’s Rural Housing Service’s (RHS’s) mission is ” to provide low- and very low-income people who live in rural areas with an opportunity to own adequate but modest, decent, safe, and sanitary dwellings and related facilities.”  One way in which RHS accomplishes this mission is by subsidizing single family housing in rural areas through its Section 502 Direct Loan program.  RHS determines area loan limits for these dwellings based upon a cost approach in determining vaule.  RHS was concerned that its methodology might not be determining loan limits for modest hosing accurately and also that the methodology was cumbersome and inefficient.

RHS wanted to verify that their methodology  ensured that houses purchased through the program are “modest, decent, safe and sanitary.”  RHS was also interested in recommendations to improve the program’s efficiency.  RHS engaged Concentrance Consulting Group, and its sub-contractor Abt Associates, (the Concentrance team) to assess effectiveness of the revised methodology for setting loan limits and to investigate the feasibility of using a simpler and less costly methodology based upon Census Bureau databases for dertermining loan limits.

The Concentrance team, using the most comprehensive national Census Bureau databases on housing, determined that the loan limits produced by the “cost-approach” methodology were the most appropriate for the purchase of modest, decent rural housing. This conclusion was further corroborated through  feedback from industry stakeholders. In addition, the team concluded that there were significant obstacles to using Census Bureau data to develop an alternative, less costly approach.

As a result of this study, Concentrance recommended that RHS continue to use its current methodology for determining loan limits in the Section 502 program, as our study found that the methodology used was sound, and did not require modification.  RHS determined that it would use the study in the future as support for their methodology.