Monday , 14 October 2019
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Current rental rates won’t cover building costs

by Wendy Royston
with additional reporting by Kristin Brekke Vandersnick

Does your rural community need new rental housing? If so, it’s likely that rental rates will have to increase to make that possible.

Many recent housing studies conducted in rural communities recommend rate increases because current rents won’t cover the payments for new construction.

Rents in smaller communities with fewer jobs tend to be lower than those in larger communities, where more opportunity exists for employment. But the cost of building is actually higher in outlying communities, because building sites are farther from both materials and labor.

That unequal equation can stymie potential construction projects.

That means that rental rates can be a stumbling block for other goals of the community—welcoming new families, for example, or bringing in more workers—because new housing is required for some of these goals.

… but rental housing also needs to be affordable

On the other side of the equation, there’s the question of what renters can pay.

The general rule of thumb in the home financing industry is that no more than 30 percent of a family’s income should go toward housing. That figure goes back to 1969, when Congress enacted the Brooke Amendment, which set 25 percent as the maximum out-of-pocket expenditure for tenants in the federal publicly assisted housing program. By 1981, this threshold was raised to 30 percent, which today remains the guideline for most rental housing programs—including the U.S. Department of Agriculture’s Office of Rural Development.

In the case of homeownership, controlling that figure is relatively easy—you ensure your budget and mortgage align at the time of purchase—but in the case of rentals, tenants are at the mercy of landlord pricing, which may or may not align with the experts’ recommendation.

The rates charged for rentals in the Dakotafire region vary as much as the communities whose people they house, and the reasons are sometimes obvious, but sometimes not.

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Why is rental housing needed?

For various reasons, homeownership isn’t for everyone.

“Some don’t want to,” said Lori Moen, chief operating officer at Grow South Dakota. “Some don’t have the capability.”

In some cases, obtaining necessary financing for ownership is difficult. In others, homeownership simply isn’t appealing.

“A family might come in, and they might not be ready to buy a house, or there might not be one available, but they need to come in on pretty short notice because they got a job, and they need three bedrooms—or at least they want three bedrooms,” said Joe Bartmann, vice president of innovation for Dakota Resources. “A lot of the communities do not have those available.”

Small communities often have a good stock of one- and two-bedroom, income-based apartments that have been managed by the local housing authority or development corporation, but the market for that housing is restrictive.

“Some of the workforce that we need to provide the housing for the most actually can’t get into those properties,” Bartmann said.

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