If you have had the opportunity to visit the villages of rural Alaska undoubtedly you had a rich cultural experience. While the skills and spirit of local residents are truly impressive, so are the problems faced in their communities. I have had the privilege to assist with the development of facilities in rural Alaska, and while the challenges are great, progress has been made. Schools, health care, sanitation, roads, boardwalks and airports have been built over the years and improvements are continuing. In my judgment the most glaring problem, for which there is no clear path to a solution, is the condition of housing.
For the most part, village homes are in disrepair. Poor construction design has led to structural defects, expensive heating bills, and mold problems causing unhealthy indoor air. Because of a lack of housing, existing homes are severely overcrowded. The real champions of rural housing have been the tribal housing organizations and regional housing authorities. Since they took over direct management of housing programs from the federal government, housing has improved, but there simply is not enough federal funding to meet the needs. Given Alaska's budget problems, state funding is not likely to add much to a solution.
A partial answer to rural housing problems lies with an underutilized form of investment capital: private mortgages. Rural Alaska, especially the villages, has been largely bypassed by the way many Americans gain access to housing: mortgage financing. Thus, the American dream of homeownership has eluded most of village Alaska. There are several reasons for this situation including that homes are expensive to build; village residents don't have much cash to afford a mortgage; and there has been an ongoing institutional predisposition toward government-provided housing. Also, there has been little participation by government or private sector banking to promote or provide mortgages. In spite of these challenges, mortgage financing has been done successfully in several villages including Quinhagak, Galena, Angoon and Klawock. In South Dakota, the Native Homeownership Coalition has been formed to tackle housing problems on the reservations.
If you break down each of the barriers you will realize that homeownership through mortgage financing is at least a partial solution to rural housing needs. First, housing does not need to be prohibitively expensive. Creative design and assembly can realize a significant reduction in housing costs, as evidenced by the work of the Cold Climate Housing Research Center. In fact, a new energy-efficient home can save thousands of dollars in heating costs, money that could be contributed to a mortgage to build a new home in the first place. Second, villages are relatively cash poor, but that is not true of every person or family in the village. Every individual that can qualify and build a home with a mortgage can make a difference in quality of housing in the community. The fact is, demographic studies have shown most villages have some residents with incomes that could support at least a partial mortgage.
And then there are the institutional barriers. I run a federal agency that did $114 million in home mortgage lending in rural Alaska last year. Very little of that investment was made in the villages. Private sector banks are also virtually absent from lending in villages. The Native housing organizations build most of the homes, but most of them do not leverage personal capital through mortgages. Probably the greatest barrier is the lack of familiarity with debt by prospective borrowers and the responsibilities of home ownership. This issue has been successfully addressed with homebuyer and homeowner education.
There are several advantages to the homeownership model in rural villages. Personal contributions in the form of mortgage payments provide an additional source of capital to build new housing. This added capital helps to stretch the dollars available to Native housing organizations to build more housing. Homeownership also generates family wealth in the form of equity. For many Americans, home equity is their greatest source of wealth. Homeownership also fosters pride of ownership, thus assisting with the housing maintenance.
Providing mortgages in a village setting is not an easy undertaking, but absent any other solution to rural housing problems it is at least worthy of a thorough vetting. On Nov. 30, several housing organizations will hold a Rural Homeownership Forum at the Hotel Captain Cook. There we hope to advance the discussion and help meet the challenges of rural housing by promoting homeownership.
Jim Nordlund is the Alaska state director of rural development for the U.S. Department of Agriculture. Since 2009, USDA-RD has invested nearly $2 billion in community facilities, housing, business, energy, telecom, electric, water and sewer in 225 rural Alaskan communities.
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