BULLETIN 334 JUNE 1961 Runral iuioni Sildiall(Is Agricultural Experiment Station AUBURN UNIVERSITY E. V. Smih, Directr Auburn, Alabama CONTENTS Page PHASES OF STUDY4---- -4 TH E H OU SES -- - - - - - - - - --- - - - - - - - - - - - - - - - - - - - - - - - - - - 5 Ag e - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 5 S iz e - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 6 How Acquired - - --- - - -- -- -- -- -- -- -- - - -- -- -- 6 Sampling Procedure---------------FACILITIES AND CONVENIENCES ----CHARACTERISTICS OF RURAL RESIDENTS-7 ---6 ---- Formal Education--- -- -- -- -- -- --- -- -- -- ---- - 8 -8 Age of Head of Household--------- ---Size of H ouseholds-- -- - -- - -- - ---- - -- - -- - - - 8 -8 Net Income and Net Worth--------HOUSING CONDITIONS AND NEEDS..-----10 ---- ----- ---- - - -10 ----H ousing Score----- ------ - - - -- 13---Housing Deficiencies --- -- --- -- -- - 15 Satisfaction with House--15 Housing vs. Non-Housing Needs-Plans for Purchase or Construction of Houses-15 REMODELING OF HOUSES --------------------- -16 Changes M ade-----Financing Plans for FINANCING ----- ------ ----- ------ -- -16 of Rem odeling----------------------------17 Future Remodeling -------------------------- 17 BUILT OR OF HOUSES BOUGHT ----------------- 18 Sources of Loans ----------------------------------- 18 Interest R ates Paid---------------------------------19 Dow n Paym ent------------------------------------19 Closin g Costs --- - - - - - - - - - - - - - - - - -- - - - - - - --- - - - - -.- -- 20 Amount and Frequency of Payments-------------------21 Length of Loans-------------------- -----.--------- 21 COMPARISON OF CREDIT AVAILABLE FOR RURAL AND URBAN HOUSING-------------------_------22 SUMMARY AND CONCLUSIONS ---------------------------- 24 A P P E ND IX-- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 2 6 Calculation of Housing Score ------------------------ 26 Method of Calculating Housing Score-----------------28 FIRST ~zrr~a KTTTTrP ~D KATT~U~ PRINTING 4.5M, JUNE 1961 RURAL HOUSING SITUATION AND NEEDS* BOYD B. ROSE, Assistant in Agricultural Economics** JAMES R. HURST, Assistant in Agricultural Economics** J. H. YEAGER, Agricultural Economist*** War II. The number of full-time farmers has declined while parttime farmers and non-farm rural residents have become more numerous. Although there has been a general decline in the proportion of total population living in rural areas, the greatest change has been in the way rural people make their living and where they work. Much of the rural population is rapidly acquiring characteristics similar to those of the urban sector. Occupations of rural people have become more diversified and their incomes have increased. Many choose to live in rural areas even though they must travel considerable distances to work. Greater dependence on non-farm sources of income has helped narrow the gap in incomes and standards of living between rural and urban residents in the Southeast. However, rural housing in the Southeast is still substandard as compared with urban housing and rural housing in certain other areas of the United States. Rural residents have serious housing problems. How to meet their housing needs is the major problem. Difficulties in financing home purchase, construction, or improvement appeared to be obstacles to solving housing problems. Therefore, a research study * The research on which this report is based was executed and financed under terms of a contractual agreement between the Agricultural Experiment Station of Auburn University and the Housing and Home Finance Agency, Washington, D.C. Funds for the study were provided under authority of Section 608 of the Housing Act of 1957. The study was carried out as State research project Ala-1-016, "Financing of Rural Housing in the Southeast." Accuracy of statements or interpretations contained herein are solely the responsibility of the authors and publisher. ** Resigned. SPECTACULAR CHANGES have occurred in rural areas since World *** The authors acknowledge the cooperation of all the rural residents and representatives of lending institutions who supplied the basic information on which this study is based. 4 ALABAMA AGRICULTURAL EXPERIMENT STATION was undertaken to find out the housing needs and financing problems faced by rural residents. Data were obtained from a sample of rural residents and lenders in Alabama, Georgia, Mississippi, and South Carolina. PHASES of STUDY The study was divided into, two phases. Phase one dealt with the extent to which lenders were making housing loans to rural residents and their policies and practices in making loans for purchase, construction, and improvement of rural houses.' Phase two of the study was concerned with the housing situation, needs, and desires of rural residents. It attempted to find out the extent to which rural people used various sources of housing credit, including their reluctance or inability to use credit facilities. This bulletin presents information from phase two. Sampling Procedure A sample of 665 rural residents supplied basic data for the study, Figure 1. The sampling process consisted of selecting 20 out of 305 counties. Each county had a probability of entering the sample based on the proportion that number of rural dwelling 1 -1 FIG. 1. Location of the 665 rural resident households in the sample are shown on the map. Shaded areas of the four states were excluded from the sample. companion report entitled "Financing Rural Homes," published as Auburn University Agricultural Experiment Station Bulletin 33888, presents information from the lender phase of the study. 'A RURAL HOUSING SITUATION and NEEDS 5 units in the county was to the total in the 4-state area in 1950. Certain counties in each state were excluded prior to drawing the sample. Exclusions were made because such counties were composed largely of urban residents or because the population and agricultural characteristics of these counties were not representative of the Old Cotton Belt Area. After sample counties were selected, segments within counties were drawn by a random unbiased method. Residents within the sample segments were interviewed by trained enumerators in the spring and early summer of 1959. .Either husband or wife was interviewed in husband-wife households. In others, data were obtained from the person considered by members of the household to be the head. Only occupants of single family or single household dwelling units were interviewed. THE HOUSES Almost three-fifths of the houses in the sample were located in open country. Twenty per cent were in fringe areas near urban places of 2,500 to 50,000 population; 15 per cent were in towns of less than 2,500 population; anrd 5 per cent were in developing open country areas. Forty-eight per cent of the houses were on paved roads. Thirty per cent were on all-weather improved dirt roads, and 22 per cent were on unimproved dirt roads. Observations of 3,570 houses in the sample segment areas showed 10 per cent to be vacant in the spring of 1959. Two out of every five vacant houses were classified as unsuitable for occupancy. Age In many cases, age of house is a rough indicator of general housing conditions. Age alone, however, does not measure the adequacy or structural soundness of a house. More than a third of the houses in the sample were built prior to 1930, as shown below: Year house built 1929 or earlier 1930-39 1940-49 1950-54 Since 1954 Percentage of houses 86 10 16 10 13 Not ascertained TOTAL 15 100 6 ALABAMA AGRICULTURAL EXPERIMENT STATION Size Average floor space in the sample of houses was 1,038 square feet. Size of houses ranged from 156 to 3,800 square feet. Distribution of average number of square feet per person in the household was as follows: Number of persons in household 1 2 3 4 5 6 7 8 9 and over AVERAGE Square feet per person, average 1,066 504 344 256 226 200 136 119 99 253 Ninety-six per cent of the houses were single-story units. How Acquired Fifty-seven per cent of the rural residents owned the houses they occupied. Thirty per cent rented and the remainder lived in houses rent free. Of the owners, 47 per cent purchased, 41 per cent built, and 12 per cent inherited the houses they occupied in 1959. The major reason given for building or buying a house was to get a more desirable location. More than a third of those who built houses did the construction with members of their household and hired labor that assisted with the plumbing and wiring. Seventeen per cent of the construction was done by members of the household only, 19 per cent by hired workers only, and the remaining 29 per cent by contractors. FACILITIES and CONVENIENCES Most rural residences had electricity, but only two out of five had telephones, Table 1. Forty per cent had no piped running water inside or outside the house. As a result, toilet, bath, and washing facilities were limited. Those without piped water carried water an average distance of 100 feet. About three-fourths carried water 50 feet or less, but 9 per cent carried it 350 feet or more. For a few families, the source of water was more than 1,000 feet from the house. Dug RURAL HOUSING SITUATION and NEEDS TABLE 1. PERCENTAGE OF HOUSES WITH VARIOUS FACILITIES AND, CONVENIENCES AS REPORTED BY 665 RURAL RESIDENTS, SOUTHEASTERN U.S., 1959 Facility or conveniencc ,Proportion of houses 7 Per cent E lectricity --- -- --- -- -- --- -- -Telephone --- -- --- -- -- --- - - -Water supply and facilities Hot and cold piped water Only cold piped water inside Piped water outside No piped waterHot water heater -- -- - Kitchen sink-Installed tuh or shower Washing machine 96 39 43 14 inside 3 40 43 58 43 64 Toilet facilities Flush toilet ------ ------- ----Privy, outhouse--------------N o toilet--------------------Refrigeration facilities 44 50 6 87 7 6 47 29 22 Electric or gas refrigerator-----Ice bo x -- - - - - - - - - - - - - - - - - - - - Non e -- - - - - - - - - - - - - - - - - - - - - - Cooking fuel used Electricity -------------- ----W ood or coal----------------Natural or bottled gas---------Kerosene or fuel oil------------ 2 and drilled wells were almost of equal importance as sources of water. Twenty-four per cent obtained water from a city or town distribution system. CHARACTERISTICS of RURAL RESIDENTS The sample of rural residents consisted of the following occupational groups: full-time farmers, 17 per cent; part-time farmers, 10 per cent; farm laborers, 9 per cent; other occupations (nonfarm), 48 per cent; and retired, unemployed, or disabled, 16 per cent. More than 60 per cent of those in the non-farm occupation group were operative or kindred workers, craftsmen, foremen, or non-farm laborers. Less than 20 per cent were in managerial, professional, or technical occupational classifications. Average distance traveled by those who commuted to work was 23 miles. Sixteen per cent traveled more than 40 miles and 7 per cent more than 75 miles per day. The greatest distance reported was 112 miles. 8 ALABAMA AGRICULTURAL EXPERIMENT STATION Formal Education Years of formal education completed by heads of households were as follows: Years of formal education None 1-6 7-12 Over 12 TOTAL Percentage of heads of households 2 42 47 9 100 Level of formal education was closely related to several factors. Net income and net worth of heads of households increased as educational level increased. However, average number of persons in the household decreased as years of formal education of the head of household increased. Owners generally had completed more grades of school than renters. Sixty-eight per cent of the residents who occupied houses rent free had completed less than seven grades. Age of Head of Household Forty-seven per cent of the heads of households were 50 years old or over. Only 30 per cent were younger than 40. Average age was 49 years. Those in the non-farm occupational group averaged 10 years younger than those in the farm groups. The relatively large percentage in older age groups was influenced by the number of retired heads of households in the sample. In most cases, size of households of older and retired residents was relatively small. Size of Households Size of non-white households, which made up 30 per cent of sample, averaged 5.1 persons. Households of white residents eraged 3.7 persons. Twenty-one per cent of all households cluded more than 5 persons. Average size household for residents was 4.1 persons. Net Income and Net Worth the avinall The average annual net income of heads of households was $2,374, Table 2. In 41 per cent of the cases, both husband and wife were employed. Income from this dual employment, along with work by certain other members of the family, raised the av- RURAL HOUSING SITUATION and NEEDS TABLE 2. AVERAGE ANNUAL NET INCOME AND NET WORTH OF HEADS OF HOUSEHOLDS, RURAL RESIDENTS, SOUTHEASTERN U.S., 1959 Average Det worth Occupatioalgrpnet Average annual income 9 Number Amount Number Amount reporting reporting Full-time farmer----------------- Part-time farmer ----------------- Number Dollars Number Dollars 94 10,801 107 1,810 54 55 14,694 259 64 56 2,771 844 Farm laborer -----------------------Other occupation (non-farm) No occupation (retired, disabled, or unemployed)------------ --------------------------248 7,369 303 3,217 90 11,002 100 1,035 TOTAL OR AVERAGE -----------------------------------. 542 8,584 631 2,374 erage family net income to $2,973. Net incomes of heads of households employed in non-farm occupations were the highest of any group. Part-time farmers also earned a higher average net income than did full-time farmers. Average net worth (the difference in value of things owned and amount owed to others) was highest for part-time farmers and lowest for farm laborers. Not all rural residents had outstanding debts. Only 24 per cent TABLE 3. PERCENTAGE REPORTING AND AVERAGE AMOUNT OF REAL ESTATE AND NON-REAL ESTATE LIABILITIES, 665 RURAL RESIDENTS, SOUTHEASTERN U.S., 1959 Raete]blis Sliabilities Classification Non-real estate Proportion Average reporting amount Per cent Dollars Proportion Average reporting amount Per cent Dollars Occupational group Full-time farmer--------------Part-time farmer Farm laborer-----------------Other occupation No occupation (retired, disabled, or unemployed)------------Net income of head of household Less than $1,000 $1,000-$1,999-$2,000-$2,999----------------$3,000-$4,999----------------$5,000 and over--------------Tenure Renter___ Owner___ Rent free- (non-farm)----- 24 9 0 10 0 4 8 21 26 39 2 27 2 927 762 856 39 37 50 46 19 255 463 129 490 171 206 250 431 708 1,406 378 603 258 1,150 1,805 2,302 3,791 6,274 3,820 3,760 4,250 -- 45 59 61 62 40 58 47 58 --- --- ---- ---- --- --- --- ---- 10 ALABAMA AGRICULTURAL EXPERIMENT STATION of the full-time farmers, 9 per cent of the part-time farmers, and 10 per cent of those in non-farm occupations had outstanding liabilities on real estate. However, the non-farm group had the highest proportion of non-real estate liabilities, Table 3. The average amount of non-real estate liabilities was greatest for parttime farmers and non-farmers. As net income of heads of households increased, both real estate and non-real estate liabilities increased. Also, the percentage with real estate liabilities increased with income. On the other hand, the ratio of outstanding real estate and non-real estate indebtedness to net income decreased as income increased. HOUSING CONDITIONS and NEEDS The 1950 Census of Housing reported more than a third of all occupied dwelling units in the Southeast as dilapidated. This meant that a serious deficiency in structure or condition existed, maintenance was neglected, or that original construction was inadequate to provide shelter and protection against the elements and to afford safety for the occupants. Housing Score To make comparisons among groups and to indicate general housing conditions, a housing scoring system was devised. The score included facilities, floor space in relationship to number of persons occupying the house, and condition of the exterior of the house. Kind and condition of foundation, siding, and roof could account for a maximum of 52 points; floor space relative to persons in the household, 34 points; and facilities, 14 points. Thus, the maximum score was 100. Details of the scoring system are presented in the Appendix. Only 14 out of 100 points were assigned to facilities. The reason for not giving more weight to facilities was that, in general, facilities are more easily acquired and financed than is addition of space or improvement or renovation of a structural part of the house. Selected houses in the Chambers County, Alabama, sample areas and their respective housing scores are shown in Figures 2 through 5. Rural residents in the non-farm occupational group had a higher average housing score than did other groups, Table 4. Owners also had a higher average score than did renters or resi- RURAL HOUSING SITUATION and NEEDS 11 FIG. 2. This dilapidated house scored 34 points out of a possible 100. It had 900 square feet of foor space and was occupied by nine persons when the study was made. The family vacated the house shortly after the survey was made. II A FIG. 3. Score far this house was 40 out of a possible 100 paints. deficient in all modern facilities except electricity. The house was 12 ALABAMA AGRICULTURAL EXPERIMENT STATION d r]E FIG. 4. Shown here is a rural home that hod been remodeled since 1951. With a score of 82 points, this house rated much higher than many in the survey. FIG. 5. Occupied by two persons, this house hod 1,200 square feet of floor space and was equipped with modern facilities. It scored 90 points. RURAL HOUSING SITUATION and NEEDS 13 RURAL HOUSIG SITUATION and NEEDS 1 TABLE 4. RELATIONSHIP OF HOUSING SCORE TO OCCUPATION, TENURE, RAGE, NUMBER OF PERSONS IN HOUSEHOLD, EDUCATION, AND NET INCOME OF HEAD OF HOUSEHOLD, 665- RURAL RESIDENTS, SOUTHEASTERN U.S., 1959 Classification Average housing score Occupational group Full-tim e farm er---- --- ---- --- --- ---- --- ---- --- -64 Part-time farm er------------------- - - - - - - - - - - - -64 Farm laborer-- -- - -- - -- -- - -- - -- -- - -- - -- -- -39 Other occupation (non-farm)---------------------------------70 No occupation (retired, disabled, or unemployed)--Tenure Ow ne r - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -R ter - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - en R ent free - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Race White - - - - - - - - - - - - - - - - - - - - - - - - - - - --N on-w hite-- - - - -- -- - --- -- - --- --- -- - -- Number of persons in household 2 o r less ----- -64 -7 -6 -5 3 2 2 70 -30 2 - - -- -- -- -- - - - - - -- -- -- - - - - - -7 3-5 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 6-8 - ---- - ---- --- - -- -- --- -- - ---- - --9 or m ore -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -4 Formal education of head of household N o schooling -----------------------1-6 grades-- - -- - -- - -- - -- - -- - - - - -- - -- - -- 7-12 grad es-- - - -- --- -- - -- -- - -- - - -- - -- -- - -More than 12 grades ------------------------------------- 69 58-7 47-------------- -54 -71 -87 Net income of head of household Less than $1,000--- --- -- --- -- --- -- -- --- --- -- --- -57 $1,000-$1,999 ----- --------------- -------- -------------$2,0 00-$2,999 ----- --------------------------- ---------$3,000-$4 ,999 ------------------------------ ----------$5,000 and over 62 67 76 84---------------- dents who occupied their houses rent free. Average housing scores increased as net inconme of heads of households increased and as number of persons in households decreased. Housing Deficiencies A majority of the rural residents, both owners and renters, recognized and reported housing deficiencies. Others, however, failed to recognize deficiencies. The housing situation in the Southeast is partially the result of failure to recognize needs and to take necessary action to overcome housing deficiencies. Deficiencies reported were varied. Twenty per cent of the respondents rated the exterior condition of the house as the most 14 14 ALABAMA AGRICULTURAL TABLE 5. EXPERIMENT STATION PERCENTAGE DISTRIBUTION OF THREE MOST SERIOUS HOUSING DEFICIENCIES REPORTED BY 523 RURAL RESIDENTS, SOUTHEASTERN U.S., 1959 Rating of deficiency 1st 2nd 3rd Deficiency Per cent Per cent Per cent Exterior of house--- -- --- -- --- -- --- - - --- -Space for Sleeping -- -- -- -- - -- -- -- - - - -- -- Bathroo m - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Space for storage, preparation, and service of aefrcohn trg----------------------20 15 15 14 11 6 13 11 4 20 26 2 19 4 2 21 22 0 food 'W ater system --------------------------------Space for laundry work ------------------------Space for leisure, play, and Interior of house------------------------------Heating system .------------------------------Space for sew ing ------------------------------O the r -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - T TA L --- -- -- -- -- --- -- -- -- -- -- --- -- -- -- - O hospitality _____________ 5 5 3 2 0 4 100 7 7 4 1 1 4 100 15 9 4 1 2 1 100 serious deficiency, Table 5. Space for sleeping and bath facilities were each rated the most serious deficiency by 15 per cent of the respondents. Of the rural residents recognizing and reporting housing deficiencies, an average of 28 per cent planned to correct the most serious deficiencies within 3 years. About 20 per cent each planned to correct the second and third most serious deficiencies within 3 years. Although deficiencies in the exterior of houses were rated most serious, a larger percentage of rural residents planned corrections in the interior than exterior. Deficiencies and plans for correction were reported by owners and tenants. Inclusion of tenants resulted in relatively low percentages of those who planned corrections. The percentage of 523 rural residents who planned to correct most serious deficiencies. within 3 years, is shown below: Correction planned Interior of house Bathroom Install running water system Improve heating system Percentage planning correction 50 39 33 31 30 17 17 13 47 Exterior of house Space for storage, preparation, and service of food Space for laundry work Space for clothing storage Space for sleeping Space for leisure, play, and hospitality Other 7 50 RURAL HOUSING SITUATION and NEEDS 15 Satisfaction with House Although a large percentage of rural residents reported housing deficiencies, 67 per cent said they were satisfied with their houses. A larger percentage of owners than renters were satisfied. With exception of farm laborers, more than 60 per cent of all occupational groups were satisfied with their houses. As net income of heads of households increased and as number of persons in the household decreased, the percentage satisfied with their houses increased. Housing scores, as calculated, were closely correlated with the percentage expressing satisfaction with their present house. It is believed that the large percentage expressing satisfaction with their houses, even though deficiencies were prevalent, stemmed from the belief that improvements were not attainable. Therefore, they were content with existing housing conditions. Housing vs. Non-Housing Needs Rural residents were asked to describe what they considered to be their most urgently needed expenditure of funds. Only 31 per cent said expenditures for housing were most urgent. Six per cent reported business expenditures, primarily for farm investment and operation, and 41 per cent reported non-housing, nonbusiness items as most urgently needed. The non-housing nonbusiness items included automobiles, boats, and appliances. Apparently, rural residents felt that expenditures for non-housing items gave more total satisfaction and prestige than housing expenditures. Also, financing of automobiles, boats, and appliances was no doubt easier to obtain than that for housing. Plans for Purchase or Construction of Houses All residents were asked if they planned to build or buy a house. Only 9 per cent planned to build and 2 per cent planned to buy a house. Three out of five who planned to build said they would do so within 3 years. Houses planned in most cases included six to seven rooms. Of the rural residents planning to build houses, 70 per cent said they would build in a rural area (open country). Twelve per cent planned to build in a town of less than 2,500 population and 14 per cent in a city of 2,500 to 50,000 population. None of the rural residents planned to build in a city of over 50,000 population. 16 ALABAMA AGRICULTURAL EXPERIMENT STATION REMODELING of HOUSES More than 28 per cent of the rural resident owners had remodeled their houses since 1950. Remodeling was defined to include any basic change in floor plan or an expenditure of $300 or more on the house. The housing score as calculated was somewhat higher for those that had done some remodeling than for others. Changes Made Addition of space was the most prevalent kind of remodeling. This involved addition of a room or enlarging an existing one. Besides the addition of space, interior improvements were carried out by 34 per cent and exterior improvements by 17 per cent of the rural resident owners. Examples of these changes included putting sheetrock on interior walls, new siding on the outside, new flooring, a new roof, and installing plumbing and water facilities. Many respondents had made more than one kind of improvement. Several owners reported that the addition of space overcame some of their housing problems. This group indicated that future changes would be made to fill other needs. A larger proportion of rural resident owners in non-farm occupations remodeled their houses than did any other occupational group, Table 6. However, average expenditures for remodeling were less for non-farmers than for full-time or part-time farmers. There was little difference in average net income between families in the group that remodeled their houses and those that did not. TABLE 6. NUMBER AND PERCENTAGE OF RURAL RESIDENT OWNERS WHO HAD REMODELED HOUSES SINCE JANUARY 1, 1951, AND AVERAGE AMOUNT SPENT, SOUTHEASTERN U.S., 1959 Remodeled since Occupational group January 1, 1951 Houses Proportion Average amount spent for remodeling Number Full-time farmer Part-time farmer... Other occupation (non-farm). No occupation (retired, disabled, or unemployed)-------TOTAL OR AVERAGE Per cent 18 31 Dollars 1,514 1,140 12 16 109 16 153 58 25 41 1,059 638 1,056 RURAL HOUSING SITUATION and NEEDS 17 Only 30 per cent of the remodeling work was done by contractors. The remaining 70 per cent was accomplished by members of the household, hired workers, or neighbors with whom work was "swapped." Work by members of the household and neighbors reduced the total dollar cost as reported in Table 6. Financing of Remodeling Less than two-fifths of the rural resident owners who remodeled their houses borrowed funds to finance the cost. Of those who borrowed, 48 per cent obtained funds from commercial banks, 17 per cent from savings and loan associations, and 10 per cent from individuals. The remaining 25 per cent borrowed from various other sources. In 41 per cent of the cases improvement or remodeling loans were unsecured. Fifty-nine per cent of the loans had some pledged security, usually a first or second mortgage. Also included as secured loans were those in which a promissory note was signed, many times with a co-signer in addition to the borrower. The most common rate of interest paid on remodeling loans was 6 per cent per year. Annual interest rates ranged from 4.5 to 8 per cent. A third of the respondents who borrowed for remodeling did not know the rate of interest paid. Time for repayment of remodeling loans ranged from 5 months to 20 years, the most frequent period being 3 years. Eighty-five per cent of the loans were scheduled for monthly and 15 per cent for annual payments. Almost half the loans obtained since 1950 had been repaid when the data were obtained. None of the rural residents with remodeling loans outstanding were behind in payments and 4 per cent were ahead of scheduled payments. Plans for Future Remodeling Plans for remodeling their houses within the next 3 years were reported by 27 per cent of the owners. As size of household increased, a larger proportion of heads of households planned to remodel houses within 3 years. Age of head of households was associated closely with number in the household. This, along with the fact that many heads of relatively small households were retired or disabled, influenced plans for making changes or remodeling of houses. 18 ALABAMA AGRICULTURAL EXPERIMENT STATION FINANCING of HOUSES BUILT or BOUGHT Forty-one per cent of the rural resident owners in the sample bought or built the houses they occupied after 1950. Of these residents, 57 per cent borrowed funds to build or buy. The remaining 43 per cent did not borrow. Terms of a first mortgage loan for financing a house determine to a large extent whether an individual can obtain and repay a loan without serious financial strain. Data presented in this section, primarily on terms of loans, are based on information from 87 rural residents who borrowed funds to finance houses built or bought since 1950. Sources of Loans Savings and loan associations were the source of loans for 37 per cent of the rural residents. Sixteen per cent borrowed from commercial banks, 5 per cent from life insurance companies, and 5 per cent from mortgage or realty companies. Individuals or relatives were sources of funds in 16 per cent of the cases. Seven per cent obtained loans from governmental agencies and 14 per cent from various other sources. In only one case was a second mortgage used in financing. However, almost 20 per cent stated that refinancing was involved when the housing loan was obtained. "Knew lender personally" was the major reason given for borrowing from the stated lender. Reasons reported were as follows: Reason for choosing lender Knew lender personally Lower interest rate Longer repayment period Had borrowed previously from lender Quick service Low down payment Other TOTAL Percentage reporting 23 10 10 8 7 6 36 100 Three-fifths of the borrowers contacted only one lender to obtain the loan. The remaining borrowers contacted two to four lenders prior to getting a loan. Shell home builders have become important sources of credit for rural homes in the last few years. Such homes are either built as "shells" that are not completed inside or as completed houses. Monthly payments are increased when the house is com- RURAL HOUSING SITUATION and NEEDS 19 pleted or when materials are furnished by the shell builder for completing the interior. Shell houses were generally financed on a 5-year monthly payment schedule. Cost of houses, depending on size, design, and features ranged from $1,500 to $5,000. Based on limited observations, the true annual interest rate paid was found to be 10 to 12 per cent. Shell home builders apparently felt that relatively high interest rates and short repayment periods were justified because of risk incurred. No down payment as such was generally required. However, the buyer had to own the land on which the shell home was to be built. The builder took a first mortgage on the land and house. Some buyers of shell homes indicated that they had trouble obtaining funds from commercial lenders for completing the house. Most lenders would not finance the cost of completing shell homes on a second mortgage basis. It is estimated that the cost of completing shell homes amounted to almost as much as the shell. Therefore, the loan-to-value ratio on a house completed by the buyer is not as great as that for the shell only. Interest Rates Paid Interest charged on a loan for $10,000 at a 5 per cent rate amortized monthly over a 20-year period amounts to more than half the principal amount of the loan. Therefore, interest rate paid should be a major factor in determining the source of borrowed housing funds. Of the owners who reported borrowing funds to build or buy houses since 1950, the most common interest rates paid were from 5.1 to 7 per cent annually. Thirty-five per cent paid less than 5.1 per cent interest and only 2 per cent paid more than 7 per cent. Down Payment The percentage of appraised value a lender is willing to lend on a house affects the amount of down payment required. Most lenders made no difference between the percentage of appraised value loaned on houses in urban and rural areas; however, many lenders appraise houses in rural areas at lower values than comparable houses in urban areas. This practice made it necessary for rural residents to make a larger down payment than urban residents. 20 TABLE ALABAMA AGRICULTURAL 7. EXPERIMENT STATION AVERAGE SIZE OF LOANS AND DOWN PAYMENTS ACCORDING TO USE OF FUNDS, RURAL RESIDENTS, SOUTHEASTERN U.S., 1951-1959 Purpose for which loan was obtained as Loan Down Residents Average Average percent- payment o eentage fn ae an downmnt reporting size of payment loan of loan No. To purchase farm land and house together To build house on farm land already acquired___ To purchase small acreage with house To build house on lot or small acreage already acquired .AVERAGE OR TOTAL_______________ _. Dol. 5,167 3,634 4,624 5,338 4,834 Dol. 3,957 2,512 2,335 1,790 2,347 Pct. 56 59 66 75 67 Pct. 77 69 50 34 49 9 10 34 32 3---. 85 Of the rural residents who obtained home loans, the average size loan was $4,834, Table 7. This was 67 per cent of the average cost of the houses bought or built. Average loans varied from 56 to 75 per cent of average total cost. Down payment averaged 49 per cent of the loan obtained. Down payment as a percentage of loan was highest when farm land was purchased with a house on it and was lowest when funds were borrowed to build a house on a small acreage or lot. Interviews with representatives of lending institutions indicated that the percentage of appraised value loaned was greater in rural areas when farm land was a part of the security given. However, data in Table 7 show that rural residents who borrowed to build houses on lots or small acreages obtained loans that averaged 75 per cent of cost, whereas those borrowing to purchase farm land and a house together obtained loans that averaged only 56 per cent of cost. It is possible that rural residents who owned farms on which the houses were built could make larger down payments and did not need to borrow as large a percentage of the cost of their houses as did those who, built on small acreages or lots. Data for rural residents covered the period since 1950 and lenders reported on their policies and practices during 1958 and 1959. Closing Costs Closing costs include such items as fees for title checks, credit reports, title insurance, origination fees, recording fees, taxes, and RURAL HOUSING SITUATION and NEEDS 21 FHA-INSURED, TABLE 8.. AVERAGE CLOSING COSTS FOR $10,000 CONVENTIONAL, AND VA-GUARANTEED LOANS, BY TYPE OF LENDER, SOUTHEASTERN U.S., 1959 Conventional loan FHA-insured loan Type of·lender VA-guaranteed loan T T _T....ra-1,_._1 Lenders Closing Lenders Cosing Lenders uosing reporting costs reporting costs reporting costs Commercial banks Life insurance No. 31 Dol. 102 No. 6 11 6 Dol. 250 333 354 317 No. 2 4 3 Dol. 248 290 300 companies ..................... 17 214 Savings and loan associations ____________________ 33 188 TOTAL OR AVERAGE-..... 81 160 23 9 284 insurance for a year or other stated period. The amount required as a closing cost sometimes prevents a resident from acquiring a house. Data obtained from lenders indicated that closing costs for conventional loans were less than those for FHA-insured or VAguaranteed loans, Table 8. Commercial banks charged less for closing housing loans than did other types of commercial lenders. Amount and Frequency of Payments Eighty per cent of the housing loans were repaid on a monthly basis, 10 per cent annually, and only 3 per cent semi-annually. The remaining 7 per cent obtained funds from relatives and had no set time for making payments or period in which the loans must be repaid. For those repaying loans on a monthly basis, the average payment was $56. Semi-annual payments averaged $450 and annual payments $627. The percentage distribution of housing payments on a monthly basis regardless of payment period was as follows: Monthly payment $20 or less Percentage of loans 6 21-35 36-50 51-75 76 or more TOTAL 20 28 22 24 100 Length of Loans The original time period for repayment of first mortgage housing loans ranged from 1 to 25 years, with the average being 10 22 ALABAMA AGRICULTURAL EXPERIMENT STATION years. The largest proportion of all loans was for less than 6 years, as shown below: Length of loan, years Less than 6 6-10 11-15 16-20 21 and over TOTAL Percentageof loans 33 24 21 18 4 100 COMPARISON of CREDIT AVAILABLE for RURAL and URBAN HOUSING The procedure or framework for the flow of housing investment funds is quite different for urban compared with rural areas. To a large extent in rural areas, funds are obtained directly from, the lender by the rural resident. In urban areas, realtors, construction lenders, and development builders are instrumental in arranging financing for the buyer. They promote construction, sale, and financing of houses. In many instances in urban areas, the development builder acquires land and subdivides it into lots. Houses are built and a realtor sells them. Prior to construction, commitments may be obtained for FHA insurance or a VA guarantee on mortgages. Commitments may also be obtained from lenders, such as bankers, savings and loan associations, insurance companies, and others, to supply mortgage funds. Insurance and guarantee programs have been effective in inducing lenders to invest in urban residential mortgages in the past. A vast majority of government-insured mortgages has been on urban houses. Rural houses have been financed by funds obtained under conventional-type mortgages. Terms under which FHA and VA loans are made are more liberal than are those for conventional loans because of government backing. Section 203(i) of the National Housing Act gives the Federal Housing Administration authority to, insure loans on homes in remote areas and on farms of 5 acres or more adjacent to a public highway. In 1958, less than 1 per cent of all applications received by the Federal Housing Administration Office in Alabama were in towns of less than 2,500 population. The Voluntary Home Mortgage Credit Program and the Certified Agency Program were also initiated to aid in the flow of mortgage funds to small towns and remote areas, but they have been relatively unsuccessful. RURAL HOUSING SITUATION and NEEDS 23 RURAL HOUSING SITUATION and NEEDS 23 FIG. 6. Sources of housing credit that are available to urban, rural farm, and rural non-farm residents are shown by the graph. Also shown is the proportion that each population segment was of total population in 1950. Most legislation intended to, facilitate, rural housing improvement has been aimed at farmers, yet farmers are now in the mi- nority in the Southeast. Rural non-farm residents and part-time farmers have received little consideration. The Farmers Home Administration supplies credit to farmers who have resources. for successful farming row on reasonable terms from other lenders. Appropriated funds are used to make housing loans. and, in addition, Home Administration will insure loans made by commercial lend- but are unable to bor- the, Farmers ers. Only 3 per cent of the commercial banks and none of the insurance companies or savingsand loan associations in the sample made any loans insured by the Farmers Home Administration in 24 ALABAMA AGRICULTURAL EXPERIMENT STATION 1958-59. Farmers Home Administration housing loans made with appropriated funds vary in availability to rural residents depending on the definition of a farm used. This definition is changed from time to, time. Federal Land Bank Associations also provide credit for housing to farmers. They do not serve the rural non-farm sector. The Veterans Administration, besides guaranteeing loans made by commercial lenders, also makes direct loans with appropriated funds. In 1958-59, VA State Offices in the four Southeastern States made an average of 600 real estate loans, all of which were for homes. Over half of these were made to residents in rural areas. The various sources of home mortgage funds available to urban, rural non-farm, and rural farm residents are presented in Figure 6. SUMMARY and CONCLUSIONS To most people, the term "rural resident" conveys the picture of a farmer. A few years ago this was a valid conception. Today, however, it is grossly incorrect to think of all rural residents as farmers. The sample of rural residents in four Southeastern States disclosed that almost half were employed in non-farm occupations. Changes in occupations have resulted from rapid industrializatio inin the Southeast. Increases in incomes of rural residents have permitted improvements in housing. Although some improvements have been made, housing deficiencies still exist. Major deficiencies center in lack of adequate space, water and associated facilities, and poor exterior condition of houses. Based on the assumption that one can afford a house that costs 21/2 times his annual net income, low cost houses ($5,000 to $9,000) could be purchased and paid for by many rural nonfarm residents. The shell home industry has recognized this fact and is attempting to meet demand for houses in this price range. Shell homes have gained popularity in rural areas because purchasers can acquire houses with small down payments. The swiftness with which the shells are completed and the minimum amount of "red tape" involved in expediting transfers of ownership also appeal to rural residents. Although housing deficiencies exist, purchase of non-housing, RURAL HOUSING SITUATION and NEEDS 25 non-business items, such as television sets, boats, appliances, and automobiles, was placed ahead of housing improvements. Apparently, rural residents felt that such items gave more total satisfaction than expenditure of funds for housing. Also, credit was easier to obtain for the purchase of durable consumer goods than for housing improvements. Once the demand for these items is more nearly satisfied, there will likely be an increase in expenditures to improve houses. \The existing framework for financing houses in urban areas is more highly developed and is more adequate than is that for rural areas. Operation of various governmental housing programs coupled with activities of development builders and real estate brokers has facilitated home construction and purchase in urban areas. These have had little effect on housing in rural areas. In view of the increasing number of rural non-farm people with higher incomes, lenders should seriously consider making adjustments in their lending policies that would make housing credit available to rural people. It is essential, however, that housing loans in rural areas be made on a sound economic basis. Greater risk because of lower resale potential in case of default on payments or mortgage foreclosure could be compensated for by charging higher interest rates. Also, legal statutes under which many lending institutions (farm and city oriented) operate could be changed to allow them to better serve rural non-farm residents. Many rural residents are not aware of housing needs and how to meet these needs effectively through the use of credit. It is recommended that educational programs and efforts by governmental and private agencies be devoted to increasing the rural resident's knowledge of wise and effective use of credit. Each individual housing situation is different. The policies and practices of lending institutions vary. Because of this, there is not "one best source" of housing credit for all rural residents. Alternative sources of credit should be considered when planning housing improvements. 26 ALABAMA AGRICULTURAL EXPERIMENT STATION APPENDIX Calculation of Housing Score Following is a brief explanation of how the housing score was calculated and the relative weight given to each component of the score. Each house included in the sample was scored. As an illustration, scoring of an actual house in the sample is discussed and points are entered on the score form on pages 28-29. Blank spaces are provided for calculation of the score for your residence to compare with the distribution of scores for the sample. Find the 10 per cent group in which your house scores compared to the distribution for the sample of houses. A total score of 100 points is possible. Maximum score for facilities is 14 points; for floor space relative to number of persons in the household, 34 points; and for the exterior components of the house and their condition, 52 points. It is recognized that the scoring method presented has limitations in terms of representing housing adequacy. Many factors that possibly should be considered are not included. The relative weighting of components might be questioned. Most weight was given to the exterior components of foundation, siding, and roof since these units represent a substantial part of the total cost of a house. There was an overall correlation in the housing score and actual housing situations based on inspection of houses in several of the sample segments. The actual house scored, as an example, had electricity, a flush toilet, and hot and cold running water inside. Therefore, a score of 14 points for facilities was recorded. There were four persons in the household. The house had 891 square feet of floor space. Thus, the space score amounted to 24 points. Exterior components of the house were as follows: Masonry piers as a foundation with no noticeable defects, painted wood siding with only one defect (had some loose and/or rotted materials), and composition roofing with no defects. Based on these observations the exterior components scored 38 points. The total housing score was 76 points out of a possible 100. This house ranked in the fourth group (decile) from the highest 10 per cent of houses in the study. It is suggested that you score your house on the basis of points indicated in the score form. Compare the total score for your RURAL HOUSING SITUATION and NEEDS 27 house with the scores for houses in rural areas included in the study. If the score for your house is between 89 and 100, it falls within the top 10 per cent of houses in the study. If the score is 65, your house compares with those in the sixth 10 per cent group from the top. Average score for all houses in the study was 67 points. Distribution of scores of the 665 houses in the study are given below: Decile number (groups with 10 per cent of houses) hoRange ore housing score 1 2 3 4 5 6 7 8 9 10 89-100 85- 88 81-84 75- 80 69- 74 63- 68 55- 62 50- 54 40- 49 Less than 40 28 ALABAMA AGRICULTURAL EXPERIMENT STATION Method of Calculating Housing Score Score ItemAssigned Itempoints A. FACILITIES Electricity Yes No Toilet facilities Flush toilet Privy, outhouse, or chemical toilet No toilet Water facilities Hot and cold running water inside Only cold running water inside Only piped water outside of house Carry water 100 feet or less Carry water over 100 feet SUB-TOTAL FOR FACILITIES Example Your house 2 2 0 4 4 2 0 8 8 6 4 2 0 14 B. FLOOR SPACE RELATIVE TO NUMBER IN HOUSEHOLD Number of persons in household 0-2 3-5 6-8 9 or more Square feet of floor space 340 341 591 871 or less -590 - 870 or more SU-OA 590 or less 870 or less 591 -870 871 - 1,270 871 - 1,270 1,271 - 1,660 1,271 or more 1,661 or more O PC 1,270 1,271 1,661 2,181 or less - 1,660 -2,180 or more 4 14 24 34 24 RURAL HOUSING SITUATION and NEEDS RURAL HOUSING SITUATION and NEEDS 29 29 C. EXTERIOR Kind of foundation Continuous masomy Rock or masonary piers Continuous wood Wood posts Condition of foundation 1 No noticeable defects One defect Two defects Three or more defects Kind of siding Brick or stone Concrete block or stucco Asbestos siding Composition siding Wood painted Wood never painted Condition of siding' No noticeable defects One defect Two defects Three or more defects Kind of roof Asbestos, tile, or slate Composition or asphalt shingles Sheet metal, tin, or aluminum Composition roll roofing Tar paper Condition of roof No noticeable defects, does not leak Has holes or missing materials, leaks SUB-TOTAL FOR EXTERIOR 6 8 6 4 2 8 8 6 4 2 4 12 10 8 6 4 2 6 8 6 4 2 10 12 10 8 6 2 4 38 GRAND TOTAL 76 1 Defects include loose or rotted materials, holes and/or missing materials, and substantial sagging or warping.