Government Shutdown: What it Means for Affordable Housing and Community Development
What’s Happening
Today, the federal government officially entered a shutdown after Congress failed to reach agreement on legislation to fund the government before the end of the fiscal year on September 30.
Last night, the Senate again voted on two proposals to provide a short-term extension of federal funding while Congress seeks agreement on full-year funding bills: one put forward by Republicans that would continue funding through November 21, and one put forward by Democrats that would fund the government through October 31 and include limitations on the President’s ability to withhold funding Congress provides, as well as an extension of Affordable Care Act health insurance subsidies that expire at the end of the year and a reversal of Medicaid cuts enacted in July in the One Big Beautiful Bill Act. Both bills failed to pass.
Prior to the shutdown, the Office of Management and Budget (OMB) issued a memo directing federal agencies to prepare to make permanent job cuts in the event of a shutdown. The memo instructs agencies to identify programs that depend on discretionary funding, have not received funding through another source (like the One Big Beautiful Bill Act), and are not aligned with Administration priorities, and to prepare plans to eliminate positions in those programs through a Reduction in Force (RIF). Permanently eliminating positions during a temporary shutdown is not typical, and the directive adds additional uncertainty during this shutdown period.
Impact on Housing and Community Development
The shutdown will have uneven impacts across agencies and programs.
Agencies not funded through annual appropriations will continue daily operations with minimal disruption. These include the Federal Housing Finance Agency (FHFA) and the federal banking regulators.
Agencies and programs that rely on annual appropriations will be affected, including the Department of Housing and Urban Development (HUD), the U.S. Department of Agriculture (USDA), and the Community Development Financial Institutions (CDFI) Fund.
These agencies are required to distinguish between “essential” and “non-essential” functions. Essential functions can continue, and employees deemed “essential” will continue to work during a shutdown. Non-essential functions and programs that have run out of appropriated funds will be paused, and employees are generally furloughed. Federal agencies have outlined what functions and funding will continue and what will be suspended during a shutdown through agency-specific contingency plans.
HUD’s contingency plan outlines significant impacts to many key programs:
HUD rental assistance programs: Monthly payments under Section 8 Project-Based Rental Assistance (PBRA) contracts and Housing Choice Vouchers, as well as renewals of expiring contracts, will continue as long as previously obligated funds are available. If the shutdown lasts for an extended period, programs may run out of funds.
Block grant programs (e.g., HOME, CDBG): Drawdowns of already obligated funds can continue, but no new grant funds will be available.
FHA Multifamily: Multifamily loan closings that are scheduled or in progress will proceed. New loan activity will be paused.
FHA Single-Family: FHA will endorse forward single-family loans but will not endorse Title I or Home Equity Conversion Mortgages (HECM).
USDA’s contingency plan states that USDA’s Rural Development activities will generally cease, but activities necessary to preserve the government’s interest in properties will continue. This includes providing Section 521 rental assistance payments for existing contracts where funds remain available.
Treasury’s contingency plan states that the CDFI Fund is not an essential program. Certification reviews, approvals, and new funding actions are suspended until appropriations resume.
The National Flood Insurance Program (NFIP) will also be impacted as authorization for the National Flood Insurance Program has been tied to appropriations legislation. NFIP’s authority to write new policies, including policy renewals, is suspended until the program is reauthorized. This could disrupt the housing market as mortgage originations for properties requiring flood insurance are unable to close until the program is reauthorized and a policy can be issued. It also creates issues for homeowners and property owners who need to renew their annual flood insurance policy but will be unable to, putting them out of compliance with mortgage requirements.
What’s Next
Congressional leaders will attempt to reach agreement on a short-term funding bill over the coming days.
In addition to disagreements on short-term funding, Congress has not yet reached agreement on full-year FY 2026 appropriations. Congress will ultimately need to reach agreement on full-year funding bills – or a full-year continuation of FY 2025 funding levels – to keep the government open beyond the end of a short-term bill. There are significant differences between the President’s budget request and House and Senate proposed funding levels for key housing and community development programs. NAAHL’s comparison of FY 2025 funding for key housing and community development programs, as well as proposed FY 2026 funding levels, is available here.
Appropriators are currently working to reach agreement on full-year funding on three bills as a first step – Military Construction-VA; Agriculture; and Legislative Branch appropriations.
Meanwhile, the Transportation, Housing and Urban Development, and Related Agencies (THUD) bill has advanced out of both Appropriations Committees but has not received a floor vote or been part of bicameral negotiations. The House has also reported out its Financial Services and General Government (FSGG) bill, which funds the CDFI Fund, but the Senate has not acted.
How Long Will the Shutdown Last?
The length of any shutdown remains uncertain. During President Trump’s first term, the government experienced two shutdowns: one lasting 3 days and another lasting 35. The longer a shutdown lasts, the more damaging it could be for communities. In addition to the impacts of a shutdown, OMB’s directive to permanently reduce staffing could have effects far beyond the end of the shutdown.
Resources Recap
NAAHL will continue to monitor progress on appropriations legislation, as well as shutdown impacts for housing and community development programs.