ICYMI: “The Shutdown Is Already Having A 'Chilling Effect' On Multifamily”
The federal government shutdown, already the second-longest in U.S. history as it enters its fifth week, is starting to impact more and more corners of the country's commercial real estate market.
For multifamily owners, Nov. 1 — when the Supplemental Nutrition Assistance Program, which provides food assistance to more than 40 million Americans, is set to lapse — is seen as a major inflection point. In a matter of weeks after that, if the shutdown is ongoing, funding for Section 8 housing vouchers is expected to run out.
There’s “real concern” about the “potential impact to rental housing and the renters we serve,” including the potential for missed rent payments in December, said Nicole Upano, National Apartment Association assistant vice president of housing policy and regulatory affairs.
The government shutdown has started to impact the affordable housing pipeline, with more impacts coming if the impasse lingers.
Combined with the dismissal of government staff across a constellation of agencies, the shutdown's impact has gone beyond lower rent collections to include delays for new projects and limiting funding options.
Thus far, the impacts of the shutdown have primarily been to slow down processing and deal pipelines, said Rebecca Simon, a partner in Nixon Peabody’s affordable housing practice. Her firm found that the Department of Housing and Urban Development was operating with approximately one-quarter of its staffing capacity.
The most immediately significant impacts on the multifamily sector come from workforce reductions, bureaucratic freezes and reduced funding from HUD and the Community Development Financial Institutions Fund. New loan processing via HUD remains frozen, said Denise Muha, executive director of the National Leased Housing Association.
But HUD impacts housing development and project timelines in myriad ways.
HUD building inspectors check every federally subsidized affordable housing building, but every single government inspector was let go. Federal Housing Administration insurance backs a significant portion of multifamily development financing nationwide, and new policies can't be written during the shutdown.
Many developers use project-based vouchers and guaranteed government income to underwrite affordable housing development. But right now, new vouchers can’t be processed.
The Office of Community Planning and Development administers the $1.25B Home Investment Partnerships loan program, which can be applied to building or rehabbing affordable housing. Twenty-one D.C. staffers were let go from that office.
In addition, every staffer at the CDFI Fund, a government agency that doles out new markets tax credit and CDFI financing, was laid off during the shutdown.
It remains unclear whether these workers will be reinstated or the losses will be permanent. A federal judge in California temporarily halted the reductions in force this week, NPR reported.
The CDFI Fund helped finance more than 45,000 affordable housing units nationwide in fiscal year 2024. Since the termination of CDFI staff means that funding for these institutions can’t be distributed, many affordable housing projects, especially in rural and low-income parts of the country as well as second-tier cities, would be targeted by disruption, Upano said.
In addition, since Oct. 1, the National Flood Insurance Program has been unable to issue new or renewal policies without congressional reauthorization, meaning new projects that need proof of insurance for loans can’t move forward.
Neology Group CEO Lissette Calderon, a developer with a South Florida portfolio that contains significant workforce housing, said these challenges have made her anxious.
“We’re seeing a slowdown in the entitlement process anytime we need to work with a federal agency,” Calderon said. “These delays can pose significant challenges.”
Calderon also pointed to some more under-the-radar impacts that have slowed development. One of her South Florida high-rises is tall enough to require Federal Aviation Administration authorization to build and hasn’t been able to obtain the necessary certification because of the shutdown.
Second, a lender who wanted to tour a project site couldn’t make it because the air traffic controller shortage led to their flight getting canceled.
“Markets just don't like uncertainty,” Calderon said. “So when we're out there in the capital markets and we’re raising money or refinancing, volatility is not something that markets like. If this goes on a little too long, it's going to start creating issues within the capital markets as well.”
Simon predicted “a chilling effect across the industry” if the shutdown is prolonged even a few weeks longer, complicating the traditional year-end rush to close affordable housing deals.
“The expectation is the backlog that's being created with every extra day of a shutdown is going to mean exponentially bigger impacts to processing timelines,” Simon said. “HUD was already operating at 30% less staff than at the beginning of the administration, and we were starting to see the impacts of that to processing times. And now, they'll be coming back to at least a month's worth of work.”
In all, federal funds and programs like low-income housing tax credits contribute a significant portion of the total funding for affordable housing deals, according to the National Association of Affordable Housing Lenders. Lose any part of that Jenga-like assemblage of funds or certifications, and a project can fall apart.
Year-end deadlines are looming for many other funding sources. Even when the government is operating as usual, millions of dollars in LIHTC credits get lost every year by developers who can’t meet Dec. 31 deadlines.
There is a sense that if this shutdown lasts and impedes projects from accessing federal dollars, some developments won’t be able to access LIHTC credits and other deals will fall apart.
Shutdown impacts are set to become much more serious in coming weeks as programs like SNAP are impacted.
“This is going to impact the smaller and medium-sized family businesses or companies out there who may not be able to sustain those kinds of losses at the end of the year,” Upano said.
Developers are trying to factor in these delays in their timelines for active proposals and will attempt to get the attention of HUD staff once the shutdown is over to prioritize deals that have other expiring funding sources, Simon said.
One of the more pressing issues at play remains the coming cuts to the social safety net. A leaked funding memo from late September suggests that funds from HUD's Continuum of Care program will be redirected away from permanent supportive housing and toward temporary housing solutions.
This reappropriation will mean that a key source of funding for deeply affordable housing will be lost, a blow to the type of affordable housing with the greatest demand.
“What this means is that it will be a lot more difficult for developers to really make those kinds of deeply affordable housing deals pencil, and a lot of people will lose the assistance they rely on,” National Low Income Housing Coalition Policy Manager Kim Johnson said.
The absence of SNAP payments, colloquially known as food stamps, will not only cut access to meals for millions of Americans but will also place substantial economic pressure on tenants and owners of affordable housing.
A shutdown notice posted by HUD in late September announced the agency had funding through mid-November for Section 8 vouchers. If that runs out, it could lead to a cascade of missed payments for apartment operators, resulting in possible evictions.
NAA’s Upano said renewals and new applications for rental assistance, both Section 8 and rural rental assistance distributed by the Department of Agriculture, will remain frozen throughout the shutdown. Many housing authorities had already been preemptively tightening their belts, Simon said, holding back on issuing new vouchers and tightening rent increases on existing vouchers to conserve funding.
Calderon said federal workers in her buildings have missed paychecks and are already requesting help with rent or payment deferrals.
“My residents are being impacted by this in real time, whether it’s federal workers or small-business owners who can’t get loans or the next investment they need,” she said.