If Government Shutdown Lasts 1 More Week, Affordable Housing Providers Will Be In Trouble
After the Senate blocked bills Thursday afternoon that would have ended the government’s longest-ever shutdown, ripples of anxiety intensified through the world of commercial real estate.
Perhaps no one watches these events with more anxiety than providers of affordable housing. Many of their developments are largely occupied by low-income families, making them dependent on a steady stream of federal subsidies to make up what they don’t collect in rents.
Ever since the federal government partially shut down on Dec. 22, these firms have watched energy and mortgage bills continue rolling in, and staff payrolls, capital expenses and insurance payments haven’t vanished, either.
The length of this closure, in its 34th day as of Thursday, and the uncertainty of when it will end, makes it like no other in history.
“We’re in uncharted territory,” Evergreen Real Estate Group Executive Vice President of Operations John Kennedy said.
His Chicago-based firm manages about 8,500 apartment units in 10 states. More than 80% of these units receive subsidies from the Department of Housing and Urban Development through project-based Section 8 or the Section 202 PRAC program, which provides housing for the elderly.
Unlike Section 8 vouchers, which individuals can use to rent units anywhere, project-based Section 8 is tied to affordable properties, many of which were funded with Low-Income Housing Tax Credits. Residents, mostly low-income families, pay 30% of their income toward their monthly rent, and HUD pays the rest.
During past shutdowns, Evergreen and other firms typically had expectations that the government would soon open back up, and rent subsidies, which usually arrive at the beginning of each month, always flowed unimpeded, Kennedy said.
HUD quickly assured affordable housing groups in December that January subsidies would go out on time, and made good on that promise, he said.
But the next set of payments is due in a week, and even though HUD has given more assurances, Kennedy now feels uncertain.
“Until the money hits the bank, it’s a concern,” he said.
Other providers could be in worse shape if the shutdown continues.
None of Evergreen’s properties has a HUD contract about to expire, but companies that face this situation may not be able to get them renewed. Most HUD personnel are not considered essential employees like airport security and Coast Guard personnel. That puts some developments at risk for a loss of their entire subsidy, a possibility considered very remote until this month, and could mean layoffs, unmet maintenance needs and cancellation of needed capital projects.
“It’s not something you typically plan for,” Kennedy said.
“I’m still optimistic that the shutdown will end relatively soon, and it won’t have a lasting impact, but there is a lot of anxiety out there.”