LA Apartment Owners Brace For 'Horrendous' Fallout Of Section 8 Cuts

Los Angeles multifamily landlords and tenants are girding for yet another blow on the heels of January’s historically destructive fires that tore through a city still recovering from the pandemic.

The latest challenge for the city’s apartment industry comes in the form of a budget shortfall, projected to be up to $118M, that could force the local housing authority to cease payments to landlords later this year. The deficit has been exacerbated by existing and potential federal-level cuts to Section 8 housing vouchers.

“It would be horrendous: so many renters would lose their housing, and a huge cost would be incurred by housing providers,” Apartment Association of Greater Los Angeles CEO Daniel Yukelson said.

In March, staff at the Housing Authority of the City of Los Angeles informed local landlords and industry leaders that due to budget shortfalls, the agency would potentially cease paying for housing vouchers as early as November. The same month, the agency suspended housing application processing for 3,300 families.

The depth of the problem remains unclear as HACLA and similar agencies across the country await information from the Department of Housing and Urban Development, which came under new leadership with President Donald Trump’s reascension to the White House.

HACLA expects more information and budget allocation figures to come later this month, Chief Programming Officer Margarita Lares said.

Joel Rodstein, chief operating officer of North Oak Property Management, which operates more than 100 units in the city with Section 8 tenants, called the situation a “terrifying” slow-motion disaster. 

The shortfall has the potential to further damage the industry after years of pandemic-era lost payments and a sudden surge of housing need following the fires, he said. 

“Not enough people know about it, and the city’s not doing anything to head it off,” Rodstein said.

A voucher shortfall would come during a challenging moment for the city, which is facing substantial financial pressure. Mayor Karen Bass just proposed sweeping job cuts to combat the steep $1B budget deficit. The mayor’s office did not respond to a request for comment before press time.

The human toll of a pause or cut in housing vouchers would be significant. Roughly 59,293 households in the city of Los Angeles depend on housing vouchers, or approximately ​​85,184 people, according to HUD data.

The city has roughly 45,000 people without housing, according to the last homeless count. The Legal Aid Foundation of Los Angeles has called Section 8 Housing vouchers the last barrier between many of these renters and potential homelessness. 

Congress passed a continuing resolution on March 15 that reduced overall voucher spending and could take further steps to reduce funding, especially for so-called sanctuary cities. 

The Trump administration has repeatedly threatened to cut off funding for sanctuary cities. On April 4, HUD Secretary Scott Turner issued a letter informing department grantees that “federal housing assistance will no longer be granted to ‘illegal aliens’ or sanctuary cities.”

Strict rules already exist barring noncitizens from receiving such aid. On April 29, President Trump signed an executive order asking for a list of sanctuary jurisdictions that will see a potential “suspension or termination” of federal funding.

Reports also suggest the proposed White House budget would slash safety net funding, including a proposal to save $22B by turning federal housing subsidies into state programs that would have a two-year cap on rental assistance. That would lead to funding shortfalls at the approximately 2,000 public housing agencies across the country that manage the HUD-funded voucher program.

This level of funding cuts would create significant housing challenges for cities across the country. Landlords have reacted with anxiety around the potential fallout.  A policy analyst with the National Association of Housing and Redevelopment Officials found some voucher landlords are worried about funding issues.

The analyst said they’ve received questions from landlords across the country asking about program funding and potential reforms.

The program has a good reputation among landlords for offering steady payments, and if the current uncertainty causes that reputation to change, it will be harder for participants in the voucher program to find landlords willing to accept vouchers, according to the analyst, who spoke on the condition of anonymity.

The HACLA budget shortfall may become even more pronounced if more federal cuts are made.

In a press release, HACLA has said that if the federal government cuts funding for the Housing Choice Voucher program dramatically, HACLA may “be forced to consider all options to ensure program solvency, including terminating vouchers.”

“Los Angeles could see increased housing instability, affecting thousands of families, property owners, and the broader community,” the news release said.

“I think the landlord community could be in serious trouble, particularly those in the affordable housing space,” California Landmark Group principal Ari Kahan said, whose firm operates multifamily properties across southern California.

“Many properties have been purchased with both pricing and debt that factors in Section 8 rents, and those who depend on the cash flow will struggle to service their debt and have a very significant impact on their ability to operate these properties,” he said.

The Section 8 program isn’t an entitlement that is automatically funded. Only one-quarter of Americans who qualify receive the assistance, leading to long waitlists and struggles due to increasing rental costs. 

It’s also illegal for landlords to refuse a tenant due to their use of Section 8. So even if landlords are informed that Section 8 funding might be cut, they still need to accept Section 8 rental applications.

But nonpayment of rent isn’t the biggest concern.

“This would certainly impact our bottom line to the extent we have units with Section 8 tenants,” Kahan said.  “But the bigger concern is the evictions this will cause when tenants are unable to pay the rent they owe because the government is electing to withhold it.”   

Yukelson said that increasingly, smaller landlords have felt constrained by rising costs and have either sold their properties or turned them over to management companies. He said the National Apartment Association has been working on these issues in Washington, D.C.

“I don't really have high hopes for HACLA to be able to figure this out,” Yukelson said. “We are obviously warning members that this is coming down the pipeline.”

Rodstein, whose 2,500-unit portfolio contains significant properties in multifamily-heavy areas such as MacArthur Park, Koreatown, Echo Park, Hollywood and Silverlake, says he sees many of the smaller mom-and-pop properties he manages having significant financial troubles if two months of Section 8 payments go missing. 

Tenants typically pay 30% of the total monthly rent, which averages  $2,164 per month in Los Angeles. Yukelson said not only will landlords not get their full rent payments for two months, but since these tenants will struggle to pay, they’ll then spend extra time in eviction proceedings, losing more income and putting their own payments at risk. 

“If all these vouchers disappear, and we have an influx of all these units at once, we’re going to have to fill all of them, which is going to impact rent across the entire market,” he said. 

He worries about a repeat of the situation during the pandemic, when landlords were burdened by missed rent despite federal rental subsidies. 

“The cost of running a building doesn't go away, or the cost of utilities or trash, all those other things don't go away,” he said. “So they're going to put the burden on the landlord again. It took a year to get over Covid shortfalls. Now it's just preparing for the worst again.”