'Perfect Storm': Shutdown Rocks D.C.'s Troubled Housing Industry

With the federal government shutdown reaching the 30-day mark, the first rental payment since federal workers stopped receiving pay is about to come due. Thousands of D.C.-area renters will have trouble making it.

After Friday, unless a deal is reached, employees at every civilian government agency will have missed a paycheck.

The D.C. region is especially vulnerable, housing about 15% of the country’s federal workforce. There are more than 356,000 federal workers spread across the area, and a quarter of all jobs in the District are federal jobs.

The economic ripple effects of the shutdown are expected to hurt the region’s rental housing market. From federal workers going without pay to low-income tenants not receiving voucher payments or food stamps, the industry is warning of a risk that a wave of tenants will default on November rent. 

“We're at a critical moment right now where they need to open up the government, because once we cross those thresholds where those pools of money dry up, then that's going to be catastrophic,” Capitol Rock Partners CEO Felipe Ernst, whose firm owns more than 30 apartment communities in the region, told Bisnow.

This potential loss of rent payments comes as the region’s housing market is already facing challenges on multiple fronts. 

The Trump administration’s wide-ranging cuts to the federal workforce and contractor spending have impacted not only residents in D.C.’s public realm but also employees at private companies that receive federal funds.

Between January and June, the region’s unemployment rate increased at six times the national average, according to a Brookings Institution report. 

The largest publicly traded landlord focused on the D.C. region, JBG Smith, said in its quarterly earnings Tuesday that the federal cuts and the shutdown have created “tepid” demand for apartments that it expects to continue. Cash flow in the REIT’s 6,000-unit multifamily portfolio fell 2.2% last quarter, and apartment occupancy dropped by more than a percentage point.

Privately owned landlords with smaller portfolios tell Bisnow their tenants have already warned them they will have trouble paying the bills. 

“We have heard from residents that are concerned about receiving their Social Security checks, receiving their fixed income payments,” Ernst said. “And they have reached out saying, ‘Hey, guys, just want to give you a heads-up, my payment might be late this month.’”

CIH Properties Vice President Zachary Huke, who oversees four D.C. apartment complexes totaling 1,200 units, said every property has renters who are federal employees going unpaid.

“We’ve had numbers of people coming into the office to explain that they’ve been furloughed and can’t make a rent payment,” he said. “Some of them have displayed a furlough letter, a verification that they’ve been furloughed. It’s not an excuse, unfortunately, for not paying your rent.”

Landlords also said they are worried about the effect of the government halting payments through the Supplemental Nutrition Assistance Program, which would lapse Nov. 1 if Congress doesn’t reach a deal to avoid it. More than 40 million Americans receive food assistance from the program, including more than 1.6 million in the D.C. region. 

“I’ve got a real concern about that program drying up because folks will use any money they have to buy food, and that could put rent payments on the back burner,” Huke said.

Mayor Muriel Bowser announced late Thursday that her administration would use internal funds to cover SNAP benefits for D.C. residents through November if the shutdown continues.

Although the first-of-the-month litmus test for the shutdown’s impact on rental payments is still a couple of days away, landlords in the D.C. region are already gearing up for a challenging environment. 

Affordable housing giant Enterprise Community Development sent out a notice to its local residents last week telling them the company will “temporarily suspend eviction proceedings” or “delay enforcement” for qualifying tenants “to help mitigate the risk of housing instability caused by the shutdown,” according to a spokesperson. 

So far, only a few residents had sought the paperwork requesting relief, the spokesperson said.

Ernst said his firm will also work with its residents who have trouble paying rent to find solutions. 

“Luckily, we haven't had too much of an effect just yet, because it's still very fresh,” he said. “But as more time goes along, we're going to have to come up with payment plans.”

Chris Grant, a partner at Yoke Management Partners, which owns 101 units across the D.C. metro area, said the landlord is waiving late fees for the month for four of its six properties — the two others are highly subsidized — and is talking to a local food bank about partnering with its communities.

“I know all these people are prideful and have integrity and, in many cases, are trying to make the most out of an unfortunate, unprecedented situation,” Grant said. “And so we're just here looking to be supportive with them during this season and beyond it.”

Huke said tenants missing payments because of the shutdown will enter the same process as the company's other nonpaying tenants. CIH Properties tries to reach agreements with nonpaying tenants, under which they can stay in their unit if they start paying their current-month bills and agree to pay their back rent in increments.

But if the shutdown drags on and tenants can’t pay, some landlords will ultimately move forward with evictions. 

D.C. passed bills this year to roll back some pandemic-era tenant protections and make it easier for eviction cases to move through the courts. Those actions came after landlords raised the alarm about their tenants racking up millions of dollars in unpaid rent and buildings not bringing in enough income to pay the bills.

This situation has made it more difficult for landlords to offer tenants leeway during the shutdown, they say. If more tenants can’t pay rent, landlords face the prospect of losing properties to foreclosure — like the 51-building Meadow Green Courts complex that D.C.-area landlord E&G Group lost earlier this year. 

Meadow Green’s tenants had accrued $6M in unpaid rent, E&G principal Tom Gallagher previously told Bisnow, adding that the company's partners paid $4M out of their own pockets to plug the gaps and try to hold on to the building. Their lender filed for foreclosure in February, and a new partnership acquired it in September. 

Gallagher said he is worried the shutdown will increase its level of rent delinquencies and push more properties into foreclosure. Given that many of its tenants are low-income renters with federal housing vouchers, he expressed concern about collections with the government’s inability to process voucher payments during the shutdown. 

The Department of Housing and Urban Development said it could run out of funding to make Section 8 voucher payments in the middle of November. It hasn't processed new applications since the shutdown began — and HUD was already at a staffing deficit.

“It’s like the perfect storm,” Gallagher said. “We’ve had the District’s manipulation of the eviction process, and on top of that, we’ve got the loss of federal support for housing choice vouchers and for public housing.”

Huke said CIH faced unprecedented levels of rent delinquencies that had put it at risk of losing properties even before the government shutdown jeopardized its tenants' income. 

“We have no reserves left to handle another speed bump like this,” Huke said. “Our margins are so thin that it doesn’t take very many residents to not pay rent to have a major effect on us. If you have 15% to 20% delinquency lost to start, you just can’t handle anything more.”

UPDATE, OCT. 30, 8:20 P.M. ET: This article has been updated to include information released by the D.C. mayor’s office late Thursday about SNAP benefits.