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DOGE Targets Section 8: Will Housing Vouchers Face Major Cuts?
A Budgetary Shake-Up at HUD
The Department of Government Efficiency (DOGE) has been making sweeping budget cuts across federal agencies, and the Department of Housing and Urban Development (HUD) is no exception. As the administrator of Section 8 housing vouchers, HUD plays a critical role in subsidizing rent for millions of low-income families. However, the latest cost-cutting measures could place the future of these vouchers in jeopardy.
In response to these impending changes, Trump-appointed HUD Secretary Scott Turner released a video outlining the DOGE task force’s efforts to eliminate waste and inefficiencies within the agency. “We will be very detailed and deliberate about every dollar spent in serving tribal, rural, and urban communities across America,” Turner said. So far, the task force has identified $260 million in potential cuts.
Landlords Are on High Alert
For investors and developers relying on federal funding for affordable housing projects, the potential reduction in Section 8 support is cause for concern. HUD not only manages housing vouchers but also funds homeless shelters, homeownership assistance programs, and the development of affordable housing.
Currently, 2.3 million low-income families benefit from housing vouchers. The Republican Party has long scrutinized public assistance programs, and with recent temporary freezes on federal funding already impacting PHAs, landlords fear delays in payments. Georgi Banna, general counsel for the National Association of Housing and Redevelopment Officials (NAHRO), warns that this situation is eroding trust between HUD, housing authorities, and landlords.
A Major Workforce Reduction at HUD?
In February, DOGE de-obligated $1.9 billion in HUD funds it deemed unnecessary, signaling that further cuts may be on the way. Reports suggest that up to 50% of HUD’s workforce could be laid off, a move that would drastically disrupt the Section 8 program and potentially increase homelessness nationwide.
The National Low Income Housing Coalition has voiced serious concerns: “Terminating HUD staff will make it significantly harder for states and communities to access the congressionally approved federal investments needed to address their most pressing housing and homelessness challenges.”
If these cuts proceed, the potential consequences include:
- Housing authorities struggling to distribute vouchers
- Homeless shelters shutting down due to lack of funding
- Increased eviction risks for voucher-dependent tenants
- Landlords opting out of the program due to delayed payments
Slower Section 8 Payments Could Drive Landlords Away
HUD statistics show that Section 8 vouchers are most heavily used in New York, Massachusetts, and Washington, D.C. While tenants are protected as long as they comply with their lease agreements, landlords may rethink their participation if government funding becomes unreliable.
Already, many landlords have expressed frustration with the bureaucracy surrounding Section 8. If HUD staff reductions slow down inspections and payments, it could push landlords to sell their properties or switch to market-rate tenants.
Georgi Banna has cautioned that reductions in Public and Indian Housing staff could cause payment delays, making Section 8 participation even less attractive. “This program only works well when landlords are involved. Without landlords, this program can’t exist,” Banna said.
FHA Loans and Housing Programs Could Also Be Affected
For new landlords, FHA loans have been a popular entry point into real estate investing. These loans allow buyers to acquire small multifamily properties with a 3.5% down payment, making house hacking an attractive strategy.
However, the Office of Housing, which oversees FHA loans, could face a 44% staff cut—potentially delaying loan approvals and impacting aspiring investors.
HUD employee union leader Antonio Gaines warns, “There are going to be consequences all the way across the board.”
What Should Landlords Expect Moving Forward?
For landlords heavily reliant on Section 8, now is the time to consider alternative strategies. The past month has shown that nothing is off-limits when it comes to federal budget cuts.
Historically, Section 8 was designed to integrate low-income tenants into private rental markets, but bureaucratic hurdles and program restrictions have led many landlords to avoid participation. A 2022 study from NYU’s Furman Center found that nearly half of households awarded Section 8 vouchers couldn’t use them, a problem that has only worsened in recent years.
Final Takeaway: Relying on Government Assistance Is Risky
As the future of HUD’s budget remains uncertain, landlords should prepare for potential disruptions in Section 8 funding. Whether it’s selling properties, transitioning to market-rate rentals, or diversifying investment strategies, being proactive will be key to navigating these changes.
While the Section 8 program has been a reliable income source for some landlords, the evolving landscape suggests that counting on government-backed rent subsidies may no longer be a safe bet.
In the previous post: “Is Now a Better Time to Invest in Real Estate Debt or Equity?“
DOGE Targets Section 8: Will Housing Vouchers Face Major Cuts?
Has the U.S. Housing Market Finally Begun to Thaw After the Pandemic?
It seems like the housing market might be showing signs of life. According to a recent report from Redfin, pending home sales in early October have seen their largest year-over-year rise since 2021, with a 2% increase in the four weeks ending October 6.
This news is likely to be welcomed by real estate investors who have felt the market has offered limited opportunities over the past few years. However, it’s important to take a cautious approach—one promising statistic doesn’t necessarily indicate a broader trend.
Is the Housing Market Truly Recovering?
Let’s explore the different factors at play.
Interest Rate Reductions: A Critical Factor or a Red Herring?
The Redfin report links the surge in pending sales to the Federal Reserve’s much-anticipated rate cut announcement in mid-September. According to Redfin, this announcement prompted buyers to re-enter the market in late September, despite mortgage rates having already been falling for weeks before the cut.
This psychological boost is crucial. Although buyers were aware of the falling rates beforehand, many seemed to be waiting for a formal signal to act. This could be attributed to a lingering fixation on the ultra-low rates of 3% to 4% that buyers enjoyed before 2022.
Any rate cut announcement serves as a nudge for prospective buyers, making them feel that now might be the right time to purchase, even if mortgage rates had been decreasing already. In an unstable mortgage market, such announcements hold significant influence.
However, mortgage rates are just one piece of the puzzle when analyzing housing market performance. As noted by Investopedia, the real estate market is driven by four primary factors: interest rates, demographics, economic conditions, and government policies.
Demographics: Shaping the Market
During the pandemic, demographic shifts had a profound effect on U.S. real estate, with major population movements like the Sunbelt migration fueling booms in cities such as Phoenix and Austin, which later became unaffordable for many.
Age is another key demographic factor, and the millennial generation’s pent-up demand continues to be a driving force behind the rise in home purchases. Despite the challenges of the past few years, millennials who have longed to become homeowners are now entering the market in greater numbers, as more properties become available.
Rising Inventory: A Sign of Stabilization
A key factor contributing to the market’s stabilization is the growth of housing inventory over the last year. The pandemic had a significant impact on the availability of homes, with sellers hesitant to list properties due to COVID-19 restrictions and, later, higher mortgage rates.
Some homeowners, particularly those upgrading to larger homes, found it financially challenging to sell and take on higher mortgages. Others, however, simply chose to wait for a more favorable market.
Although the latest Realtor.com report shows that inventory remains down by 23.2% compared to pre-pandemic levels, we are seeing an upward trend. For instance, new listings have been rising since last year, with a 5.7% year-over-year increase for the four weeks ending October 6.
As of September 2024, some states have even surpassed their pre-pandemic inventory levels, including Tennessee, Texas, and Idaho, with others, like Washington, close behind.
Vulnerabilities in Certain Regions
However, not all regions are showing positive signs. For example, some areas, particularly those affected by extreme weather, have seen inventory spikes not because of market recovery, but due to homeowners trying to offload damaged properties they can’t afford to repair.
For instance, regions like Florida and North Carolina, hit by hurricanes, have experienced increases in home listings, but these may reflect a response to climate-related challenges rather than market health.
Opportunities for Investors
Investors should be discerning when choosing markets, focusing on regions where inventory is growing due to increased home construction rather than climate-related distress. States like Idaho, Utah, North Carolina, and Texas, which are building new homes, offer potential, though caution is needed in areas prone to natural disasters.
The Midwest and Northeast, meanwhile, still face significant challenges in recovering to normal market conditions. These regions have lower rates of new construction, meaning inventory remains scarce, which could present both opportunities and difficulties for investors.
The Bottom Line
The U.S. housing market is showing signs of recovery, but the situation remains complex and varies by region. Interest rates play an essential role in unlocking the market, but investors should also consider other critical factors, such as homebuilding trends, climate risks, and government policies. While the market is heading in the right direction, it’s crucial to examine regional differences carefully before making investment decisions.
In the previous post: “Is Now a Better Time to Invest in Real Estate Debt or Equity?“