President Trump’s recent budget proposal introduces significant reductions to the Department of Housing and Urban Development (HUD), aiming to reshape federal involvement in housing assistance. These changes carry substantial implications for real estate investors, particularly those engaged in affordable housing and multifamily properties.
Key Proposals in the Budget
- Reduction in rental assistance: The budget suggests a 40% cut to federal rental aid, including programs like Section 8, and proposes a two-year cap on assistance for able-bodied adults.
- Shift to state-controlled block grants: The administration plans to convert federal rental assistance into state-managed block grants, granting states more discretion over fund allocation.
- Cuts to homelessness programs: A 12% reduction in homelessness funding is proposed, alongside a shift from permanent housing solutions to short-term shelters.
Current State of Housing Voucher Demand
Demand for housing assistance far exceeds supply. The U.S. has a shortage of 7.1 million rental homes that are affordable and available to renters with extremely low incomes. Only 35 affordable and available rental homes exist for every 100 extremely low-income renter households.
Nationally, only about 25% of eligible households receive housing choice vouchers due to funding limitations, resulting in extensive wait lists. Wait times vary across the country, with a national average of 28 months.
In some areas, such as Miami-Dade, Florida, the average wait time is eight years. In New York City, a 2024 lottery for Section 8 vouchers attracted 633,000 applicants, with only 200,000 placed on the waitlist. In my market, Buffalo, New York, the primary housing organization for Section 8 vouchers is Belmont. On their website, they state their wait list is currently closed.
Impact on Investors
If the proposed budget cuts to HUD and the shift of housing voucher administration to the states move forward, real estate investors—particularly those involved in affordable housing—could face several key challenges. One of the most immediate risks is increased tenant default.
With reduced rental assistance, more tenants may struggle to meet rent obligations, which can result in higher vacancy rates and financial strain on landlords, especially those relying on consistent cash flow from government-backed programs. This is especially true for tenants who receive a large portion or the whole amount of their rent subsidized. The financial burden of all of a sudden having to pay that monthly payment could be detrimental to their livelihood or not even possible based on their income, causing default.
These changes could also introduce broader market instability. The affordable housing sector, already stretched thin in many areas, may experience a dip in property values and investor confidence if funding becomes inconsistent or harder to access.
The administrative landscape could become more complex as well. Investors operating in multiple states may need to navigate an uneven patchwork of rules, funding limits, and qualification criteria, which could increase operational burdens and require more hands-on management or legal oversight.
Cap rates, or capitalization rates, are a key metric investors use to assess the profitability and risk of real estate investments. If housing assistance shifts from federal control to state block grants, the impact on cap rates will likely vary by region and investor perception of risk.
In states that reduce housing assistance, landlords may face higher vacancy rates, increased tenant turnover, and greater uncertainty in rent collection—especially in affordable or workforce housing segments. As a result, investors may demand higher cap rates to compensate for the added risk. This drives down property values since cap rates and values move inversely: When risk increases, valuations typically drop unless net income rises to offset it.
However, there may also be a silver lining. The policy shift could open doors for strategic investments in markets that are better prepared to handle the transition or that implement favorable state-level programs. For investors who stay informed and adaptable, this could be a chance to tap into new housing initiatives and less saturated regions.
How Housing Vouchers Work Today
Currently, federal programs like the Housing Choice Voucher (Section 8) are administered through local Public Housing Authorities (PHAs) but funded and regulated at the national level by HUD. This creates a relatively standardized system across the country, with eligibility criteria, payment standards, and tenant protections largely consistent from one region to another.
If rental assistance is converted into block grants to be managed at the state level, several things could happen:
1. Inconsistent program rules
Each state would be allowed to set its own rules for how housing funds are distributed. This means eligibility criteria, benefit amounts, and how long someone can receive assistance could vary dramatically. For landlords and investors, this introduces uncertainty and complexity—especially for those with properties in multiple states.
2. Potential for funding gaps
Unlike current HUD-administered programs, block grants do not automatically increase with rising housing costs or demand. Once the money runs out, that’s it. This could lead to even longer wait lists and more families left without help. A shift to fixed block grants may worsen this backlog.
3. Greater investor caution in some markets
Investors in affordable or workforce housing may hesitate to expand into states where housing aid becomes less reliable or where funding could fluctuate year to year based on politics or budget constraints. In contrast, states that invest heavily in housing and maintain predictable programs could become more attractive.
4. Administrative overhead and learning curve
Property owners may have to learn entirely new application, inspection, and payment systems for each state. This could make participation in rental assistance programs more cumbersome, reducing the incentive for landlords to accept vouchers at all.
5. Opportunity for advocacy and innovation
On the flip side, states would gain the ability to tailor housing programs to local needs, which could lead to creative, community-specific solutions. Investors who work closely with local housing agencies may find opportunities to participate in new incentive programs or public-private partnerships.
States For and Against
As of May 2025, the proposed shift from federally managed housing assistance to state-controlled block grants has prompted varied responses from state and local governments. Here’s an overview of how different states are reacting and the potential implications for housing funding:
Supportive states
- Virginia: Governor Glenn Youngkin has proactively adjusted the state’s budget in anticipation of federal spending cuts. He vetoed approximately $900 million from the state budget, primarily targeting capital improvement projects, to reserve funds in case of economic downturns resulting from federal workforce reductions and spending cuts.
Opposing states
- California: San Francisco has joined a coalition of local governments in suing the Trump administration over proposed changes to federal homelessness grant requirements. The city warns that nearly 2,000 residents could face eviction if critical HUD funding is terminated. This legal action reflects strong opposition to the federal policy shift and concerns about its impact on vulnerable populations.
- New York: While the state’s overall stance is still developing, New York City has announced a $1 billion commitment for housing as part of its proposed “City of Yes for Housing Opportunity” initiative.
In summary, the proposed shift to state-controlled housing assistance is eliciting diverse reactions from states, with some preparing to adapt and others actively opposing the changes. The resulting landscape is likely to be uneven, with significant implications for housing stability and investment across the country.
Considerations Moving Forward
In light of these potential changes, investors should make a concerted effort to stay updated on housing policy developments. Since the proposed budget still requires congressional approval, there may be significant revisions ahead. Monitoring these updates will be crucial for adjusting investment strategies in real-time.
If these changes do go into effect, it is better to be proactive than reactive. Don’t wait and cross your fingers, hoping your tenant will still pay rent in full.
A few things you can do is start researching the state programs and educate your tenants on them. Investors should consider engaging directly with local and state housing authorities. By understanding how individual states plan to implement new funding structures, investors can position themselves early for emerging opportunities and align with programs that support long-term growth.
This is also an opportunity to provide resources ahead of time before tenants are late on rent. Most of these organizations offer free or low-cost classes every month for landlords and tenants.
Besides providing resources for your tenants, look at your reserves. Are you prepared to cover expenses if your tenants don’t pay or to cover eviction fees? It might be time to beef up your reserves.
To reduce exposure to policy-driven risk, it’s also wise to diversify your portfolio. Expanding beyond properties that rely heavily on federal assistance can provide a more stable foundation in uncertain times.
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