How the Proposed Federal Budget Would Affect the DC Area Housing Market

• March 23rd 2017

by Nena Perry-Brown

As the seat of the federal government, the DC region has typically benefited from the stability provided by a disproportionate share of government employees as area residents. However, the Trump administration’s federal budget proposal could greatly undermine that stability — particularly where the housing market is concerned.

As The Washington Post reported last week, although presidential administrations have always reconfigured the size and emphasis of the federal government according to their agendas, the current administration’s plans could eliminate 15,000 to 26,000 jobs in the first year of implementation. The Washington Business Journal noted that the proposed cuts could also lead to over half a million square feet of newly-vacated office space.

“It’s inconceivable to imagine such a large employment reduction not causing some really negative impacts on the housing market,” MRIS economist Elliot Eisenberg explains. The first likely consequence would be a tempering of the development pipeline. “Builders don’t stop building; they reduce construction activity by 20 to 40 percent and after a couple of years, the problem goes away, so I think you’re looking at the largest reduction the first year and then slowly recovering over time after that.”

Eisenberg notes that the impact could resemble that of the budget sequester several years ago, which greatly constrained appreciation of home prices.

“Prices [could] fall by 3 or 4 percent, which is pretty large by objective standards as now they’re going up by 2 [percent].”

The potential impact on the local housing market could be far greater in the affordable sector — particularly in light of a $6 billion reduction in funds for the Department of Housing and Urban Development (HUD). The cuts to HUD could eliminate Community Development Block Grants (CBDG) and the HOME Investment Partnership Program (HOME), both long-standing tools to encourage targeted neighborhood investment.

“[DC’s] city administrator has estimated that the District could lose $17 million in funding that could be used for affordable housing and community development,” David Bowers, Mid-Atlantic director of Enterprise Community Partners, told UrbanTurf. “Montgomery [and Fairfax Counties both] estimate that they could lose over $6 million in money that is typically used for housing and community development.”

“These cuts will reduce the ability of local governments to work with the private market,” Bowers explains. “This is not just about something that’s only paid for by the government, this is money that is used in deals with private developers, non-profits and mission-minded for-profits, who are getting private financing from banks and other financial institutions, so that money leverages private dollars. So the extent to which the administration pulls back with its support is the extent to which we’re not able to leverage as much of the private sector capital and expertise.”

Another potential consequence is that more people will be looking to secure affordable housing as their income falls.

“We already have a disconnect where some of the housing that could be afforded by lower-income households is occupied by folks who are a bit higher up the income scale,” says Bowers. This dynamic would be exacerbated if more households enter the market with less income and begin competing with households for affordable units.

Eisenberg also believes that middle-income earners who experience job loss or a drop in income will be impacted. However, many of these affected households also live in further-out suburbs. “Because of the millennials and their interest in living downtown, we may see less of an impact in neighborhoods like Adams Morgan, Dupont Circle, Logan Circle [versus] somewhere out in Loudoun County,” he says. “There’ll be some price points that are more adversely affected and some geographic areas that will be more negatively affected than others.”

Ultimately, while this budget is highly unlikely to pass in its current iteration, the severity of federal government cuts — and localities’ ability to respond to those — could shape the regional housing market over the next few years.

This article originally published at https://dc.urbanturf.com/articles/blog/how_the_proposed_federal_budget_would_effect_the_dc-area_housing_market/12363.