Effects of the Government Shut Down

“I can’t pay my rent in February” was the message I received from a panicking tenant in early January.
She was calling to notify us in advance and asked whether a payment plan could be worked out. I called
to notify the investor who owned the property. His response was “just when I thought government shut
down wasn’t going to impact me”. The panicking tenant’s husband works for the federal government
and is considered essential personnel. They have been great tenants, paying their rent on time or early
and take care of the property. Nevertheless, they hadn’t anticipated not receiving two paychecks in a
row. They thought if the shut down continued, they would have to make payment arrangements until
they could get caught up. Thankfully, the investor is in a position where he doesn’t have to panic either.
That is not always the case. Many investors rely on the rental income to pay the mortgage payments.
When tenants fall behind, the mortgage falls behind. The trickledown effect of government shut down is
far reaching.

At the time this article went to publication, talks of another government shut down in February were
looming. The above example is not the only one that shows impact of the shutdown on the housing
industry. For years, landlords and investors rented homes to Housing Voucher Recipients. This program
is also known as Section 8. The consensus is the federal government is reliable in making its payments
and the rent is guaranteed to come in. Tenants’ portion of the rent is small enough that they can make
their rent payments. Furthermore, tenants don’t want to jeopardize their Section 8 voucher by not
paying. This was a symbiotic relationship where investors felt secure in receiving rental income and low-
income families could afford housing. Sadly, the shutdown was about to jeopardize this relationship. In
mid-January, we received an email stating the U.S. Department of Housing and Urban Development had
enough money for Section 8 payments in February, but the same couldn’t be said for March. Had the
partial government shut down dragged on, investors would have had no choice but to be patient until
they received their payments. This fact is critical to know.

If a tenant does not pay their rent on time, a landlord may serve the tenant with a 3-day notice to pay or quit. However, if the housing authority does not pay its portion of the rent, the tenant can not be served with a 3-day notice to pay or quit. Furthermore, the tenant can’t be held accountable for the local housing authority’s portion of the rent. This means the investor cannot require a Section 8 tenant to pay the housing authority’s portion of the rent if payment is delayed. This has investors questioning whether they want to work with housing authorities and accept Section 8 tenants. This brings into question whether it is legal to reject applicants based on their housing voucher. That is a different matter that is currently being reviewed by federal legislators.