Key Takeaways
- Affordable housing issuers that rely on federal funding could face operating pressures amid federal policy uncertainty, staffing cuts, higher tariffs, and potential appropriation reductions.
- Public housing authorities and stand-alone Section 8 properties could be the most exposed to credit pressures depending upon how evolving federal policy is implemented.
- We believe that issuers can help mitigate uncertainty through proactive management planning and financial flexibility.
Housing Issuers Could Grapple With Federal Cuts
U.S. affordable housing issuers, including public housing authorities (PHAs), housing finance agencies (HFAs), nonprofit housing developers, and community development financial institutions (CDFIs), have historically demonstrated management strength and the financial flexibility to navigate changing economic and policy environments, including the Great Recession and the COVID-19 pandemic.
But proposed and potential federal government policy changes may affect affordable housing issuer credit stability. This reflects that some housing issuers directly rely on federal revenues and programs administered by the Department of Housing & Urban Development (HUD), the Department of the Defense (DoD), the Department of the Treasury (Treasury), and the Environmental Protection Agency (EPA), among other federal agencies.
Federal funding cuts or weaker program administration through federal staffing reductions could lead to credit deterioration for lenders, owners, operators, and developers that rely on federal funding. Some possible repercussions are:
- Emergence of budget gaps from either the inability to scale back or offset expenses should federal revenues fall;
- Slower development of affordable housing units due to increased costs for building materials resulting from higher tariffs, paired with a tighter labor market, that together limit the financial viability of existing or new projects; and
- Potential widespread disruption in the sector requiring issuers to adjust their financing strategies should changes occur to private activity bonds and/or the municipal tax exemption as part of the Tax Cuts and Jobs Act (TCJA) renegotiation.
At the same time, there's potential for the privatization of the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, which would likely occur after exiting conservatorship. An exit from conservatorship could be a complex undertaking and would likely require recapitalization. Therefore, S&P Global Ratings believes it is premature to assess the potential implications on the GSEs' creditworthiness. Any change in creditworthiness for the GSEs could potentially affect some affordable housing ratings.
The Impact Will Vary Depending On Issuers' Credit Strengths
Our credit rating analysis incorporates the strength of management and financial flexibility. Entities that rely more heavily on federal revenues or timely receipt of government support could be more deeply affected; however, the magnitude of potential federal revenue cuts remains unknown. We will continue monitoring federal policy changes and their impacts on the affordable housing sector.
Related Research
- What Looming Tariffs Could Mean For U.S. Corporates, Feb. 27, 2025
- How GSE Privatization Could Impact Credit Risk Transfer Ratings, Feb. 12, 2025
- U.S. Public Finance Housing 2025 Outlook: The Stable Era Endures, Underpinned By Strong Management, Jan. 16, 2025
This report does not constitute a rating action.
| Primary Credit Analyst: | Hannah Blitzer, New York; hannah.blitzer@spglobal.com |
| Secondary Contacts: | David Greenblatt, New York + 1 (212) 438 1383; david.greenblatt@spglobal.com |
| Shirley Flores, New York (646) 831-2467; Shirley.Flores@spglobal.com | |
| Daniel P Pulter, Englewood + 1 (303) 721 4646; Daniel.Pulter@spglobal.com | |
| Stuart Nicol, Chicago + 1 (312) 233 7007; stuart.nicol@spglobal.com |
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