Government Shutdown, NFIP Lapse Will Disrupt Home Sales, Multifamily Transactions

With the federal government heading to a shutdown at 12:01 a.m. on Sunday, Oct. 1., the most immediate impact on the housing sector will be a lapse of the National Flood Insurance Program (NFIP), which could have widespread impacts on property sales, home values, multifamily transactions and consumer confidence.

While NAHB continues to aggressively pursue all avenues to extend the NFIP, builders need to be aware that even a short-term disruption to the program will force delays — and in some cases, cancellations — to home sales and multifamily transactions that require federal flood insurance under the NFIP.

Indeed, any lapse of the NFIP will leave millions of Americans at risk and disrupt the purchase of flood insurance in more than 20,000 communities across the United States, impacting an estimated 1,300 property sales each day. Program expiration means the government will have no authority to provide new flood insurance contracts until it is reauthorized. This will delay all new home sales and insurance renewals for property owners who have federally backed mortgages for homes or properties that lie in a Special Flood Hazard Area.

In a letter sent to lawmakers earlier this week, NAHB said that “what the housing market needs now is stability and certainty. Uncertainty over whether the NFIP will lapse, coupled with the growing possibility of a government shutdown, may have a significant negative economic effect on home builders, home buyers, multifamily developers and renters. To this end, we urge Congress to consider the effects of a government shutdown on federal programs that directly support the construction of new housing, help buyers or renters access housing, or provide federal permits that may be required for construction.”

Shutdown Puts Multifamily Housing Programs in the Cross Hairs

While a shutdown will affect the NFIP, even a short-run impact of a government closure will affect federal housing programs, particularly in the multifamily arena. For multifamily housing providers, the key to whether a HUD multifamily contract payment or FHA multifamily loan closing will proceed during a shutdown is the date that HUD either obligated funds for the contract or issued a firm commitment.

• If FHA issued a multifamily firm commitment or firm approval before the lapse in appropriations, the closing will proceed during the shutdown; however, new firm commitments will not be issued during a lapse in appropriations.
• Similarly, HUD will continue to pay rental subsidy contracts for which it obligated funding before the lapse. When possible, the agency will also use previously obligated available funds for contract renewals or contract amendments; however, members should be aware that subsidy payments could be affected — especially if the contract expires while the government is closed.
• For Real Estate Assessment Center/National Standards for the Physical Inspection of Real Estate physical inspections, all inspections where the servicing mortgagee bears the responsibility for procuring the inspection will continue. Where HUD funded an inspector’s contract prior to a government closure, the contracted inspection will proceed during the shutdown. HUD employees will only conduct inspections when there is reason to believe that there is a threat to life or property at that specific location.

This information comes directly from HUD’s 2023 Contingency Plan for Possible Lapse in Appropriations. Interested members can find more information about all HUD’s programs and operations in the plan.

Frequently Asked Questions (FAQs) begin on page 71 of this document. NAHB multifamily members may be particularly interested in the FAQs beginning on page 80 on FHA multifamily mortgage insurance programs and on page 81 regarding the Office of Project-Based Rental Assistance.

As for how a government shutdown will affect housing and small businesses in other areas of the government, businesses who seek permits from the Fish and Wildlife Service could be affected. New permits or applications currently under review will not be processed during the government shutdown, which will increase costs and delays.

The Internal Revenue Service will not process tax returns during a government closure, which means no refunds, and taxpayers will not be able to contact the IRS for advice.

NAHB continues to monitor the situation closely and is calling on federal lawmakers to immediately reauthorize the NFIP and to act quickly to reach an agreement with the White House to fund the government.