Project-based rental assistance is one of the federal government’s most powerful tools for supporting the production and preservation of affordable housing. By guaranteeing stable, long-term rental payments, these types of contracts enable housing development in markets where rents would otherwise not support construction or rehabilitation, especially in rural or smaller communities.
Congress should therefore take seriously the implications of the president’s FY26 budget proposal, which threatens to upend this system. The proposed budget would eliminate appropriations for existing rental assistance programs, including those that provide crucial project-based assistance, and replace them with a state block grant program that amounts to a 46 percent cut in funding relative to FY25 levels.
The programs at risk of cuts include public housing operating assistance, the housing choice voucher program, Section 202 funding, which provides housing for the elderly; Section 811 funding, which provides housing for persons with disabilities; and the project-based rental assistance program. In total, these programs support over 5 million units.
This level of deep cuts would leave a $27 billion gap for states to make up, likely forcing a reduction in the number of households assisted while also undermining the financial viability of existing and future affordable housing developments.
Analysis from the Urban Institute suggests that the transition to block grant funding could result in an immediate loss of 2.3 million assisted units with an additional 1.1 million subsidized units lost over the next 10 years. It is unclear how these households could be absorbed by the current rental market absent subsidies.
Some of those units lost would be the result of eliminated or reduced Housing Choice Vouchers (HCVs), provided to tenants to reduce their rent to 30 percent of their income. Housing choice vouchers are proven to reduce homelessness and poverty, and federal funding cuts are already impacting communities’ ability to respond. The Housing Authority of the City of Los Angeles halted the HCV application process for 3,300 families due to funding uncertainty, leaving housing out of reach for these families for many more years. These cuts would compound the problems in an already chronically underfunded program. The HCV program is notorious for extremely long waiting times in many states; for example, in Alabama, residents spend an average of five years on the waitlist before receiving a voucher.
A Wave of Potential Defaults & Added Risk
Other unit losses would be caused by the proposed cuts to rental assistance contracts that are attached to specific projects, rather than to a household. Housing authorities may set aside a portion of HCVs for specific units, known as project-based vouchers (PBV). This enables any family that occupies that unit to pay no more than 30 percent of their income toward rent. In addition to PBVs, HUD also provides rental assistance contracts through a program called Project-Based Rental Assistance (PBRA). PBRA functions similarly to PBV, but HUD contracts directly with an owner to fund a rental assistance contract instead of having the contract mediated through a PHA.
Rental assistance contracts provided through the PBV and PBRA programs are a crucial source of revenue for multifamily developments serving very and extremely low-income households, those making at or below 50 percent of the area median income. Without them, many properties would be unable to meet their debt service obligations, increasing the risk of financial default, deferred maintenance, and the potential loss of the property due to sale or foreclosure.
Below, CPE modeled the impact of the loss of project-based voucher funding on two hypothetical projects, one which is mostly market rate with a portion of PBVs and one which is a LIHTC project that includes PBVs. In both cases, if the properties attempted to continue to serve extremely low income residents in the absence of PBV funding, they would incur significant losses in revenue, potentially triggering technical defaults on senior debt at the property.
The impacts of cuts to these project-based programs would be widespread. Roughly 40 percent of households living in one of the more than 3.7 million Low-Income Housing Tax Credit properties across the country receive some form of rental assistance, with the most common form of federal assistance being PBRA. These subsidies are essential for covering the gap between what extremely low-income households can afford and what it costs to operate and finance these projects.
Dismantling sources of project-based rental assistance would not just impact existing projects, it would inject enormous risk into the fragile affordable housing ecosystem that can dampen future housing supply. Senator Hyde-Smith (R-MO) got at the heart of the issue during Secretary Turner’s testimony before the Subcommittee on Transportation and Housing (THUD) on June 11th, “While I understand and share the administration’s concerns about rising costs, and shrinking revenues, the uncertainty created by these proposals increases risk, and risk raises costs.”
Affordable housing developers depend on reliable subsidy payments from the federal government to reduce the risk of leasing to individuals with low incomes. Projects are underwritten on the assumption that those subsidies will continue to flow for the life of the contract. This type of stability is what has allowed programs like the Rental Assistance Demonstration to enable over $20 billion of investment into the public housing stock. PHAs are able to leverage the commitment of a predictable decades-long rental subsidy to access the capital needed to make long overdue investments today. If subsidies are no longer reliable, developers and lenders will be less willing to participate, especially in markets already viewed as high risk.
One example of how this risk could manifest is by looking at how rating agencies evaluate the presence of a project-based Section 8 contract when considering mortgage revenue bonds for affordable housing. Fitch Ratings, one of the four major rating agencies, specifically names the stability of a federally-provided Housing Assistance Payment (HAP) contract as one of the factors when determining the “revenue defensibility” of the underlying assets. A higher percentage of units subsidized with project-based rental assistance is one of the criteria that can help get a bond rated at a “bbb” level versus “bb,” resulting in lower required yields and therefore borrowing costs.
Early warning signs of this disruption are already appearing. In a letter to Congress, the National Association of Home Builders warned that “the very prospect of these cuts is already disrupting capital markets. Uncertainty about the future of these programs is making lenders and investors hesitant to commit funds for constructing and preserving affordable housing.”
Disparate Geographic Impacts
The pain of these cuts would not be evenly distributed across the country. Center for Public Enterprise conducted an analysis of HUD’s Multifamily Assistance and Section 8 database to identify areas most at risk. This HUD database covers Project Based Rental Assistance (PBRA) contracts as well as Section 202 and Section 811 contracts. It does not include public housing units, housing choice vouchers, or housing choice vouchers that may have been project-based by a PHA. CPE combined this data on the location of project-based rental assistance with U.S. Census Bureau estimates of multifamily housing (5+ units) by state and congressional district to calculate the extent to which an area’s housing stock could be impacted by cuts.
Over 1.2 million units are currently listed in HUD’s database and would be vulnerable to cuts. According to our analysis, in states like Mississippi, West Virginia, and Maine, the number of units receiving project-based rental subsidies is equivalent to between 16 and 20 percent of all multifamily units. In Rhode Island, the figure climbs to one in four. Cuts to rental assistance flowing to these properties could have significant effects on local housing markets, causing some projects to fail and curtailing future development.
Conclusion
Project-based rental assistance is a foundational part of the housing finance ecosystem. It provides predictable cash flow to developers and property owners, supports underwriting for long-term loans, and makes it possible to build and preserve affordable housing in markets where it would otherwise be impossible. Many communities rely on federal rental assistance to attract investors and enable projects to pencil. The sudden loss of support for housing choice vouchers coupled with a disruption of this previously reliable income stream may cause a sharp rise in homelessness along with a reduction in new development. The proposed budget threatens to undermine this foundation at a time when housing affordability is already in crisis.