A Look at the Consequences of Government Subsidy Cuts

On September 30, 2023, the Child Care Stabilization Program expired, which has kept 200,000 childcare providers afloat since 2021 as part of the $24 billion American Rescue Act. This event marks a turning point in the nation’s approach to child care, with dire consequences if Congressional action is not taken. The “child care cliff” poses a grave threat, impacting millions of children, parents, businesses, and the economy as a whole.

The Cliff’s Impact

Without federal subsidies, more than three million children under the age of five across the country are set to lose access to child care. More than 70,000 child care programs will close, detrimentally impacting parents in the workforce. Parents without alternative child care options will either be forced out of work or cut their hours, which will end up costing families approximately $9 billion each year in lost earnings. Businesses will be negatively impacted by the loss of valued and experienced employees who will need to prioritize their children over their full-time employment status.

Additionally, as a result of the program’s expiration, the government will lose tax revenue and jobs in the child care sector, which will have a noticeable impact on the economy as a whole. The child care sector, which has been slow to recover from the impact of COVID-19, is set to lose more than 232,000 jobs. According to The Century Foundation, this loss in taxes and business revenue is estimated to cost about $10.6 billion in economic activity per year. This financial setback is particularly concerning as the country seeks to recover from the pandemic’s effects.

Child Care Crisis Impact on CRE

The child care crisis will have several impacts on commercial real estate, ranging from increased demand for child care facilities to shifts in location preferences and the need to navigate regulatory challenges. Commercial real estate stakeholders should monitor these trends and adapt their strategies accordingly to meet changing market demands.

Demand for Child Care Facilities

As more parents struggle to find affordable and accessible child care options, there may be an increased demand for commercial spaces suitable for child care facilities. This could include the need for new daycare centers, preschools, and afterschool programs. Commercial real estate developers may see opportunities in converting or constructing properties to cater to this demand.

Impact on Office Space

With more parents opting for remote work or flexible schedules due to the child care crisis, some businesses may reduce their office space needs. Commercial landlords may see decreased demand for traditional office spaces, leading to potential vacancies and a need to adapt their properties for other uses.

Flexible Workspaces

On the flip side, some commercial real estate properties may benefit from the child care crisis. Landlords could explore opportunities to provide onsite child care services or collaborate with child care providers to attract businesses and remote workers who value such amenities.

The Cost of Child Care

The child care crisis poses several challenges for businesses in 2023. Parents are grappling with limited child care options and financial burdens, with an average annual expenditure of over $10,000 per child. This represents a significant portion of an average family’s income, exceeding the 7% affordability threshold recognized by the federal government. As parents struggle to secure affordable and reliable child care, businesses are witnessing adverse effects on employee productivity. Concerns about their children’s wellbeing and the constant search for suitable care arrangements can lead to decreased work focus and increased absenteeism, impacting overall workforce efficiency.

Moreover, the child care crisis has implications for talent retention and recruitment. In order to remain competitive, businesses need to consider offering child care support as part of their employee benefits packages. In an increasingly competitive job market, potential employees may prioritize companies that provide solutions to the child care dilemma, making it vital for businesses to adapt their offerings to attract and retain top talent. Failure to address these challenges could result in a less productive and less satisfied workforce, ultimately impacting the bottom line of businesses in various industries.

Employers who provide adequate benefits or even on-site child care facilities have the highest chance of employee retention. Providing substantial child care benefits in a competitive job market can set an employer apart. According to a recent McKinsey survey, 69% of mothers actively seeking employment with children under five indicated that they would be inclined to select an employer that provides on-site childcare or financial support for child care.

A 2022 survey by the National Association for the Education of Young Children revealed that around 43% of child care directors planned to raise tuition once funding from the Child Care Stabilization Program expired, exacerbating the financial burden on parents. The money provided by the Child Care Stabilization Program was a lifeline for providers, allowing them to keep their doors open, hire more staff, and enroll more children. However, inflation, declining daycare employee retention, and the loss of federal government aid have caused providers to increase tuition despite the financial burden this will bring on parents. Most of these facilities have no choice but to raise tuition to pay their employees a wage that will keep them there for extended periods.

With costs expected to rise even more, families will most likely have fewer children and reduce their work hours to care for the ones they have until they are of age to enter government-funded educational programs.

Looking Forward

The “child care cliff” is a critical issue that cannot be ignored. Families will feel the brunt of the crisis as they struggle to balance work and caregiving responsibilities. Employers should also be concerned, as a shortage of reliable child care can reduce productivity and employees.

Efforts are underway to address this crisis, with President Joe Biden’s administration emphasizing the importance of reducing childcare costs. However, the current solutions primarily revolve around tax benefits and rule changes rather than securing emergency funding.

As we move forward, policymakers, businesses, and communities must come together to find sustainable solutions that ensure accessible and affordable child care for all, acknowledging that the well-being of our nation’s children and the nation’s prosperity depends on it.