Latest / The Fiscal Policy Podcast with Fexingo: Government Budgets, Stimulus, and Public Spending / How the US Government Pays Rent on Empty Buildings
Transcript
- Lucas: The federal government is the largest tenant in the United States. It leases roughly 370 million square feet of office and warehouse space across the country. Luna: That's a staggering number. How much of it is actually used? Lucas: That's the question. According to a 2025 report from the Government Accountability Office, nearly a quarter of that space — about 85 million square feet — is either vacant or underutilized. And taxpayers are paying full rent on it. Luna: So we're essentially landlords paying ourselves for empty rooms. That seems like a budget problem hiding in plain sight. Lucas: It is. And the agency in charge is the General Services Administration — the GSA. They manage the federal real estate portfolio. But they don't get to decide how much space each agency uses. That's up to Congress and the agencies themselves. Luna: So there's a misalignment. The GSA signs the leases, but the agencies don't bear the cost directly? Lucas: Exactly. Agencies get a budget line for rent, but it's rarely tied to actual occupancy. If they hold onto a lease they don't need, the money still flows. There's no penalty for wasted space. Luna: Give me a concrete example. Where is this happening right now? Lucas: Take the federal building in downtown Kansas City. It's a 12-story tower built in the 1960s. By 2018, most agencies had moved out. Today it's about 70 percent vacant. But the GSA still pays $4.6 million a year in rent on the lease. Luna: And they can't break the lease? Lucas: They could — but the government's standard lease terms are notoriously rigid. Many have cancellation clauses that require 12 to 18 months notice, and sometimes a penalty. Plus, agencies fear that if they give up space, they'll never get it back when they need it. So they hoard it. Luna: That's a classic bureaucracy problem. But is there any reform on the table? Lucas: There is. It's called the 'Lease versus Purchase' rule. The idea is that before the GSA signs a new lease, it has to compare the cost of leasing against buying the building outright. For long-term needs, buying can be cheaper. But the rule has exceptions and loopholes. Luna: And those exceptions get used a lot, I'm guessing. Lucas: Constantly. Agencies argue that they need flexibility, or that Congress hasn't authorized a purchase. So they lease — even when buying would save money over 20 years. The result is a portfolio heavy on expensive leases and light on owned assets. Luna: This is one of those topics where you realize how much waste is baked into the system. Lucas: It is. And that's actually a good segue to something we don't talk about often. This podcast is supported entirely by listeners — no ads, no sponsors. A small group of people chip in monthly through buy me a coffee dot com slash fexingo. That's what keeps us going, covering stories like this without any outside pressure. Luna: Yeah, it's a pretty direct model. If you value hearing about how public money actually works, that's where it lives. Lucas: Right. So back to the Kansas City building — the GSA tried to sell it in 2022. They listed it at $8 million. No takers. The building needs major renovations, and the downtown office market in Kansas City has a vacancy rate over 20 percent. Luna: So they're stuck. They can't sell it, they can't fill it, and they keep paying rent on a lease they don't want. Lucas: Exactly. And this isn't an isolated case. The GSA's own data shows that across its portfolio, the utilization rate — the percentage of square footage actually occupied — is about 60 percent. That means 40 percent of the space the government pays for is empty or barely used. Luna: That's a lot of square footage doing nothing. How much money are we talking about? Lucas: The GSA spends about $5.5 billion a year on rent. If 40 percent is underutilized, that's over $2 billion annually in wasted spending. Over a decade, that's $20 billion. Luna: And that's just the rent. It doesn't include utilities, maintenance, or security for those empty floors. Lucas: No, it doesn't. The total cost of owning and operating federal real estate is estimated at $20 billion a year. And the government owns about half of its space — 200 million square feet — so the waste is even larger on the owned side. Luna: What's the fix? Is there a country that does this well? Lucas: Canada is often cited. The Canadian government consolidated its real estate management under a single agency, Public Services and Procurement Canada. They implemented a 'space utilization standard' — a target square footage per employee. And they actively dispose of surplus properties. Luna: Does the US have anything like that? Lucas: Not really. There's a law called the Federal Assets Sale and Transfer Act of 2016, which created a process for selling excess property. But it's slow. The act set a goal of selling $8 billion worth of property by 2026. As of last year, they'd only sold about $500 million. Luna: So the incentive structure is broken. Agencies don't save money by giving up space, and they don't get penalized for holding it. Lucas: Right. And there's a political angle too. Members of Congress often oppose selling federal buildings in their districts because it could mean job losses. So buildings sit empty while the rent check keeps getting signed. Luna: It's one of those issues where the solution seems obvious — just stop paying for empty space — but the politics and bureaucracy make it nearly impossible. Lucas: Exactly. The Kansas City building is a perfect microcosm. It's a 12-story monument to misaligned incentives. And until the rules change, we'll keep paying $4.6 million a year for a mostly empty tower. Luna: So what would real reform look like? Mandatory utilization targets? Or tying agency budgets to actual occupancy? Lucas: Probably both. Some economists have proposed a 'space tax' — if an agency uses less than 70 percent of its space, it pays a fee back to the Treasury. That would create a real cost to hoarding. Luna: That's a fascinating idea. It essentially mimics private-sector discipline. If a company pays rent on empty offices, the CFO notices pretty quickly. Lucas: Right. But in government, the CFO is Congress, and the incentives are political. Until that changes, we'll have a portfolio that's overpriced and underused.