Championed as one of the most consequential and bipartisan federal housing laws in decades, the 21st Century ROAD to Housing Act enacted this month makes significant changes across federal housing policy.
Included in the 139-page law are a host of provisions that will restrict some institutional investors from buying homes, ease rules for manufactured housing and expand assistance for veterans. But some of its most notable provisions give local governments greater flexibility in using federal grants while introducing new financial rewards and penalties tied to housing production.
This is especially important because states and cities — not the federal government — control most housing choices through zoning and land use regulations. So the law tries a new approach to nudge cities toward more housing.
The law allows certain federal block-grant funding to pay for new affordable housing construction, which previously had been forbidden. And for the first time, it provides incentives and penalties for cities to build faster.
“The federal government is going to give you a whole lot of carrots, a whole lot of support, and just a couple sticks, in order to encourage these communities to start building more housing,” said Ben Harrold, senior manager of public policy at the National Apartment Association.
The measure made it through a divided Congress in part because it “doesn’t actually come with a ton of new money for these programs,” said Andy Winkler, the managing director of housing and infrastructure policy at the Bipartisan Policy Center.
“There’s not one huge idea that’s going to change the dynamics of the housing market, but there are tons of small bills and provisions and programs that collectively really could have an impact.”
The most immediate impact of the law could be making existing federal housing dollars easier to use for municipalities.
Mark Kudlowitz, senior policy director for the Local Initiatives Support Corporation — a national nonprofit that finances affordable housing and other projects in urban and rural communities — said localities can now make decisions on where to spend existing federal dollars to increase supply. They also can start readying their local policies for potential funds from new incentive-laden programs.
“When we make it easier for the jurisdictions to deploy the funding, it’s doing everyone a favor, from the jurisdictions that have to manage these dollars to the federal government and then the developers that are ultimately receiving it,” said Kudlowitz. “It’s just decreasing costs and creating more efficiencies within the process.”
Although Hartford, Connecticut, Democratic Mayor Arunan Arulampalam wishes the law contained more new funding for programs, he praises a $200 million annual competitive grant program for municipalities that increase housing supply. He also welcomes a pilot grant project to help more municipalities convert vacant and abandoned buildings into housing.
“The thing that this bill actually does is make existing federal dollars more efficient and maybe more useful,” Arulampalam said.
The new Innovation Fund will reward communities that demonstrate increases in housing supply with $200 million in annual competitive grants from fiscal 2027 through 2031. The housing increases can come from local governments and tribes reducing parking requirements, revising minimum lot sizes and building height, creating incentives for dense development, changing zoning laws, streamlining regulatory and environmental requirements, or eliminating restrictions on accessory dwelling units.
“The Innovation Fund for flexible spending, which I think is the core of what the federal government should be doing for communities like Hartford that are actually building housing, it’s an exciting program,” Arulampalam said.
Block grant changes
The new law also makes significant changes to the Community Development Block Grant program that could make it easier to use the money to build affordable housing. The CDBG program helps states, cities and counties finance improvements to housing, but funds also can be used for infrastructure, economic development and other projects that are geared toward low and moderate-income residents.
The new law now allows some grants to be used for construction. And it will reduce the money given to cities that don’t meet certain construction thresholds.
Under the CDBG State Program, states receive federal money and distribute grants to eligible smaller communities. Jenna Pomponi, director of advocacy and federal programs at the Council of State Community Development Agencies, said cities under 50,000 residents and counties with fewer than 200,000 residents, known as non-entitlement communities, especially rely on state agencies to conduct environmental reviews and administer complicated federal requirements.
“In a lot of small communities, they don’t have the capacity to do all the compliance work that’s required for a government to review, so the state agencies do that for them,” Pomponi said.
The new law now allows the construction of affordable housing to be eligible for CDBG grants, capped at 20% of the amount allocated to a recipient. Before the law, CDBG funds were used for public facilities and infrastructure, rehabilitation of existing housing, public services and economic development. Congress provided $3.3 billion for the CDBG program in fiscal year 2026.
“It streamlines some really outdated requirements that were adding administrative burdens onto administering these grants, so I think essentially it’ll just make the money that we have go further in communities,” Pomponi said. “In the past, folks mostly used CDBG just to repair older homes, but now they can construct new affordable housing.”
Under the law’s Build Now provision, which applies to cities and urban counties receiving CDBG entitlement funding, funding will be based on the rate at which housing has grown. Recipients at or above the median growth rate will receive bonuses, while recipients below the median generally will face a 10% reduction.
Exemptions apply to municipalities that meet its thresholds for both lower rents and home values, places where rental vacancy rates are above the national average, areas recently impacted by a major disaster or emergency declaration within the previous three years, and those that lack legal authority to update zoning or permitting ordinances.
“This is the first time to my knowledge that the federal government will condition resources on the actual construction of new homes,” said David Garcia, deputy director of policy at UC Berkeley’s Terner Center for Housing Innovation. “So this goes even a step further from other programs, which provide money to cities and states to just do reforms. This is actually tying money to outcomes.”
Garcia said that the Build Now provision and changes to CDBG funding will make cities, notably bigger and high-cost cities, motivated to do what’s necessary to get housing production moving and avoid any loss of funding.
Ultimately, zoning can only go so far, as Garcia noted that economic conditions and the price of building could still make construction very costly.
“Cities don’t control interest rates, they don’t control tariffs, they don’t control the labor pool … so there may be instances where you actually have cities working in really good faith to try and get more homes out of the ground, but the broader economic conditions are just not in their favor.”
Before the law passed, six organizations representing states, counties and local development agencies urged Congress to remove the Build Now provision, warning that tying CDBG dollars to short-term housing growth could make funding less predictable and that the metrics used to gauge growth could be slow and misleading.
“The idea was to put the squeeze on local governments to play ball, so to speak, as far as, looking at some of their zoning reform or their local housing strategies,” said Jared Grigas, associate legislative director for community, economic and workforce development at the National Association of Counties, which signed the letter.
These funding conditions don’t factor in until fiscal year 2029 and remain in effect through fiscal year 2043.
Grigas said the final version of the law, with the three-year implementation window and exemptions, made the provision more agreeable.
“That gives us three years to get the word out to our folks that, ‘Hey, you might find yourself in this new universe where this might impact your CDBG allocations,’” Grigas said. “And here’s how you can plan ahead.”
‘Next battle’
Federal funding for U.S. Department of Housing and Urban Development staffing was reduced by 24% in fiscal year 2026. And the guidance and implementation of at least 35 new or updated programs and regulations from the new law will be assigned to HUD — including the Innovation Fund and the Build Now provisions, according to the Urban Institute.
Winkler, from the Bipartisan Policy Center, said the “next battle” in the realization of the ROAD Act is swift implementation of the new law from HUD to the local agencies.
Some are skeptical that HUD — without new funding for staffing — can manage the workload that comes with such an expansive to-do list.
“A lot of this will hinge on HUD’s ability to implement this law,” Pomponi said. “Some of us are concerned because HUD cut back so much of their staff last year when the administration changed over, and now they’re being handed this huge law to implement.”
Arulampalam, the Connecticut mayor, said Hartford will continue pursuing options such as office conversions and vacant lot development while waiting to see whether Congress funds the law’s new programs.
“We are coming up with as many creative solutions as we can to solving the housing crisis,” he said. “The thing that limits us the most is the dollars we can put into it.”