The 21st Century ROAD to Housing Act: How a New Federal Law Expands CDBG and HOME Funds for New Construction

The U.S. Congress has passed the 21st Century ROAD to Housing Act, advancing the most comprehensive federal housing legislation in decades. Approved by overwhelming bipartisan margins—85-5 in the Senate and 358-32 in the House—the package merges parallel efforts from both chambers into a massive supply-side reform bill. It now awaits the President's signature.[1][2][4]

At the heart of the legislation is a recognition that America is millions of homes short, and the federal government's primary tools for funding local development were built for a different era. The bill fundamentally rewrites the rules for the Community Development Block Grant (CDBG) and the HOME Investment Partnerships Program, shifting their focus from merely preserving old units to aggressively building new ones.[5]

Historically, CDBG funds have been heavily restricted. Local governments relied on the grants for home maintenance, rehabilitation, and infrastructure repairs in low-income neighborhoods. However, cities were largely barred from using the money to directly finance new housing construction, limiting their ability to respond to acute inventory shortages.

The ROAD to Housing Act eliminates that barrier. For the first time, CDBG grantees can invest their federal allocations directly into new housing construction. For municipalities that previously used one-time pandemic recovery funds to jumpstart affordable developments, this permanent eligibility provides a sustainable pipeline of capital to keep shovels in the ground.

The HOME program is also receiving its first major statutory update in thirty years. Previously, strict income limits restricted HOME funds to projects serving very low-income households. The new legislation adjusts the beneficiary income limits up to 100 percent of the area median income (AMI).

This upward adjustment to 100 percent AMI is a critical pivot toward "workforce housing." It allows developers to use federal funds to build homes for teachers, nurses, and middle-income workers who earn too much to qualify for traditional subsidized housing but are increasingly priced out of the private market.

Furthermore, the bill expands the allowable uses of HOME funds to include housing-adjacent infrastructure in counties that do not receive direct CDBG formula funding. This change unlocks development in smaller and rural communities that previously could not afford the roads, water lines, and sewers required to support new residential subdivisions.

Beyond municipal block grants, the legislation targets the private financing side of affordable housing. It raises the Public Welfare Investment (PWI) cap for banks supervised by the Office of the Comptroller of the Currency and the Federal Reserve from 15 percent to 20 percent.[2]

This five-percentage-point bump is a massive catalyst for the Low-Income Housing Tax Credit (LIHTC) market. It allows community and national banks to significantly increase their private equity investments in affordable housing developments nationwide, effectively leveraging federal tax credits with deeper pools of private capital.[2]

The bill also tackles the regulatory red tape that artificially inflates construction costs and delays project timelines. It streamlines environmental reviews under the National Environmental Policy Act (NEPA), expanding categorical exclusions for infill projects and office-to-residential conversions.[3][4]

By exempting small-scale and infill developments from years-long NEPA reviews, builders can break ground faster. Reducing these carrying costs directly lowers the final price tag of the development, generating savings that can ultimately be passed on to renters and homebuyers.[3][5]

While the bill is heavily focused on supply, it also includes a highly debated demand-side provision aimed at corporate landlords. Title 10 of the legislation prohibits large institutional investors—defined as entities controlling at least 350 single-family homes—from purchasing existing single-family properties.[1][4]

To ensure this ban does not inadvertently stifle new construction, the law carves out specific exemptions for "build-to-rent" and "renovate-to-rent" developments. However, corporate investors utilizing these exemptions are required to sell the properties to individual homebuyers within seven years, a mechanism designed to eventually return the inventory to the traditional homeownership market.[4][5]

The legislation also addresses disaster recovery and rural housing. It provides a long-term authorization for the Community Development Block Grant Disaster Recovery (CDBG-DR) program, establishing critical safeguards to ensure federal rebuilding funds reach the lowest-income survivors following hurricanes and wildfires without waiting for ad-hoc congressional appropriations.

For the manufactured housing industry, the bill eliminates an outdated federal requirement that homes be built with a permanent steel chassis. By granting the Department of Housing and Urban Development (HUD) primary authority over energy standards and removing the chassis mandate, the law lowers the cost of factory-built homes and expands design possibilities.[1]

To further incentivize local zoning reform, the legislation establishes an Innovation Fund. This competitive grant program will award $200 million annually for five years to municipalities that demonstrate a proven track record of eliminating regulatory barriers and increasing their local housing supply.[1]

While the legislation provides the statutory framework to build millions of homes, policy experts warn that implementation will be the real test. HUD is now tasked with rolling out dozens of new programs, regulations, and pilot projects, including a new renter outreach resource and the institutional investor tracking database.[4]

Without additional congressional appropriations for agency staffing, HUD will be forced to redirect existing resources to manage the new block grant rules and oversight mandates. The speed at which the agency can issue guidance will determine how quickly cities can actually deploy their newly flexible CDBG and HOME funds.

Ultimately, the 21st Century ROAD to Housing Act represents a fundamental shift in federal housing policy. By moving away from merely subsidizing demand and finally giving local governments the flexible capital and regulatory relief needed to expand supply, Congress has laid the groundwork for a structural correction in the American housing market.[5]