Landmark housing reform bill becomes law with key county priorities

Key Takeaways

On June 23, Congress passed its landmark housing reform package, the 21st Century ROAD to Housing Act (H.R. 6644), after more than a year of stakeholder engagement, bill drafting and bicameral negotiation. This marks the most significant federal housing bill in more than three decades and reflects direct feedback from county stakeholders. The bill became law at midnight on July 10 without the President’s signature.

The bill reflects priorities NACo has long championed – including safeguards for critical community development funding and an expedited process for allocating disaster recovery funds.

Read NACo's Letter of Support Here

MAJOR PROVISIONS OF IMPORTANCE TO COUNTIES

Unlike landmark housing bills of the past, the bill contains no singular flagship program, but rather a holistic suite of tools that enhance local housing response rather than micromanaging it.

Some of the most impactful changes for counties include:

1.    STREAMLINED ACCESS TO CRITICAL DISASTER RECOVERY FUNDING
The bill authorizes the Community Development Block Grant – Disaster Recovery (CDBG-DR) program for three years, providing timelier access to disaster recovery funding. Under current law, CDBG-DR does not have standing authorization or an annual budget and is, instead, appropriated on a supplemental basis following qualifying disaster events. This often results in funding delays of a year or more, as Congress evaluates impacts and negotiates funding levels. CDBG-DR funds may reach counties either as direct grantees or through state administration, depending on the disaster and jurisdiction.

CDBG-DR funds are particularly important for long-term housing recovery, infrastructure restoration and economic revitalization, complementing the more immediate recovery objectives of the Federal Emergency Management Agency’s core programs. With standing authorization for three years, impacted counties will be able to access funds and begin the process of rebuilding much sooner.

2.    EXPANSION OF KEY PROGRAMS
As frontline administrators of the Home Investment Partnerships (HOME) program, counties rely on these funds to meet the housing demands of homebuyers and renters alike. The bill formally reauthorizes the HOME program and makes the following changes to program parameters:

• Raises income thresholds from 80 percent of area median income (AMI) to 100 percent. Similarly, homeownership activities under HOME may now be put toward homes valued at up to 110 percent of the average area purchasing price (up from 95 percent). These changes are meant to help communities better address gaps in “workforce level” housing. 
• Expands eligible uses to include housing-adjacent infrastructure for HOME grantees that do not receive Community Development Block Grant (CDBG) formula funding. This primarily applies to communities that receive CDBG funding through state pass-through.
• Exempts low-impact HOME projects from National Environmental Policy Act requirements. This specifically applies to infill housing projects, housing rehabilitation, and new construction projects under 15 units. 
• Requires a U.S. Department of Housing and Urban Development (HUD) study on the impacts of the Build America, Buy America Act’s domestic sourcing requirements on HOME project costs and timelines.
• Exempts specified HOME projects from the requirements of Section 3 of the Housing and Urban Development Act of 1968. Section 3 requires that a portion of the labor hours on any federally assisted project go to low-income individuals. This exemption applies to HOME participating jurisdictions that were allocated less than $3 million in a given year, for properties with less than 50 total units.

The bill also authorizes new construction as an eligible use under CDBG. Up to 20 percent of CDBG funds may be used for construction activities, providing counties with an additional tool for expanding their housing supply.

3.    NEW LOCAL GRANT PROGRAMS
Local governments will also be able to apply for several new grant programs, including an innovation fund for jurisdictions that meet certain housing criteria, as well as regional planning grants and a program to restore abandoned homes.

• Innovation fund grants will provide flexible funding for urban counties[EH1.1] (the same statutory definition used for CDBG entitlement communities) that have demonstrated an increase in housing supply growth[JG2.1]. Program funds may be used for any eligible use under CDBG, as well as any other use that furthers the development of attainable housing. The pilot program will sunset in five years. 
• New regional planning grants will be available to urban counties and regional planning agencies to plan and implement regional housing strategies. 
• The Revitalizing Empty Structures into Desirable Environments (RESIDE) Act will provide funding for local governments to redevelop abandoned or dilapidated properties.

Because the bill is “budget-neutral” by design, these programs remain unfunded for the time being and will require additional action from Congress to set spending levels.  

4.    UNLOCK KEY FINANCING TOOLS 
Under the bill, banks’ “public welfare investment” (PWI) cap rises from 15 percent to 20 percent. The PWI cap restricts the amount a bank can invest in certain equity projects, such as those tied to the Low-Income Housing Tax Credit (LIHTC), to ensure they remain solvent. However, many banks are approaching their 15 percent cap, limiting access to that credit.[EH3.1] Raising the cap would free up new private investment for affordable housing and community development projects.

5.    RURAL REFORMS
Under the bill, Rural Housing Service subsidies are decoupled from maturing mortgage loans under the U.S. Department of Agriculture’s (USDA) Section 515 mortgage guarantee program. Absent this change, rental assistance for these properties would expire as the loan reaches maturity—congressional staff analysis estimates this would impact more than 400,000 rural renters.

The bill also exempts certain low-impact USDA-assisted projects from more rigorous environmental review requirements under NEPA. Meanwhile, the bill encourages increased collaboration between USDA and HUD and authorizes them to conduct joint environmental reviews.

Lastly, HUD is directed to study small-dollar mortgages (less than $100,000) and develop a pilot program to expand consumer access.

6.    THOUGHTFUL APPROACH TO INSTITUTIONAL INVESTORS
Limits on large institutional investors’ activity in the housing market have been a focus of recent housing policy debates, as a way to keep families and first-time buyers competitive. In an earlier draft of the bill, the Senate included language that precluded “large institutional investors,” defined as any entity with a direct or indirect interest in more than 350 single-family homes, from acquiring additional units.

At the same time, investors were required to divest from dedicated “Built-to-Rent (BTR)” properties within seven years of acquisition (plus a possible three-year tenant opt-in). Counties expressed concern that the forced sale of BTR properties may result in displacement of rental households who are unable to afford to purchase their unit. Additionally, local governments may encounter administrative challenges when trying to subdivide these detached rental communities. Many of these developments are built on a single master parcel, with shared utilities or driveways and were never intended for single-family use.

Ultimately, the two chambers reached a compromise removing this requirement, reflecting key feedback from counties and industry stakeholders.

ADDITIONAL PROVISIONS 

While counties’ advocacy delivered a number of key wins, there are also several regulatory changes and cost mandates to be aware of:

1.    CDBG ALLOCATION CHANGES AND LAND DATABASE
The legislation’s Build Now Act ties CDBG formula funding to local housing growth. Higher-performing grantees will be eligible for prorated bonus payments, funded directly from a ten percent penalty to lower-performing grantees.

Counties had expressed concerns that unpredictable funding shifts could undermine long-term community development planning and make it more difficult to leverage CDBG investments for multi-year housing, infrastructure and economic development projects.

NACo’s advocacy focused on shrinking the impact of this section and the final bill includes a number of exemptions that are expected to significantly narrow the pool of CDBG-affected recipients:

• An expanded emergency lookback, exempting any community that has been subject to a major disaster or emergency declaration in the preceding three years
• Supply and demand exemptions, for communities that fall below specified housing or rental cost thresholds or exceed the national median vacancy rate. These exemptions specifically apply to any grantee 1) for which the rental vacancy rate is above the national vacancy rate, or 2) for which the median home value is below the national median home value AND the median fair market rent is below the 60th percentile of all other CDBG entitlement grantees. 
• Zoning exemptions for grantees with limited legal authority to influence zoning or land use in their community

The language also includes a three-year glide path (meaning this provision would not take effect until 2029) and a requirement that HUD annually notify CDBG grantees of their eligibility and funding status.

CDBG entitlement grantees will also be required to maintain a public database of undeveloped land owned by the jurisdiction. Grantees may use CDBG funding to meet this requirement.

2.    MODEL ZONING FRAMEWORKS

The bill directs HUD to develop a series of best practices for states and local governments to promote housing growth. While these guidelines would not have the force of law, they may present a blueprint for state-level preemption.

NEXT STEPS FOR COUNTIES

While the bill authorizes several new local grant programs, these programs remain unfunded for the time being and counties should continue working with Congress to set sufficient spending levels.

Additionally, this bill will place greater responsibility on HUD to administer new programs and implement changes. NACo is mindful of agency capacity constraints and will continue advocating for adequate staffing levels to ensure seamless implementation.

With congressional passage secured, counties will soon turn their eye to implementation. Counties look forward to working with our federal partners to ensure sound implementation of these changes and confront the issue of housing affordability in our communities. There is more work ahead, but this legislation marks a meaningful step forward.