The 21st Century ROAD to Housing Act became law on July 11, 2026, delivering the first major overhaul of federal housing policy in over 30 years. The law expands eligible uses of Community Development Block Grant (CDBG) funds to include new affordable housing construction—a shift housing experts say could help cities address the nation’s entrenched supply crisis.
Cities can now allocate up to 20 percent of their annual CDBG funding toward new construction of affordable housing, a use that was previously restricted to repairs and preservation. The change applies to the $3.3 billion CDBG program funded in fiscal year 2026, which flows to more than 1,250 metropolitan city and county governments, including 208 counties that receive grants directly.
Congress passed the bill with strong bipartisan support: the Senate approved it 85-5 on June 22, 2026, followed by a House vote of 358-32 on June 23. The legislation became law without the President’s signature after ten days elapsed, a constitutional mechanism that allowed it to take effect despite White House hesitation.
The change
What cities can now do with CDBG dollars
For the first time in the program’s 50-year history, communities can use block grant funds to build new affordable homes.
The Community Development Block Grant Program provides annual grants on a formula basis to states, cities, and counties to develop viable urban communities by providing decent housing and a suitable living environment, and by expanding economic opportunities, principally for low- and moderate-income persons. When Congress passed the Housing and Community Development Act of 1974, it created the CDBG Program to break down barriers where the Federal Government had made decisions about every community development project.
Section 204 of the new law authorizes the new construction of affordable housing as an allowable use of funds under the CDBG program. Until now, cities could use CDBG money for housing rehabilitation, infrastructure, public services, and economic development—but not to build new homes from the ground up. The changes are an attempt by policymakers to ease regulatory, administrative and financing barriers that have constrained single-family and multifamily construction for years, according to housing policy experts.
The law also revises CDBG funding formulas and establishes housing production incentives tied to CDBG funding. The Build Now Act provision ties CDBG formula funding to local housing growth, with higher-performing grantees eligible for prorated bonus payments, funded directly from a ten percent penalty to lower-performing grantees. If a city fails to build more new housing units than the median rate of home construction nationwide, it will lose 10% of its CDBG funding, which HUD would then reallocate to cities that are building more.
Key numbers
20%: Maximum share of annual CDBG allocation cities can use for new affordable housing construction
$3.3 billion: Total CDBG funding for fiscal year 2026
1,250+: Metropolitan cities and counties that receive direct CDBG grants
10%: Penalty for jurisdictions that fail to meet housing production benchmarks
July 11, 2026: Date the law took effect
Protections
Who is exempt from the production penalties
Congress built in safeguards to protect communities facing disasters or weak housing markets.
The final bill includes a number of exemptions that are expected to significantly narrow the pool of CDBG-affected recipients, including an expanded emergency lookback, exempting any community that has been subject to a major disaster or emergency declaration in the preceding three years. Communities that have received a major disaster or emergency declaration within the previous three years are exempt from the housing production requirements.
Supply and demand exemptions apply to any grantee for which the rental vacancy rate is above the national vacancy rate, or 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. These provisions recognize that not every community faces the same housing pressures, and that punishing cities with already-weak housing markets would be counterproductive.
The law also includes zoning exemptions for communities with limited legal authority over land use decisions—important in states where counties have little control over municipal zoning codes. You can read the full text of the law on Congress.gov, which includes detailed provisions across more than 60 pieces of prior legislation that were combined into the final package.
What else changed
Other housing reforms in the law
The bill modernizes multiple federal housing programs beyond CDBG.
The legislation represents the first major overhaul of federal housing policy in over 30 years, combining provisions from more than 60 pieces of legislation introduced across both chambers. Beyond CDBG, the law reauthorizes and modernizes the HOME Investment Partnerships Program, the second-largest source of federal housing grants to states and cities.
The bill permits the Federal Housing Administration to establish a pilot program for mortgages under $100,000, targeting small-dollar lending gaps—critical in rural areas and lower-cost markets where traditional lenders often avoid small loans because origination costs eat up profits. The bill also lifts the cap on the Rental Assistance Demonstration program by 100,000 units, expanding rental assistance for low-income households.
The law creates a new $200 million annual Innovative Housing Growth Grant Program for cities, counties, and tribes that increase housing supply. It also authorizes the Community Development Block Grant–Disaster Recovery (CDBG-DR) program for three years, giving HUD standing authority to respond to disasters without waiting for Congress to appropriate funds each time. Environmental reviews for numerous housing and redevelopment activities are streamlined under the new law.
If you’re a first-time buyer, our first-time buyer guide explains how federal programs like FHA loans work. For down payment help, see our guide to state and local assistance programs, many of which receive funding through CDBG and HOME. If you’re buying with no money down, our zero-down options guide covers USDA and VA loans plus state programs.
New grant programs authorized
Innovative Housing Growth Grants: $200 million annually (FY2027-FY2031) for jurisdictions demonstrating measurable housing supply growth
RESIDE pilot: Supports converting vacant commercial properties into housing
Pattern book grants: Funding to adopt pre-approved building designs for small multifamily housing
Whole-Home Repairs: Competitive grants for home repair assistance
Small-dollar mortgage pilot: FHA program for loans under $100,000
What it means
How this affects homebuyers
More construction should ease price pressure, but the impact will take years to show up.
The United States has been underbuilding housing for more than a decade. Estimates of the shortage range from 1.5 million to 7 million homes, depending on how you count. The CDBG construction authority gives cities a new tool, but the $3.3 billion annual program is modest compared to the scale of the problem. At 20% of each jurisdiction’s allocation, the construction cap means perhaps $660 million nationally could flow to new building each year—enough for a few thousand units if costs run $200,000 to $300,000 per affordable home.
The production incentives may matter more. Cities that have actively blocked housing through restrictive zoning now face a financial penalty. 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, but the final law’s exemptions address many of those concerns.
For buyers, the effect will be indirect and slow. More supply, even at the affordable end, eases pressure across the market as households move into new units and free up older stock. But construction takes time: permitting, financing, and building a multifamily project typically requires two to four years. If your state offers down payment assistance or first-time buyer programs funded through CDBG or HOME, you may see expanded eligibility or larger grants as those programs receive more federal dollars. Check our state-by-state guide to find programs where you’re buying.
Next steps
What happens now
HUD must write regulations, and cities must decide how to use the new authority.
Many provisions of the law take effect on October 1, 2026, the start of the federal fiscal year. HUD will need to issue guidance on how cities can use the new construction authority, what qualifies as “affordable housing” for CDBG purposes, and how the production benchmarks and penalties will be calculated and enforced. Congress reduced HUD staffing by 24 percent in fiscal year 2026, which may slow the agency’s ability to implement the dozens of new programs and pilots authorized by the law.
Cities will need to decide whether to use the construction authority. Some may lack the capacity to manage housing development projects; others may prefer to continue using CDBG for infrastructure, services, or rehabilitation. The production penalties won’t kick in immediately—HUD will need time to establish baseline metrics and give communities notice before reallocating funds. Expect the first round of penalties, if any, in fiscal year 2028 or 2029.
The law also requires annual reporting. An annual requirement for the HUD secretary to testify before Congress on the department’s performance adds oversight accountability. Those hearings will be the place to watch for early data on how many cities are using the construction authority, how much housing is being built, and whether the production incentives are changing local behavior.
If you’re shopping for a mortgage now, our mortgage guide explains current rates and loan types. For help understanding what you can afford, see our affordability calculator and budgeting guide. And if your credit is holding you back, our bad credit buyer’s guide shows paths to homeownership even with scores below 640.
Quick answers
CDBG housing reform: common questions
Can I get CDBG money to buy a house?
Not directly. CDBG funds flow to city and county governments, not individual buyers. However, many local down payment assistance programs and homebuyer education classes are funded with CDBG dollars. Check with your city or county housing department to see what programs are available. Our assistance programs guide explains how to find help in your area.
When will the new construction funding be available?
The law took effect July 11, 2026, but most provisions don’t activate until October 1, 2026, the start of fiscal year 2027. Cities receiving their FY 2027 CDBG allocations in late 2026 or early 2027 will be the first able to use the new construction authority. Actual projects won’t break ground until 2027 at the earliest, and completed homes won’t hit the market until 2028 or 2029.
Will this lower home prices in my city?
Probably not in the short term, and the effect will be modest even long-term. The 20% construction cap means cities can redirect only a portion of their CDBG allocation to new building. In a large city receiving $20 million annually, that’s $4 million for construction—enough for perhaps 15 to 25 affordable units per year. More supply helps at the margin, but CDBG alone won’t solve a housing shortage. The production penalties may have a bigger effect by pushing cities to approve more private development.
What counts as ‘affordable housing’ under the new rules?
HUD will define this in forthcoming regulations, but CDBG has always required that activities benefit low- and moderate-income people. Typically that means households earning 80% or less of area median income. For a family of four, that’s about $70,000 in a mid-sized metro, $50,000 in a rural area, or $90,000 in an expensive coastal city. Rents or sale prices must be affordable to those income levels.
Does my state have a CDBG program I can access?
States receive 30% of CDBG funds and distribute them to smaller cities and rural counties that don’t qualify for direct “entitlement” grants from HUD. If you live outside a major metro area, your county or town may compete for state CDBG dollars. Contact your state housing finance agency or economic development office. Every state runs a CDBG program; you can find yours through our state guides.
Are there other new federal programs for homebuyers in this law?
Yes. The FHA small-dollar mortgage pilot may help buyers in lower-cost markets get loans under $100,000, which many lenders currently avoid. The Innovative Housing Growth Grants could fund local down payment assistance programs in cities that are building more homes. The HOME program changes expand income eligibility and allow some infrastructure funding. Watch for announcements from your state and local housing agencies as HUD rolls out these programs in late 2026 and 2027.