A key housing-supply provision in the 21st Century ROAD to Housing Act may be too small to unlock meaningful purchase inventory in most markets, according to a Realtor.com analysis.
The provision ties a portion of municipalities’ Community Development Block Grant funding to housing-stock growth, rewarding communities that outperform homebuilding benchmarks while reducing allocations by as much as 10% for those that fall short.
But the penalty amounts to only about $84,000 for the median city studied — raising doubts that it will prompt the zoning, permitting, or infrastructure changes needed to produce more homes. For mortgage originators, that suggests any resulting increase in purchase opportunities will likely be concentrated in a limited number of supply-starved Northeast and Midwest markets.
The median CDBG award among the cities analyzed was $839,525, representing just 0.33% of municipal revenue, according to the report authored by Joel Berner. Put another way, the typical award equals approximately one three-hundredth of a city’s budget.
That raises a central question about one of the ROAD Act’s housing-supply strategies: Is the federal government offering cities enough money to change how — and how much — they build?
Big Policy, Small Penalty
CDBG funding, administered by the Department of Housing and Urban Development, can support infrastructure, housing rehabilitation, economic development, buyer assistance, and public services.
The program gives local governments considerable discretion over how the money is spent. Its allocations are also relatively predictable, allowing cities to incorporate the funding into multiyear plans.
Under the ROAD Act, that predictability now depends partly on housing production. The law directs HUD to compare eligible jurisdictions’ housing-growth improvement rates, awarding bonuses to stronger-performing communities and reducing grants for those that lag behind. Certain jurisdictions are exempt, including those with limited zoning authority, high rental vacancy rates, low fair-market rents, or a recent federally declared disaster.
The bonuses are funded through reductions imposed on underperforming communities, allowing the program to operate without a separate congressional appropriation.
For large cities, however, even substantial CDBG awards represent only a fraction of municipal revenue. New York City received approximately $169.3 million in 2023, while Los Angeles received roughly $50 million against total city revenue of approximately $22 billion.
Realtor.com estimated that Los Angeles’ maximum penalty would be around $5 million—material money, but potentially insufficient to drive a major zoning or permitting overhaul within a multibillion-dollar budget.
Impact Could Be Concentrated
The policy may carry greater weight in smaller, traditionally industrial cities where CDBG funding accounts for a larger portion of municipal revenue and new construction remains limited.
Realtor.com ranked cities with populations exceeding 250,000 based on two factors: CDBG funding as a share of city revenue and the percentage of for-sale listings consisting of new construction. The resulting list was concentrated in Northeast and Midwest markets where relatively little housing is being built.
That overlap could make the incentives more effective in places where additional inventory is particularly difficult to produce.
Among the 10 markets identified were Minneapolis and Detroit, where household counts grew 1.9% and 1.7%, respectively, between 2025 and 2026. Jersey City and Newark recorded considerably faster household growth of 6.3% and 5.6%, respectively.
National household growth was 1.6% during the same period.
The findings suggest the policy’s greatest effect may not be national. Instead, it could emerge market by market, particularly where local governments rely more heavily on federal development funding and have substantial room to improve housing production.
Even in those cities, grant incentives are only one part of the construction equation. Land, labor, materials, financing costs, infrastructure capacity, and local housing demand can all determine whether zoning or permitting changes result in completed homes.
Supply Gap Remains Above 4 Million Homes
The new incentive arrives with the country continuing to underbuild relative to household formation.
The national housing supply gap widened to approximately 4.03 million homes in 2025, according to earlier Realtor.com research covered by NMP. Although builders completed nearly 1.4 million homes, an estimated 1.9 million new households formed during the year.
The ROAD Act attempts to address that shortage through several provisions targeting construction, land-use restrictions, manufactured housing, regulatory reviews, and mortgage access.
The Senate passed the final version in June by an 85-5 vote, moving forward a package that NMP previously reported could affect housing supply, manufactured housing, investor competition, local permitting, and access to affordable mortgage programs.
Builders and mortgage lenders had also backed a revised version of the legislation after lawmakers removed a provision that industry groups warned could discourage build-to-rent investment. Industry support centered partly on provisions intended to encourage construction and expand entry-level inventory.
What It Means
The CDBG incentives are unlikely to produce new purchase inventory quickly. Cities must first evaluate their housing-growth targets, consider policy changes, and attract projects that can be financed and completed.
For originators, the more immediate value may be identifying markets where local governments begin revising zoning, accelerating approvals, or investing federal funding in infrastructure needed to support residential development.
The long-term opportunity is clearest in markets such as Minneapolis, Detroit, Jersey City, and Newark, where Realtor.com found household growth is already outpacing or nearing the national rate while new construction remains constrained.
Whether those opportunities materialize will depend on more than federal grant formulas. Realtor.com concluded that the incentives would require additional congressional funding to exert broader influence, arguing that stakes equal to one three-hundredth of a typical city budget may be too low to change local behavior.
*This article was primarily written by a human author. AI tools were used in a limited capacity for research assistance or light editing.
