Federal 21st Century ROAD to Housing Act: Key Takeaways for Real Estate Industry Leaders

7.16.26

News & Publications

While President Trump did not sign the 21^st Century ROAD to Housing Act, it automatically became federal law on July 11^th when he did not use his veto power.  The President called the legislation “a big yawn.”  Is it?  What are the key take aways for real estate industry professionals who entitle, construct, or finance housing development projects in the U.S.? On the whole, the 45 topics in the ROAD to Housing Act provide incremental reforms, except for the following important provisions of the law:  

• Large institutional investors (defined as those that directly or indirectly own 350 or more single-family homes) will now be prohibited from purchasing single-family homes on and after January 7, 2027, with limited exceptions. The law is prospective in application, meaning that there is no requirement that institutional investors divest their current single-family holdings. Large institutional investors may still invest in purpose-built single-family residential for rent projects, meeting a market need. This article addresses institutional investment in single-family residential homes in more detail below.
• The establishment of a $200 million grant funding program that rewards cities that modify zoning laws to increase housing production.
• Reducing future Community Development Block Grants by 10 percent for local governments where housing growth is at a pace that is below the median housing growth improvement rate for all eligible recipients of such grants, other than “high growth outliers,” as defined.
• The waiver of environmental reviews and streamlining under the National Environmental Policy Act (NEPA) for certain low-impact, affordable housing projects receiving assistance from the U.S. Department of Housing and Urban Development (HUD).
• The modernization of FHA lending standards for manufactured and modular housing so that they are more in line with lending for traditional housing stock.

Limits on “Large Institutional Investor” Purchases of Single-Family Homes

The legislation’s definition of a “large institutional investor” is sweeping and broad. It includes essentially any for-profit entity that (i) is engaged, in whole or in part, in the business of investing in, owning, renting, managing, or holding single-family homes; and (ii) alone or with others, directly or indirectly, has investment control of 350 or more single-family homes in the aggregate. This threshold does not include any single-family home purchased in an “excepted purchase,” as defined, after the date of enactment of the Act and discussed in more detail below. 

Another key definition in the new law is whether the large institutional investor has “investment control” over a single-family home. The ROAD to Housing Act provides that an entity exercises such control if it (i) owns, or has primary authority or fiduciary responsibility to make material investment or management decisions related to the single-family home; (ii) is or directly or indirectly controls, the general parter or managing member of the entity that owns the single-family home; (iii) is or controls the investment manager, management company, or investment advisor of the entity that owns the single-family home; (iv) owns or controls more than 25 percent of any class of equity interests of the entity that owns the single-family home, unless such entity is a passive investor; or (v) otherwise controls the entity that owns the single-family home. 

What is a “single-family home”? It means a structure that contains one or two dwelling units (which may include lots that have both a principal residence and an accessory dwelling unit). A manufactured home, as defined by the National Manufactured Housing and Construction Safety Standards Act, is excluded from the definition of a “single-family home.”

The law provides that large institutional investors can still purchase a single-family home if it falls within an excepted category. Those categories include a single-family home that is:

• Newly constructed, renovated, or a rental conversion for sale by a large institutional investor and not as a residence rented pending sale;
• Developed pursuant to a build-to-rent program where the large institutional investor purchases, constructs or constructs and retains a newly constructed single-family home to be managed as a rental property;
• Part of a “renovate-to-rent” program that (i) substantially rehabilitates single-family homes that do not meet structural or core systems elements of local building codes; and (ii) makes improvements in an aggregate dollar amount of not less than 15 percent of the purchase price of the single-family home;
• Part of a homeownership program that (i) requires rental payments and any other fees that are not greater than those collected by the large institutional investor on other similarly situated single-family homes not covered by the eligible homeownership program, (ii) is subject to a contract between the large institutional investor and renter that shall be considered a consumer credit transaction secured by a dwelling or real property; (iii) provides for positive reporting of rental payments to consumer reporting agencies for any renter, who shall be informed of and opts into such reporting; and (iv) requires contribution of meaningful financial support from the large institutional investor, including price concessions, for the purchase of single-family home by the renter;
• Pursuant to a program to boost homeownership that (i) provides for positive reporting of rental payments to consumer reporting agencies for any such renter; (ii) provides for the right of first refusal and a 30-day “first look” period, (iii) may entail the meaningful financial support from the large institutional investor, including price concessions, for the purchase of a single-family home by the renter (whether it is the home of the renter occupies or another home).
• Involved in the exercise of remedies by a mortgage servicer or lender;
• Included in a peer-to-peer transaction between or among large institutional investors that own single-family homes;
• Owned by an investor that is not covered by the ROAD to Housing Act and sold to a large institutional investor within two years after the adoption of the ROAD to Housing Act; or
• Newly constructed, renovated, or a rental conversion in a 55+ community that meets certain HUD standards.

The new law also has teeth. A failure of a large institutional investor to comply with the law’s prohibitions can result in civil penalties of up to $1,000,000 per violation or 3 times the purchase price of the property involved, whichever is greater. The new limits on large institutional investors purchasing single-family homes takes effect on January 7, 2027. 

Large institutional investors are also required under this new law to provide tenants with written notice, at the time of first occupancy, of federal renter outreach resources as well as the contact information for the person or entity responsible for renter disputes. Information regarding federal renter outreach resources must also be included on the public website of the large institutional investor in a way that is accessible by its tenant.

Streamlining NEPA for Affordable Housing Projects

The new law offers relief from federal environmental preclearance requirements for certain affordable housing projects requiring HUD assistance. It used to be that a recipient of HUD assistance could not commit funds to a project or take physical or choice-limiting actions until the project completes federal environmental review and receives an Authority to Use Grant Funds. Review is conducted either by HUD under 24 C.F.R. Part 50 (“Part 50”) or, for most block-grant and formula programs (e.g., Community Development Block Grants (CDBG) and HOME) by a state, local, or tribal “responsible entity” that assumes HUD’s federal review obligations under 24 C.F.R. Part 58 (“Part 58”). Under both regulatory schemes, projects fall into tiers: exempt activities, categorically excluded activities such as those that have no physical component and do not alter the environment, and projects requiring an Environmental Assessment (EA) or Environmental Impact Statement (EIS) such as new construction.   

The new law makes three noteworthy changes to the existing requirements: (1) directs HUD to amend its regulations to reclassify certain housing projects to require less or no NEPA review, (2) amends requirements to allow more projects to be reviewed locally rather than by HUD, and (3) exempts from NEPA review certain HOME-assisted activities (new construction infill housing projects, the acquisition of real property for affordable housing purposes, rehabilitation projects, and new construction projects of 15 or fewer units). These changes have the following results:

• Once HUD completes the required rulemaking: 
  • Most 100% affordable projects of 15 or fewer units per site and infill projects on previously disturbed sites of five acres or less regardless of unit count will no longer require NEPA review. An “infill project” is (i) within the geographic limits of a municipality; (ii) adequately served by existing utilities and public services; and (iii) located on previously disturbed land of not more than five acres, substantially surrounded by residential or commercial development, and repurposes a vacant or underutilized parcel or a dilapidated or abandoned structure to serve a residential or commercial purpose.
  • Predevelopment activities such as site options, financing commitments, and zoning entitlement work will be reclassified as NEPA exempt, defusing the “choice-limiting action” trap that prevents developers from advancing HOME- and CDBG-assisted deals before environmental clearance.
• Very small new construction and rehabilitation projects (up to four units per site) and most acquisitions will be excluded from both NEPA review and the related federal laws, including Section 106, once HUD completes the required rulemaking.
• The federal HOME Investment Partnerships Program, a federal block grant loan program to state and local governments dedicated to activities that provide affordable housing for lower income households, is now statutorily exempt from NEPA for infill construction, acquisition of real property for affordable housing, rehabilitation, and new construction of 15 or fewer units.

The new exemptions and streamlining generally apply only to funds appropriated after enactment (or after HUD’s implementing rules take effect) and are inapplicable where a project combines pre- and post-enactment funds. Additionally, none of these change state law environmental review requirements such as those imposed by the California Environmental Quality Act.

Zoning Grant Programs

The new law creates a competitive grant program that authorizes funding up to $200M per year for jurisdictions that demonstrate measurable increases in housing supply (with streamlined permitting, density bonuses, and zoning changes specifically listed as qualifying actions). The grant program will be established within one year and will sunset after seven years. Individual awards will range from $250k to $10M. The money is not yet appropriated and is subject to approval of separate annual appropriations bills.

In addition, the new law establishes a formula adjustment to "CDBG" entitlement funding. It applies only to jurisdictions that receive CDBG funds from HUD. Eligible jurisdictions are those with relatively higher housing costs and lower vacancy rates. Procedurally, HUD will measure a jurisdiction’s housing unit growth and award a bonus allocation to jurisdictions that exceed the median “housing growth improvement rate.” Jurisdictions that fall below the median housing growth improvement rate will face a funding reduction that is intended to fund the bonus awarded to jurisdictions that provide more housing. This CDBG funding program does not affect local zoning authority but is instead a fiscal incentive program. There is a disaster-declaration exclusion that will shelter Los Angeles and other jurisdictions with certain recent disasters for three years.

Conclusion

The provisions of the ROAD to Housing Act that will have the most impact on the real estate business community are those provisions dealing with the limit on institutional investor acquisition of single-family homes. Other provisions of the new law will likely also stimulate housing development, but those changes will be modest and will likely not be felt for some years to come. If you have specific questions about this law, whether about a provision covered by this client alert or another provision, feel free to contact your Cox Castle attorney or one of the authors of this client alert.