What the 21st Century ROAD to Housing Act could mean for housing supply

Passage of the bipartisan 21st Century ROAD to Housing Act represents one of the most significant federal housing policy achievements in decades—at a time when the nation urgently needs more homes.

The enacted legislation brings together a broad set of policies designed to increase housing supply, strengthen affordable housing finance, preserve existing affordable properties, and modernize federal housing programs. Its provisions address nearly every part of the housing ecosystem, from investment capacity and multifamily lending to zoning, permitting, construction methods, and appraisal practices.

One of the legislation’s most consequential provisions increases the public welfare investment cap for banks from 15 percent to 20 percent of capital and surplus. The change removes a structural constraint that had begun limiting some banks’ ability to invest in Low-Income Housing Tax Credit (LIHTC) properties and other community development initiatives.

The act strengthens affordable housing finance, expands the capacity of private capital, and provides new tools to help communities produce more housing.

It is not a stand-alone solution to the housing shortage. Its impact will depend on federal implementation, private-sector investment, and complementary state and local reforms. Still, it provides a clear view of the policy priorities shaping the next phase of federal housing action.

Key takeaways

The law:

• Expands banks’ long-term capacity to invest in affordable housing and community development
• Increases tools to support housing supply through zoning, permitting, planning, and environmental review reforms
• Updates affordable housing programs, including Rental Assistance Demonstration (RAD), Home Investment Partnerships (HOME), and Community Development Block Grant (CDBG)
• Modernizes financing through small-dollar mortgage initiatives and higher FHA multifamily loan limits
• Encourages manufactured, modular, and factory-built housing production
• Includes appraisal and valuation reforms intended to improve confidence in the mortgage process

Expanding investment capacity for affordable housing

One of the most significant provisions increases the federal public welfare investment cap from 15 percent to 20 percent of a bank’s capital and surplus.

Banks use public welfare investments to support affordable housing, community development, and other initiatives that benefit low- and moderate-income communities. These investments include equity investments in properties financed through the Low-Income Housing Tax Credit, the nation’s primary production tool for affordable rental housing.

The previous 15 percent cap had increasingly become a constraint for some of the country’s most active affordable housing investors.

A 2025 survey of 22 banks by the Affordable Housing Tax Credit Coalition, Affordable Housing Investors Council, and National Assn. of Affordable Housing Lenders, found that participating institutions made approximately $14 billion in housing credit investments in 2024, representing nearly two-thirds of all bank LIHTC investment that year. More than 42 percent of those investments—approximately $6.1 billion—came from banks that were already at or approaching the existing cap.

Increasing the cap does not mean banks will immediately increase investment or pay higher prices for housing credits. Investment decisions will continue to reflect Community Reinvestment Act objectives, tax liability, portfolio strategy, market conditions, and risk-adjusted returns.

The reform does, however, give banks more room to plan and invest over the long term. Some institutions previously faced a choice between selling existing investments or slowing new investment activity to remain below the regulatory ceiling. Raising the cap allows those banks to manage their portfolios more strategically rather than making decisions primarily to avoid exceeding the limit.

The significance of this provision is not that it changes the economics of LIHTC overnight, but it ensures the market has room to grow.

Over time, the additional capacity could help create a stronger and more resilient affordable housing finance system, particularly as the supply of housing credits expands and the market seeks additional investor demand.

Strengthening affordable housing programs

The legislation includes updates to several long-standing affordable housing programs, with a focus on both new production and preservation.

Among the most notable provisions is an expansion of the RAD program, increasing its cap from 455,000 to 555,000 units while codifying existing tenant protections.

RAD has become one of HUD’s most important preservation tools. It allows public housing agencies to access private financing to rehabilitate aging public housing while maintaining long-term affordability protections.

Increasing the cap allows more public housing properties to address deferred maintenance, modernize aging units, and preserve affordable housing for current and future residents.

The legislation also reauthorizes and modernizes the HOME Investment Partnerships program, including administrative updates and changes intended to reduce duplicative environmental reviews for certain projects.

CDBG programs receive significant attention as well. The legislation adds affordable housing construction as an eligible CDBG activity, giving local governments greater flexibility to use federal resources alongside LIHTC equity, HOME funds, and private investment.

It also establishes a pilot program to encourage housing development in participating jurisdictions and provide a multiyear authorization for the Community Development Block Grant–Disaster Recovery program. The added certainty could help states and communities plan for rebuilding housing and infrastructure following federally declared disasters.

For multifamily housing, the act also increases Federal Housing Administration (FHA) multifamily loan limits across several programs, reflecting the higher costs of developing and preserving housing in today's market. It also includes updates affecting housing choice vouchers, Family Self-Sufficiency initiatives, and veterans' access to housing programs.

Supporting innovation in housing construction

The legislation also reflects growing interest in manufactured, modular, prefabricated, and other factory-built construction methods as potential tools for expanding housing supply and controlling costs.

It updates the federal definition of manufactured housing to include certain modular and prefabricated homes that are not built on a permanent chassis, while directing HUD to establish appropriate construction and safety standards.

Additional provisions require the FHA to evaluate barriers to lending for modular housing, allow HUD to modify financing draw schedules to better support modular construction, modernize manufactured housing lending standards, and reauthorize the Preservation and Reinvestment Initiative for Community Enhancement program to support manufactured housing communities.

The changes could help address some of the financing and regulatory barriers facing factory-built housing. However, expanding the sector will also require a deeper and more reliable base of experienced manufacturers.

Developers may be hesitant to depend on modular or manufactured construction until there are more financially stable producers capable of delivering large projects consistently. However, policies that make the sector more viable could encourage new participants, strengthen existing manufacturers, and help developers view factory-built housing as a repeatable construction strategy.

Looking ahead

The 21st Century ROAD to Housing Act addresses the nation’s housing challenges from multiple directions—expanding investment capacity, strengthening preservation tools, modernizing financing programs, reducing regulatory barriers, and encouraging new construction methods.

Its passage is an important step, but the legislation’s full impact will depend on implementation.

Federal agencies must complete rulemaking and establish the processes necessary to put individual provisions into practice. State regulators may need to align their investment rules with new federal limits. Local governments will need to pursue zoning, permitting, infrastructure, and land-use reforms that make additional housing production possible.

The legislation also leaves additional work for the housing industry and policymakers. Potential priorities include attracting more investor demand to the LIHTC market, improving the tax treatment of housing credits, addressing bank capital requirements, and ensuring domestic sourcing rules do not unintentionally increase costs or delay affordable housing projects.

Still, it signals a meaningful change in the national housing conversation. Affordable housing is increasingly recognized not as an issue limited to specific cities, regions, or political constituencies, but as a challenge affecting communities across the country.

For developers, owners, lenders, investors, and public-sector partners, understanding how these provisions interact will be critical to evaluating future financing strategies, development opportunities, and investment decisions.

Walker & Dunlop closely monitors legislative and regulatory developments that shape commercial real estate and housing markets. Our professionals help clients understand how changes in federal policies may affect financing strategies, development opportunities, affordable housing initiatives, and long-term investment decisions. Connect with our team to learn more about the potential implications of the 21st Century ROAD to Housing Act.

^{Disclaimer: This article is provided for informational purposes only and does not constitute legal, tax, or investment advice. Readers should consult qualified legal and tax advisors regarding the application of any legislation to their specific circumstances.}