A new federal housing incentive tying Community Development Block Grant funding to local homebuilding may exert little financial pressure on most large cities, with a Realtor.com analysis finding the median grant represents just 0.33% of municipal revenue and the typical maximum penalty would amount to about $84,000.
The recently enacted 21st Century ROAD to Housing Act links CDBG allocations from the U.S. Department of Housing and Urban Development to growth in local housing inventories. Communities that increase their housing stock can receive larger allocations, while those that fail to meet housing-delivery standards can lose as much as 10% of their grants.
Realtor.com found the incentives could carry more weight in smaller, post-industrial cities in the Northeast and Midwest, where federal grants account for a larger portion of municipal finances and new-home construction tends to be limited.
The median CDBG award among cities analyzed was $839,525 in 2023, equivalent to roughly one-three-hundredth of municipal revenue. That relatively small exposure could limit the program’s ability to induce zoning, permitting or other policy changes in cities with large budgets.
“CDBG funding can be a meaningful tool for local governments, particularly because communities have flexibility in how they put those dollars to work,” Realtor.com senior economist Joel Berner stated. “But the current payout structure is unlikely to change housing policy in most large cities when the potential penalty is a tiny fraction of their overall budgets.”
New York received the country’s largest CDBG allocation in 2023 at $169.3 million, followed by Chicago at $75.1 million, Los Angeles at $50.2 million, Philadelphia at $43.9 million and Detroit at $34 million.
Even those larger grants can represent a relatively small portion of municipal finances. Los Angeles, for example, had about $22 billion in total revenue, making a maximum penalty of roughly $5 million unlikely to exert significant fiscal pressure, according to the analysis.
The financial calculus changes in communities where CDBG funding represents a larger share of local revenue. Realtor.com identified Altoona and Johnstown in Pennsylvania, Franklin and Camden in New Jersey, and Saginaw, Michigan, among smaller cities where the grants could carry greater budgetary significance.
That concentration could align the incentives with markets where residential construction has been particularly limited. Realtor.com found a weak negative correlation between CDBG reliance and the share of homes for sale that are newly constructed.
Nationally, new construction represented 17.9% of listings in the analysis. The share was about 1.3% in markets including Milwaukee, Detroit, Toledo, Newark and Buffalo.
“Targeting incentives at places where homebuilding is least active could help unlock development where it is needed most,” Berner stated. “The key question is whether cities can reduce regulatory barriers and make it easier to build.”
Household growth presents a more mixed picture. Among 10 large cities Realtor.com identified as potentially most affected by the incentives, four exceeded the national household-growth rate of 1.6%: Jersey City at 6.3%, Newark at 5.6%, Minneapolis at 1.9% and Detroit at 1.7%.
The report cautioned that slower household formation does not necessarily indicate weak housing demand because affordability constraints can prevent people from establishing separate households.
CDBG money can be used for infrastructure and public facilities, housing rehabilitation and buyer assistance, economic development and public services. The program gives local governments discretion over how much of the federal funding is allocated among eligible activities.
Federal CDBG funding has not kept pace with inflation since the program’s creation in 1974, according to Realtor.com, while the number of eligible recipients has increased.
The new incentive structure is designed to be self-funding, with penalties imposed on communities missing housing-growth targets financing bonuses for those meeting them.
Certain jurisdictions are exempt, including communities without statutory zoning authority, those with high rental vacancy rates or low fair-market rents, and areas affected by a federally declared disaster during the preceding 365 days.
Berner argued that larger financial stakes may ultimately be necessary if policymakers want the program to influence housing policy more broadly.
“If Congress wants this program to drive broader change, however, the financial stakes will likely need to be larger,” he stated.
Realtor.com’s analysis used 2023 HUD CDBG data and Census Bureau municipal finance and population statistics. New-construction figures were based on a trailing 12-month average through June 2026 using Realtor.com listings, while 2025 and 2026 household estimates came from Claritas.
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