The Trump administration’s secret YIMBY grant proposal

Happy Tuesday, and welcome to another edition of Rent Free. This week’s stories include: 

• The Trump administration’s little-noticed attempt to tie housing voucher funding to local supply restrictions. 
• Another court ruling blocks Trump’s attempt to shift federal homeless dollars away from “housing first” jurisdictions. 
• The North Carolina Legislature passes a watered-down version of residential-in-commercial zoning reform. 

In a little-noticed regulatory proposal, the U.S. Department of Housing and Urban Development (HUD) proposed to reduce federal housing voucher funds to jurisdictions where land use regulations are driving up rents. 

The Housing Choice Voucher program, also known as Section 8, is HUD’s largest budget item. A spending bill approved earlier this year appropriated $38 billion to the program. That funding flows to local housing authorities, who then issue vouchers to qualifying low-income families to spend on privately owned rental units. 

To help ensure that voucher amounts are keeping pace with rising rents, HUD uses its own measure of local inflation and rents to adjust how much of this funding is allocated to individual housing authorities. 

Back in July, HUD published a notice in the Federal Register laying out a slightly changed methodology it planned to use when making these inflation adjustment calculations for voucher allocations in FY 2026. 

It proposed, starting in FY 2027, to start factoring in local land use regulations’ impact on rents when adjusting each housing authority’s voucher funding allocation. 

The Department said it was hoping to avoid sending additional money to cities where rent increases are being driven up by localities’ restrictions on new supply. 

“HUD is interested in whether the [inflation] methodology could be improved to avoid allocating shares of renewal funding to areas where rent increases may be substantially impacted by policy-driven determinants of housing supply,” reads the department’s notice. 

The notice mentions “land use policies, permitting practices, and other local regulatory policy factors that impact new housing supply” as factors it might consider in voucher allocations. 

Housing authorities and affordable housing groups both opposed the department’s proposal. 

“Adopting this change would penalize those who have no control over local land use decisions, in particular families with the lowest incomes in areas where housing costs are high. Similarly, public housing agencies (PHAs) generally do not dictate local land use policies,” reads the comment letter submitted by the National Low Income Housing Coalition and signed by a number of other affordable housing advocates.

The letter also cautions that the vagueness of the policy factors HUD might consider in adjusting funding could allow the department to strip funding from jurisdictions over a wide range of policy disagreements. 

Alex Armlovich, a housing program officer at Coefficient Giving, submitted an individual comment offering conditional support for the proposal. 

His comment letter cites research findings that HUD’s upward adjustment of housing voucher allocations to supply-constrained jurisdictions works to increase rent inflation in those areas. 

The department’s policy-neutral inflation calculations could be seen as circular and self-defeating. Voucher funding increases drive up rents, which then require additional funding. 

Armlovich also says that tying voucher funding to land use regulation could create an indirect incentive to reduce cost-increasing regulations. 

Including those land use policy considerations into voucher allocations could “plausibly increase the number of households served by Section 8 in the long run” by incentivizing pro-supply changes and/or shifting funding to more supply-elastic jurisdictions where additional voucher funding does not push up rents, he adds in the letter.

Over the past several years, the federal government conducted a few small-scale “YIMBY grant” experiments of tying federal housing and transportation subsidies to local land use policies as a way of incentivizing pro-supply reforms. 

The recently passed 21st Century ROAD to Housing bill creates a new $200 million Innovation Fund to reward jurisdictions with grants for pro-supply policy reforms. 

Tying housing choice voucher funding to local regulatory changes could be a much more powerful incentive given how much more money would be at stake. 

Once again, the Trump administration’s efforts to shift homelessness funding away from a “housing first” approach have been slapped down by the courts. 

Housing first prioritizes placing the homeless in permanent housing before addressing other issues that may contribute to homelessness, such as addiction or mental health problems.

A major initiative of President Donald Trump’s second term has been to move federal money from “housing first” jurisdictions and toward states and localities that prioritize public order and moving people off the streets and into temporary shelter. 

To that end, the administration has repeatedly attempted to reform the $4 billion Continuum of Care program (the federal government’s primary homelessness funding program) in a way that shifts money away from housing first jurisdictions.

As Politico reports, those efforts have been repeatedly stopped by the courts. This latest ruling from a U.S. district court judge in Rhode Island found that HUD failed to follow the legal notice-and-comment requirements in the Administrative Procedure Act when reconfiguring the program.  

The North Carolina Legislature has given its final approval to a regulatory reform bill that includes a number of significant housing reforms. 

As this newsletter covered last week, a provision of Senate Bill (S.B.) 445 would allow builders to construct housing in commercial and light industrial zones by-right—meaning local governments would have to approve these developments without requiring public hearings or individual, discretionary approvals. 

Localities would have to allow these buildings to be at least 60 feet tall. Places like Florida and Texas have passed similar residential-in-commercial reforms, which have proven successful in creating new housing. 

The version of S.B. 445 that was ratified by the Legislature this past Thursday did get watered down. Earlier versions of the bill would have applied the zoning reforms to cities of at least 50,000 people that are located in counties of at least 275,000 people. 

The final version of S.B. 445 only applies to cities of at least 80,000 in counties of at least 1 million people. That would mean the law only applies to two counties, Wake County (which contains Raleigh-Durham) and Mecklenburg County (which contains Charlotte).

• Rent control might be on the march across most of the globe, but it’s been dealt a setback in northern Canada. The territorial government of Yukon says it will eliminate rent caps next year. 
• “Potterheads” in the United Kingdom have convinced an energy company to reroute an undersea power cable to avoid running through the fictional resting place of Dobby the elf from the Harry Potter books. 
• Zoning officials in Portland, Maine, voted to ban new gas stations. 
• Washington has imposed emergency eviction restrictions in response to wildfires near Spokane, Washington, that have displaced thousands.