The policy does not abolish local zoning. It makes low production financially visible.
What The Build Now Act Targets
The Build Now Act applies to covered recipients that receive CDBG formula funds under section 106. In practical terms, that means metropolitan cities and urban counties, not every small town or every state program. HUD will calculate housing growth performance and adjust allocations for eligible recipients based on whether their housing growth improvement rate is above or below the median.
This is important because the penalty is not framed as a moral judgment about whether a mayor likes housing. It is tied to a measurement system. HUD looks at changes in housing units over specified time periods and compares recent growth against prior growth. The goal is to reward jurisdictions that are improving and penalize eligible jurisdictions whose growth improvement falls below the national comparison group.
Why CDBG Is The Pressure Point
CDBG is one of the most flexible federal funding streams local governments receive. Cities use it for infrastructure, public facilities, housing rehabilitation, neighborhood improvements, demolition, economic development, accessibility upgrades, and limited public services. Because local officials care about this money, it creates real leverage.
The federal government has few direct ways to force localities to change land use rules. Zoning is local power. But CDBG is federal money. Build Now uses that opening. It does not rewrite a city’s zoning map from Washington. It says that if an eligible city wants full access to flexible federal development funds, it should show that its housing supply is improving.
How The 10% Penalty Works
If an eligible recipient’s housing growth improvement rate is below the median rate for eligible recipients, HUD must decrease the amount that would otherwise be allocated under section 106 by 10% for that fiscal year. That is the penalty side of the policy.
The money does not simply vanish. The reduced amounts are used to create bonus allocations for higher-performing recipients. Jurisdictions at or above the median housing growth improvement rate, and extremely high-growth recipients, can receive additional funding. In other words, Build Now creates a transfer from lagging producers to stronger producers within the eligible group.
This is not only a stick. It is a stick that funds the carrot.
What Counts As Housing Growth
HUD must calculate housing unit growth using Census Bureau data products, including Current Address Count Listing Files and other data from the Master Address File. Calculations are made at the block level using current boundaries. That matters because the program relies on housing unit changes, not only local permit claims or political narratives.
A city cannot simply announce a pro-housing task force and expect credit. The built environment has to change enough to show up in housing unit data. Permits may signal intent, but the Build Now formula focuses on changes in housing units. The safest local strategy is not only to approve projects faster, but to make sure approved projects actually get built.
Why The Formula Looks Back Over Time
The law compares current annual growth against prior annual growth. Current growth is based on an average annual percentage increase in housing units over a recent period, while prior growth looks back to an earlier five-year window. The housing growth improvement rate then measures how much the jurisdiction has improved compared with its own past performance.
This design matters because it does not reward only places that were already fast-growing forever. A city with historically slow production can compete if it meaningfully improves. A high-cost city that reforms approvals, permits more apartments, legalizes ADUs, and starts adding units can show progress even if it is not building like a Sun Belt boomtown.
Who Is Excluded From The Penalty System
Not every covered recipient is treated as eligible for adjustment. The law excludes certain places from the eligible-recipient category. A jurisdiction may be excluded if its rents and home values are low enough under the statutory test, if its rental vacancy rate is above the national rate, if it recently experienced a major disaster or emergency declaration, or if it lacks legal authority to enact or update zoning and permitting ordinances.
These exclusions are important. A shrinking city with high vacancy may not need the same production pressure as a high-cost market. A disaster-affected community may be dealing with recovery rather than ordinary growth. A county without zoning authority may not be able to change the rules HUD wants changed. Build Now is aimed at places where housing scarcity and local regulatory control are more relevant.
Why Local Zoning Still Matters
Build Now does not list one single reform that every city must adopt. But the logic points straight at local land use barriers. If a jurisdiction is losing CDBG money because housing growth is weak, it will need to ask why. The answer may be restrictive zoning, slow permits, discretionary hearings, excessive parking requirements, minimum lot sizes, height caps, infrastructure delays, environmental review bottlenecks, or political opposition to multifamily housing.
The penalty creates pressure to fix the bottleneck. A city may not care about academic reports showing zoning raises housing costs. It may care when a 10% CDBG reduction affects neighborhood projects, infrastructure plans, nonprofit partners, and local budgets. The funding consequence turns a planning debate into a fiscal problem.
Why This Is Controversial
Supporters see Build Now as accountability. They argue that localities have spent decades blocking housing while asking Washington for more affordability money. If a city receives federal community development funds, they say, it should not simultaneously maintain local rules that choke off housing supply.
Critics see the policy as blunt. Housing growth can be slowed by interest rates, labor shortages, infrastructure capacity, insurance costs, land prices, litigation, state law, water constraints, and market cycles. A city may reform its code and still wait years for projects to finish. A 10% CDBG penalty could hurt low-income neighborhoods even when local officials are trying to improve production.
The Timing Gives Cities A Warning Window
The allocation adjustment does not start immediately. The law says the adjustment takes effect beginning with the third full fiscal year after enactment and runs through fiscal year 2043. That delay gives jurisdictions time to understand HUD’s calculations, compare themselves to peers, and adopt reforms before money is at risk.
HUD must also notify eligible recipients of their housing growth improvement rate and whether they are above, at, or below the median. The notice must include guidance and best practices for reducing regulatory barriers and increasing housing supply. That gives local governments an early warning instead of a surprise penalty.
How Cities Can Avoid The Cut
The best defense is actual production. Cities should streamline permitting, legalize more housing types by right, reduce discretionary review, cut excessive parking requirements, allow accessory dwelling units, permit duplexes and small multifamily buildings, update infrastructure plans, pre-zone public land, reduce minimum lot sizes, and shorten approval timelines.
They should also build a data file. HUD will use federal data, but local governments should track permits, starts, completions, certificates of occupancy, demolitions, conversions, ADUs, affordable units, and by-right approvals. If the federal calculation looks wrong, the city will need credible local data to understand the issue and respond.
Why Nonprofits Should Pay Attention
A 10% CDBG reduction can ripple through local nonprofit ecosystems. Many community groups depend on CDBG for housing rehab, public services, accessibility improvements, neighborhood facilities, small business programs, and local development work. If a city loses funds, the cut may not fall on the planning department that kept zoning restrictive. It may fall on local partners serving low-income residents.
That means nonprofits have a stake in housing production reform. They should ask local officials whether the jurisdiction is at risk under Build Now, what reforms are planned, and how the city will protect low-income programs if a penalty occurs. Housing supply policy is no longer separate from community development funding.
What Developers Should Do
Developers should use the new pressure carefully. A city facing a possible CDBG penalty may be more open to code changes, faster approvals, infill housing, adaptive reuse, ADUs, small multifamily, and affordable housing partnerships. But developers should bring serious proposals, not just demands for deregulation.
The strongest argument is specific: this zoning change will allow these units, on these sites, within this timeline, with these affordability commitments or market benefits. Build Now rewards housing unit growth, so developers should help cities connect reform to measurable production.
The Risk Of Gaming The System
Any performance formula invites gamesmanship. Cities may chase raw unit counts without affordability, approve units in isolated locations, encourage demolition and replacement that does not improve affordability, or focus on easy luxury production while low-income residents remain squeezed. HUD’s formula measures housing growth, but local policy must still protect equity.
The best local response is not simply “build anything anywhere.” It is build more homes while aligning growth with transit, infrastructure, fair housing, affordability, resilience, and anti-displacement strategies. A city can avoid the penalty and still fail residents if production does not serve real housing needs.
Bottom Line
The Build Now Act turns housing production into a CDBG funding issue. Eligible metropolitan cities and urban counties with below-median housing growth improvement can lose 10% of their section 106 allocation, while stronger producers can receive bonus funding from those reductions. The policy begins after a delayed implementation period, giving cities time to reform before the cuts start.
For local governments, the message is direct: housing scarcity is no longer only a planning problem. It is a federal funding risk. For residents and nonprofits, the message is to demand local reforms before CDBG cuts hit community programs. For developers, the opportunity is to help cities turn code changes into actual units. Build Now does not force any city to build. It makes the price of not building harder to ignore.