Innovation Fund Act

The Innovation Fund Act establishes a competitive grant program administered by the Department of Housing and Urban Development (HUD) to incentivize and support local governments in increasing their housing supply. The bill aims to address housing affordability and availability challenges by providing federal funding to eligible entities that have demonstrated success in expanding housing options. This program represents a significant federal intervention to encourage pro-housing policies at the local level, with a focus on innovative approaches and measurable outcomes in housing growth.

The bill creates a new grant program under HUD, authorizing $200 million annually from fiscal years 2027 to 2031, adjusted for inflation. Eligible entities include metropolitan cities, urban counties, local governments, and Indian tribes that have shown housing supply growth. Grants range from $250,000 to $10 million, with at least 25 grants to be awarded annually, subject to appropriations. Funds can be used for activities outlined in Section 105 of the Housing and Community Development Act of 1974 and initiatives that facilitate housing supply expansion. The bill prioritizes innovative policies and marked improvement in housing growth when awarding grants. Eligible initiatives include upzoning, parking deregulation, streamlined permitting processes, tax incentives, and environmental deregulation.

The Secretary of Housing and Urban Development is responsible for establishing the grant program within one year of the bill's enactment. HUD must develop and publish a methodology for determining housing supply growth, subject to public comment. The department is also required to make a list of eligible entities public on its website. Grant applicants must provide housing supply data for the last three years, relate their proposals to their consolidated plans, and describe initiatives facilitating housing supply growth. HUD will evaluate applications based on the innovative nature of policies and demonstrated improvement in housing supply. The bill treats certain construction projects funded through this program like Community Development Block Grant (CDBG) projects, potentially streamlining implementation.

The Innovation Fund Act is expected to directly benefit local governments and Indian tribes that have taken steps to increase housing supply. By providing substantial federal funding, the program aims to incentivize pro-housing policy changes at the local level, potentially leading to increased housing affordability and availability for households up to 120% of Area Median Income. The program's focus on innovation and measurable outcomes could spur creative solutions to housing challenges across diverse communities. The authorized funding of $200 million annually represents a significant investment in local housing initiatives. However, the program's effectiveness will depend on clear metrics for measuring housing growth and robust oversight to ensure funds are used efficiently and effectively.

The Innovation Fund Act builds upon existing federal housing legislation, particularly the Housing and Community Development Act of 1974 and the Cranston-Gonzalez National Affordable Housing Act. It creates a new grant program within HUD's existing authority to administer housing and community development programs. The bill does not appear to preempt state or local laws but rather incentivizes local policy changes through federal funding. The program's implementation will likely require new regulations to be promulgated by HUD, detailing the application process, eligibility criteria, and evaluation methods for grant awards.

Several critical issues may arise in the implementation and impact of the Innovation Fund Act. The program's effectiveness hinges on HUD's ability to develop clear, fair metrics for measuring housing supply growth across diverse local contexts. There may be challenges in ensuring equitable distribution of funds across different types and sizes of communities. The bill's emphasis on deregulation and streamlining could face opposition from environmental groups or local interests concerned about rapid development. Additionally, the program's start date in fiscal year 2027 means there will be a significant lag between the bill's passage and its implementation, potentially reducing its immediate impact on the housing crisis. The bill's focus on supply-side solutions may also face criticism for not directly addressing affordability for the lowest-income households.