The Future of Affordable and Workforce Housing

The future of affordable and workforce housing is being shaped by a handful of trends that already have laws, money and early results behind them. States are rewriting zoning rules so more kinds of homes can be built. Congress expanded the Low-Income Housing Tax Credit in 2025 and passed a broad housing supply law in 2026. Builders are experimenting with backyard units, factory-built homes and converted office buildings, while employers and local governments are starting to develop housing themselves.

What these trends do not do is just as important. None of them makes housing for the lowest-income renters pay for itself, and none creates a dedicated federal program for the “missing” workforce income band above most subsidies. This guide sorts what is actually happening, as of October 2026, from what remains uncertain.

The Trends at a Glance

Recent Federal Changes

The 2025 Tax Law and the LIHTC

The Low-Income Housing Tax Credit is the main federal tool for building affordable rental housing. Public Law 119-21, the 2025 budget reconciliation law signed on July 4, 2025, made two permanent changes to it, according to the amended text of Section 42 of the tax code.

• A 12% larger allocation. For calendar years beginning after December 31, 2025, the per-person and small-state minimum amounts that set each state’s annual credit ceiling are multiplied by 1.12. This mainly expands the competitive 9% credit. A similar 12.5% boost had applied only from 2018 through 2021.
• A lower bond test. A project can claim the 4% credit outside the state’s competitive cap if enough of its costs are financed with tax-exempt private activity bonds. That threshold used to be 50% of the combined basis (roughly, the cost) of the building and its land. For buildings placed in service in tax years beginning after December 31, 2025, it is 25%, as long as bonds from an issue dated after that date finance at least 5% of that basis.

The bond change matters because federal law caps the volume of tax-exempt private activity bonds that can be issued in each state each year. Needing half as much bond financing per project lets the same bond cap support more projects. Novogradac, an accounting firm that tracks the program, estimated that the two changes together could finance about 1.22 million additional affordable rental homes over 10 years, as reported by Enterprise Community Partners in July 2025. That is a projection, not a count. Some House proposals, including temporary support aimed at rural and tribal areas, were dropped from the final law.

Neither change raises the LIHTC’s income limits. Tax-credit units are generally reserved for households at or below 60% of area median income, so the law expands affordable housing more than it expands workforce housing.

The 21st Century ROAD to Housing Act (2026)

The 21st Century ROAD to Housing Act, Public Law 119-101, became law without the President’s signature on July 11, 2026, after passing the Senate 85–5 and the House 358–32. A September 2026 Congressional Research Service report summarizes its main provisions:

• Rewards for local supply growth. A new Innovation Fund is authorized at $200 million a year for fiscal years 2027 through 2031, with grants of $250,000 to $10 million to local governments and tribes that show objective increases in housing supply. The act also directs HUD to set up a separate pilot grant program for planning work such as updating zoning codes.
• Federal zoning guidance. HUD must publish best practices on state and local zoning and land use, with final guidelines due by July 2029.
• Environmental review changes. HUD must revise its environmental review rules so that more housing activities, including infill residential construction, no longer need a full environmental assessment except in extraordinary circumstances. The changes take effect only after HUD completes a formal rulemaking.
• Manufactured housing. The federal definition of a manufactured home now covers homes built “with or without a permanent chassis,” and HUD must issue revised construction standards for them.
• Program updates. It reauthorizes the HOME Investment Partnerships Program, raising income limits and purchase-price caps for HOME-assisted homeownership, and increases loan limits for several FHA multifamily programs.
• Institutional investors. Large institutional investors, defined as for-profit entities that control at least 350 single-family homes, are barred, with some exceptions, from buying additional single-family homes for 15 years beginning January 7, 2027.

CRS notes an important caveat: the act does not appropriate any money. The Innovation Fund and several other pieces will only matter as much as Congress funds them and HUD implements them, a process covered in How Federal Housing Policy Is Funded.

Zoning Reform Moves to the State Level

Zoning has traditionally been a local decision, and many cities reserve large areas for detached houses through single-family zoning. A clear recent trend is states setting minimum rules that cities must meet. Oregon’s House Bill 2001, passed in 2019, was an early example. It requires the state’s larger cities to allow duplexes, triplexes, fourplexes, cottage clusters and townhouses in residential areas.

Washington’s 2023 law, E2SHB 1110, shows how these laws work. According to the legislature’s final bill report, cities that plan under the state’s Growth Management Act must allow, on lots zoned mainly for residential use:

• In cities of at least 25,000 but fewer than 75,000 people, at least two units per lot, or four within a quarter-mile walk of a major transit stop or when one unit is affordable.
• In cities of 75,000 or more, at least four units per lot, or six within a quarter-mile walk of a major transit stop or when two units are affordable.

To count, an affordable unit must stay affordable for at least 50 years under a recorded covenant. This approach, often called upzoning, legalizes missing middle housing such as duplexes, fourplexes and townhomes. The Washington law also limits how much off-street parking cities can require for these homes. Lower parking minimums and by-right approval are common companion reforms.

The evidence is still coming in. Legalizing homes does not guarantee they get built, because land prices, interest rates and construction costs still decide whether a project is financially feasible. Oregon’s land use agency said it expected the change in its cities to be gradual. See Zoning Reform and the YIMBY Movement for the debate.

Accessory Dwelling Units

An accessory dwelling unit (ADU) is a second, smaller home on the same lot as a main residence, such as a backyard cottage or a converted garage. California has passed a series of laws since 2016 that limit how local governments can block them.

The results are measurable. According to the state housing department’s January 2025 ADU handbook, the number of ADUs permitted each year in California grew from 1,336 in 2016 to 26,924 in 2023. In 2023, ADUs made up more than 21% of all homes permitted statewide.

The handbook describes ADUs as a relatively affordable type of home to build, because they do not require buying land or adding major infrastructure, structured parking or elevators. That is not the same as affordable housing in the program sense. Unless a program or local rule attaches income or rent restrictions, the owner decides who lives in an ADU and what it rents for.

Factory-Built Housing

Manufactured housing is built in a factory to a national HUD code. Modular housing is built in factory-made sections to the same state and local codes as site-built homes. CRS notes that manufactured homes typically cost less than site-built homes, partly because they are smaller and partly because of factory efficiencies.

The 2026 federal law dropped the long-standing requirement that a manufactured home be built on a permanent chassis, the steel frame it travels on. According to CRS, that may cut some costs and allow more designs, such as homes with basements or more than one story. States are to certify to HUD by July 11, 2027 (a year later for states whose legislatures meet every two years) that their laws treat manufactured homes with and without a permanent chassis the same. Financing remains an obstacle for modular builders, whose costs come earlier than standard construction loans pay out, and the law directs HUD to review its FHA construction financing programs for such barriers. Factory-Built Housing covers the details.

Office-to-Residential Conversions

Office vacancies rose after the shift to remote work during the COVID-19 pandemic, which revived interest in adaptive reuse. A 2023 Congressional Research Service analysis explains why it is harder than it sounds:

• Giving every bedroom a window and adding kitchens and bathrooms can be difficult with some office layouts and existing plumbing.
• Rezoning from commercial to residential use can be slow, and meeting residential building codes adds cost.
• A building generally has to be empty, not just underused, before conversion.
• The expected rents may not justify the conversion cost.
• Renters may prefer established neighborhoods with amenities, such as grocery stores, that business districts can lack.

CRS concluded that conversions are not likely to add enough homes to solve housing supply problems, but could be an effective tool in some places. It also noted that, given the cost, not all conversions will produce housing at affordable prices. See Office-to-Residential Conversions.

Employers and Public Agencies as Housing Providers

Employer-assisted housing is an old idea that is getting new attention, especially from school districts that own land. A 2022 report by UC Berkeley’s Center for Cities + Schools and Terner Center for Housing Innovation and UCLA’s cityLAB found 7,068 properties owned by California local education agencies with potentially developable land of one acre or more, totaling about 75,000 acres. About 61% were in places where beginning teachers face housing affordability challenges.

The report counted just four completed education workforce housing developments in California, built by two school districts, along with 46 local education agencies pursuing projects at various stages. Employer housing tends to serve the workforce band directly, because it is tied to jobs rather than to the lowest incomes. Its limits are financing and scale. See Teacher and Public Employee Housing and Employer-Assisted Housing Explained.

Social Housing Experiments

Social housing generally means homes that are publicly or nonprofit owned, permanently insulated from the private market, and open to a range of incomes. Two U.S. experiments are drawing attention.

• Montgomery County, Maryland. The county’s Housing Opportunities Commission runs a revolving Housing Production Fund. The county appropriates $3.4 million a year over 20 years to pay debt service on bonds issued by the commission, creating a $50 million pool for construction-period loans that is repaid and reused. The County Council approved a second $50 million tranche in 2022.
• Seattle. Voters created a public Social Housing Developer through Initiative 135 in February 2023. In a February 11, 2025, special election they approved Proposition 1A, a 5% payroll expense tax paid by employers on individual compensation above $1 million a year, to fund it. In 2026 the developer announced the purchase of its first building, a 150-unit apartment complex near Pike Place Market, for about $60 million. It said it would fill the first 60 vacancies with households at or below 50% of median income.

Both models are young. Whether they can grow without large, ongoing subsidies is an open question explored in Social Housing Models.

What Remains Uncertain

Several questions will decide how much these trends add up to:

• Federal funding. Annual appropriations for HUD programs, and for new programs like the Innovation Fund, are set year by year and can change sharply.
• Construction costs and interest rates. Zoning reform and tax credits produce homes only when projects are financially feasible. See Why Housing Costs So Much to Build.
• The workforce gap. Most federal help still targets households at or below 60% to 80% of area median income, and CRS notes that “workforce housing” is not defined in federal law. The 2026 act directs the Government Accountability Office to study housing for middle-income households, defined as 80% to 120% of area median income, and to recommend a definition, with a report due by July 11, 2027. For now, households in that range depend mostly on state, local and employer programs.
• Implementation. Many 2026 provisions require HUD rulemaking, state certifications and local action before anyone sees a difference.

The Bottom Line

The future of affordable and workforce housing is arriving through many small changes rather than one big program: state zoning laws, more ADUs, modernized rules for factory-built homes, a larger LIHTC, and local experiments with employer and social housing. The firmest developments are the ones already written into law or visible in permit data: state zoning laws, California’s ADU growth and the LIHTC expansion. How many homes they will produce is still being measured. Conversions, employer housing and social housing remain small, and households in the workforce income band still depend mostly on state, local and private solutions.