What Local Governments Can Do

Local governments cannot fund housing on the scale the federal government can, but they control most of what decides whether homes get built: zoning, permits, fees, property taxes and, often, land. A city or county that wants more affordable workforce housing can change its rules so that more homes are allowed, put public land and local money into projects, and require or reward affordability in private development.

No one tool does the whole job. Communities usually combine several, and the right mix depends on the local market and on what state law permits. This guide covers the main options, with a real example of each and the trade-offs involved.

Why Local Decisions Matter So Much

Authority over land use belongs to the states, which pass most of it down to cities, towns and counties. A 2021 report from the U.S. Department of Housing and Urban Development (HUD) notes that local land-use rules affect all housing development, including federally assisted housing. The same federal program can therefore produce very different results in two neighboring towns.

Local tools matter most for workforce housing. The federal Low-Income Housing Tax Credit generally serves renters up to 60% of area median income (AMI), or 80% for some units. Households earning more than that, up to about 120% of AMI, mostly rely on what the private market builds. What the market builds depends heavily on local rules, land prices and fees.

The Toolkit at a Glance

Changing the Rules

Zoning reform

Zoning decides what may be built on each lot. Many communities reserve most residential land for detached houses, a practice known as single-family zoning, and add minimum lot sizes that raise the cost of each home. Upzoning changes those rules to allow more homes per lot. Common steps include legalizing accessory dwelling units, duplexes, townhouses and other missing middle housing.

Two cities show how much the details matter.

• Minneapolis. The Minneapolis 2040 plan took effect on January 1, 2020. The Terner Center at UC Berkeley describes Minneapolis as the first major city to allow duplexes and triplexes on single-family lots citywide. From January 2020 through June 2022 the city approved 65 duplexes and 20 triplexes. The new buildings still had to fit within the size limits that applied to a single house.
• Portland, Oregon. The city’s Residential Infill Project, which took effect on August 1, 2021, and was expanded in 2022, allowed duplexes, triplexes, fourplexes and cottage clusters in most single-dwelling zones. Portland reports that it permitted more than 1,400 accessory dwelling units and middle housing units in those zones between August 1, 2021, and June 30, 2024.

A 2023 study by Urban Institute researchers looked at land-use reforms from 2000 to 2019 in 1,136 cities across eight U.S. metropolitan regions. Reforms that loosened density limits were associated with a 0.8% increase in housing supply within three to nine years, mostly among higher-rent units. Reforms that tightened limits were associated with higher median rents. In short, zoning reform adds supply slowly, and it does not by itself produce homes for lower-income households.

For more detail, see zoning reform and the YIMBY movement.

By-right approval and faster permitting

Under by-right development, staff approve any project that meets the written standards. There is no public hearing and no discretionary vote. HUD’s 2021 report says this approach can lower production costs because it removes the cost and delay of a discretionary process.

Cities also speed up review in narrower ways:

• Priority review. San Diego’s Expedite Program gives affordable and infill housing projects early review meetings, fewer review cycles and priority hearing dates, according to NYU’s Housing Solutions Lab.
• Pre-approved plans. South Bend, Indiana, offers a free catalog of house and small-building designs that carry contingent building and site approval.

The trade-off is public input. By-right rules move the debate from individual projects to the moment the standards are written, which leaves fewer chances for NIMBY opposition to stop a specific building.

Parking requirements

Parking minimums require a set number of off-street spaces per home. HUD’s 2021 report cites construction costs of about $50,000 per structured space in two jurisdictions studied. It notes that Buffalo, New York, eliminated its parking minimums in 2016. Minneapolis in 2015 cut requirements near frequent transit and removed them for smaller buildings there. Developers can still build parking where buyers and lenders expect it.

Using Public Land

Cities, counties, school districts and transit agencies own land that they can sell or lease below market value in exchange for affordability. This is the idea behind public land for housing.

• Washington, D.C. When the District disposes of land for a multifamily project of 10 or more homes, its code generally requires at least 30% of the homes to be affordable if the site is within half a mile of a Metrorail station or a quarter mile of a priority bus corridor. Elsewhere the share is 20%. The homes must stay affordable permanently, or for the life of a ground lease.
• King County, Washington. A 1996 ordinance requires that surplus parcels suitable for housing be sold or leased for affordable housing, according to the Housing Solutions Lab.

A land bank is a public or nonprofit entity that acquires vacant or tax-foreclosed property, clears the title and holds it for reuse. Land Bank Twin Cities, founded in 2009, had spent $109 million on acquisitions through 2020, supporting 3,544 homes in the Minneapolis–St. Paul region. Cities can also convey land to a community land trust, which keeps homes affordable long term.

Federal law now requires a first step. Under the 21st Century ROAD to Housing Act (Public Law 119-101), Community Development Block Grant (CDBG) recipients must post a searchable public database of the undeveloped land they own. The requirement took effect on October 1, 2026, according to the Congressional Research Service (CRS).

Putting Local Money to Work

Fee waivers and deferrals

An impact fee is a charge on new development that pays for roads, schools, parks and utilities. Fees add to the cost of each home, so many localities reduce or defer them for qualifying projects.

• Austin’s S.M.A.R.T. Housing program offers full or partial waivers of 29 separate fees to projects that reserve homes for households under its income limits, according to the Housing Solutions Lab.
• Folsom, California, lets qualifying projects defer impact fees for up to 15 months after the building permit is issued.

Fees also face a constitutional test. Courts ask whether a permit condition is connected to a project’s impact and roughly proportional to it. In Sheetz v. County of El Dorado (2024), the Supreme Court held that this test applies to fees set by legislation as well as to conditions imposed case by case.

Housing trust funds

A housing trust fund is a public account dedicated to housing. Because the money is local, it can serve income bands and project types that federal programs do not, and it often fills the last piece of a project’s gap financing.

The National Low Income Housing Coalition counts at least 600 city funds in 37 states and at least 185 county funds in 23 states. City funds raised more than $500 million in fiscal year 2024, and county funds raised more than $400 million. Common revenue sources include:

• Developer fees, including a linkage fee charged on new commercial buildings
• Real estate transfer and document recording fees
• Voter-approved property tax levies and bonds
• General fund appropriations, which are the least predictable

Seattle’s Housing Levy, a voter-approved property tax, has funded affordable housing since 1986. Voters renewed it for seven years on November 7, 2023, with more than 69% in favor. Sussex County, Delaware, created a housing trust fund in April 2022 with $500,000 in county funds and $6.3 million in federal pandemic relief. Delaware’s programs are covered in the Delaware housing guide.

Tax tools

Property taxes are a large operating cost for rental housing. Three tools use the tax system:

• A tax abatement reduces or exempts a property’s taxes for a set period. Portland, Oregon, gives a ten-year exemption on some or all of the residential improvements in buildings of 20 or more homes that meet the city’s inclusionary housing requirements. The affordable homes must stay restricted for 99 years.
• A payment in lieu of taxes (PILOT) replaces the tax bill with a smaller negotiated payment.
• Tax increment financing (TIF) sets aside the growth in property tax revenue within a district. Portland has dedicated 45% of its TIF district revenue to affordable housing since 2015, according to the Housing Solutions Lab.

Each gives up revenue that would otherwise go to schools and local services, and critics ask whether the housing would have been built anyway. How workforce housing is financed explains how these layers fit together in a project budget.

Requirements and Incentives

Inclusionary zoning requires or encourages developers to reserve a share of new homes for households under an income limit. A national survey by Grounded Solutions Network found 1,019 programs in 734 jurisdictions at the end of 2019. Montgomery County, Maryland, has one of the oldest. It requires 12.5% to 15% of homes in new developments to be moderately priced.

In that survey, 57% of programs offset the cost with a density bonus, which allows more homes than the base zoning. The affordable homes are usually secured by a deed restriction. Sussex County’s rental program, created in 2008 and expanded in 2022, uses incentives to encourage affordable rentals for local workers in its coastal area.

Research on side effects is mixed, and requirements set above what local projects can absorb may reduce construction. See inclusionary zoning, explained.

Working With Partners

Local governments rarely build housing themselves. They work through others:

• Housing agencies. In 2021 the Montgomery County Council created a revolving Housing Production Fund run by its public housing agency, the Housing Opportunities Commission. The fund reached $100 million in 2022. It makes five-year construction loans for mixed-income buildings in which at least 30% of homes are income-restricted. Repaid loans finance the next project.
• Neighboring governments. In East King County, Washington, fifteen cities and the county belong to A Regional Coalition for Housing (ARCH). Its shared Housing Trust Fund has invested member cities’ money in affordable homes since 1993.
• Nonprofits and employers. A community development corporation can develop homes on public land. Employers can contribute land or money through employer-assisted housing.

The Limits of Local Power

Local governments act within limits set by others.

• State law. States can pre-empt local policies. As of HUD’s 2021 report, most states barred local rent control, and several, including Arizona, Tennessee, Texas and Virginia, barred mandatory inclusionary zoning. In states that follow “Dillon’s Rule,” localities hold only the powers the state grants, so a trust fund or fee may need enabling legislation.
• Money. Local budgets cannot replace federal subsidy for the lowest-income households.
• Federal policy. Public Law 119-101, enacted July 11, 2026, lets grantees spend up to 20% of their CDBG allocation on new affordable housing construction. Starting in fiscal year 2029, it also adjusts allocations for certain CDBG entitlement communities, the larger cities and urban counties that receive grants directly, based on housing growth. Communities with low housing costs, high vacancy rates, a recent disaster declaration or no zoning authority are exempt. Among the rest, those with below-median improvement in housing growth lose 10%, which is redistributed to other eligible communities in proportion to their housing growth. CRS notes that the act itself appropriates no money, so several of its new grant programs depend on future funding.

Where to Start

The tools above suggest a practical order of work:

1. Measure the need. A housing needs assessment shows which incomes and household types are underserved.
2. Review the rules. Check zoning, parking standards and approval timelines for barriers.
3. Inventory public land and screen sites for housing.
4. Secure a dedicated revenue source for a trust fund.
5. Track results. Publish permits and completed affordable homes each year.

The Bottom Line

Local governments decide what housing is legal to build, how long approval takes and what it costs in fees and taxes. They also own land and can raise money. Rule changes cost the least but work slowly. Land and money reach lower incomes but are limited, and every tax or fee break has a cost elsewhere in the budget. Most strategies therefore combine several tools within the limits of state law.