Innovation Fund Offers $200 Million Grants to Cities That Scrap Parking Minimums and Boost Housing Supply

If you’ve ever tried to buy a house or find an affordable apartment near your job, you know the housing market is brutal. The Innovation Fund Act is a federal attempt to inject some common sense—and cash—into the problem by rewarding local governments that actually manage to build more homes.

This bill sets up a new competitive grant program, managed by the Secretary of Housing and Urban Development (HUD), authorized to hand out $200 million annually from fiscal years 2027 through 2031 (plus inflation adjustments). The catch? Only “eligible entities”—basically, metropolitan cities, urban counties, or Indian tribes—that can demonstrate “objective improvement in housing supply growth” get to apply. The goal is simple: use federal money to incentivize local policy changes that increase the supply of housing, especially for middle and lower incomes.

The Attainable Housing Trade-Off

This grant program is laser-focused on what the bill calls “attainable housing.” Forget the luxury condos; this is about housing that serves households making up to 120% of the Area Median Income (AMI). For many working families, 120% AMI is still a stretch, but it’s a necessary target to ease pressure on the market overall. The bill sets the minimum grant award at $250,000 and the maximum at $10 million, with HUD mandated to award at least 25 grants every year.

So, what does a city have to do to prove it’s worthy? It needs to show data proving its housing supply increased over the last three years. But here’s the crucial part: the money isn't just a reward; it’s meant to fuel more change. Grant applications must detail how the funds will be used to expand the supply of attainable housing.

How to Earn the Cash: Deregulation Pays

This is where the bill gets interesting for anyone who thinks local zoning is the biggest barrier to housing. The Act explicitly lists the types of initiatives that qualify a local government for this funding. These aren’t abstract goals; they are concrete, regulatory changes that affect every builder and homeowner.

For example, grant funds can be used by local governments that are:

• Scrapping Parking Minimums: Removing requirements for off-street parking, which significantly lowers construction costs. If you’re a developer trying to build a triplex near a transit line, not having to pave a massive lot saves huge money, which can translate into lower rents.
• Allowing Density: Revising or eliminating restrictions on minimum lot size, set-back requirements, or building heights to allow for denser development, like allowing duplexes or quadplexes “by-right” (without needing special permission) in single-family zones.
• Streamlining ADUs: Eliminating restrictions against Accessory Dwelling Units (like backyard cottages or in-law suites) and making their construction easier.
• Cutting Red Tape: Streamlining regulatory requirements, shortening permitting processes, or reforming zoning codes to reduce barriers to building.

If you’re a small business owner who needs workers to live close to your shop, or a construction worker whose commute is killing your budget, these provisions are designed to make it cheaper and faster to build the kind of housing you need. The funds can also be used for traditional community development activities or even to serve as matching funds for EPA clean water projects, linking housing growth to infrastructure needs.

The Fine Print and the Control Question

While this bill is a huge federal carrot dangling in front of local governments, there's a key limitation built in: the Act does not authorize the Secretary to mandate, supersede, or preempt any local zoning or land use policy. HUD can incentivize, but it can’t force a city council to change its zoning laws. This is critical because it means the success of the program relies entirely on local willingness to reform.

There are a couple of areas where the bill’s implementation could get murky. First, the entire program hinges on HUD defining the methodology for determining “objective improvement in housing supply growth.” This methodology must be published for public comment, but if that definition is too easily gamed, funds might not go to the places making the most meaningful changes. Second, the Secretary is told to prioritize entities that show “innovative policies.” While that sounds good, the definition of “innovative” can be subjective, and local governments will be watching closely to see which specific reforms HUD rewards.

Overall, the Innovation Fund Act is a clear signal from the federal level: if you want help funding your infrastructure, community development, or other local needs, you need to prove you’re serious about building more homes. This bill is less about building directly and more about paying local governments to get out of the way of home builders and developers, which could be a powerful tool for tackling the affordability crisis.