How RESIDE grants should be sized, and why a formula gets it wrong both ways

The finding

This site’s model finds 14 buildings in Downtown San Jose that fail on financing alone and would pencil with a RESIDE grant. Under the award formula it assumes, 30% of conversion cost capped at $60,000 a home and $10 million a project, they would receive $105.8M. Their combined financing gap, the difference between what each conversion costs and what the finished homes are worth, is $49.4M. The formula pays 2.1× the gap, $50K a home where $23K would close it.

That is the number published on the San Jose page. This page checks it three ways: against the statute, against a $10 million budget, and against the affordability rule the model leaves out. The first two hold it up. The third turns it around.

What the law says about award size

Section 227(c) sets a range for each grant to a jurisdiction. It sets no rule for sizing a grant to a building.

Section 210 of the 21st Century ROAD to Housing Act added Section 227 to the Cranston-Gonzalez National Affordable Housing Act, the law behind the HOME program. On award size it says two things:

• in a fiscal year with at least $100 million available, each grant “shall be not less than $1,000,000 and not more than $10,000,000”; and
• in a year with less, HUD “shall seek to maximize the number of covered grants awarded.”

Grants go to HOME participating jurisdictions, competitively, with priority for distressed communities, Opportunity Zones, needs named in a consolidated plan, and places that have cut regulatory barriers to conversion. Section 227(g) lets HUD waive or replace most rules it administers for the pilot, except those on fair housing, nondiscrimination, labor standards and the environment.

Nothing in the section ties an award to a project’s cost, its number of homes or its financing gap. A jurisdiction could win $10 million for one building that needs $2 million. Whether that happens depends on HUD’s Notice of Funding Opportunity and on how each city passes the money on, and neither exists yet. As of September 30, 2026, Congress had appropriated nothing for the pilot and a search of the Federal Register found no RESIDE notice.

Building by building

The over-award is not one large building skewing a total. It runs through most of the list.

One caution first. These 14 buildings are, by definition, the ones whose gap the formula grant covers, so the formula pays each of them at least its gap. The finding is how much more. The median building gets 2.6× its gap, and 9 of the 14 get at least twice. Where the per-home cap binds, a small gap still draws $60,000 for every home.

The formula also takes no account of need. 16 other screened buildings already pencil with no subsidy at all. The same formula would offer them $107.8M if they applied and qualified. Sized to the gap, they would get nothing.

What one $10 million grant buys

The statute caps each grant at $10 million, so the real question for a city is what one grant can do.

Suppose San Jose won a single maximum award and passed it on to these buildings, cheapest per home first. Paid by formula, $10 million covers 1 building and 319 homes. Paid to the gap, it covers 6 buildings and 813 homes, for $8.7M. That is 2.5× the housing from the same federal dollars.

This is the strongest form of the finding, because it does not depend on adding up a request no single jurisdiction could make. It is a choice each city will face if the pilot is funded: hand out the grant by formula, or underwrite each building and pay its gap.

The catch: the law requires attainable housing

The model values every home at market rate. RESIDE homes cannot all rent at market.

Section 227(a)(1) requires “attainable housing”: homes for households earning up to 120% of area median income, with the majority affordable at 60%. The model behind the San Jose numbers values every finished home at the same market figure, and the site lists that as one of its limits. Here is what it does to this finding.

In Santa Clara County the 2026 rent limit at 60% of area median income is $2,158 a month for a studio and $2,312 for a one-bedroom, including a utility allowance. San Jose’s average asking rent was $2,394 for a studio and $3,009 for a one-bedroom in August 2026, according to Yardi Matrix data published by RentCafe, before utilities. A restricted one-bedroom gives up at least $697 a month.

The formula’s surplus over the gap is $56.4M, about $27K a home. Spread over the 1,066 homes that would have to be restricted, it is gone once each restricted home is worth $53K less than a market-rate one. At a 5% to 6% capitalization rate, that is a rent cut of about $220 to $264 a month. The one-bedroom difference is about 2.6× that.

With the one-bedroom rent difference priced in, the formula covers 46% to 53% of the combined gap, and none of the 14 buildings still pencil with it. The 2.1× is real only for market-rate housing, which a RESIDE grant cannot pay for.

This is a rough adjustment, not underwriting. It applies the one-bedroom difference to every restricted home, ignores the higher operating costs and the lower financing costs that come with affordable housing, and treats the capitalization rate as an assumption. The direction does not depend on those details: the affordability rule makes every gap bigger, by far more than the formula’s surplus.

What it means for HUD and for cities

Over-paying at market rents and under-paying at affordable ones are the same flaw: a formula that never looks at the gap.

A share-of-cost formula pays a building for being expensive, not for being short of money. It over-pays the buildings closest to penciling and under-pays the ones the affordability rule pushes furthest from it. The alternative is the one HUD already requires elsewhere: underwrite each project and pay its gap after every other source.

• For layered public money, federal law already says so. 42 U.S.C. 3545(d) bars HUD assistance to a housing project beyond what is necessary after other government assistance. For HOME, 24 CFR 92.250(b) bars a jurisdiction from investing more than is necessary to provide quality affordable housing that is financially viable.
• HUD has not said whether those rules govern RESIDE. The pilot sits in the HOME statute but is not a HOME formula grant, and Section 227(g) lets HUD waive most of its own rules for it. The funding notice should say plainly that awards to projects are sized to an underwritten gap, with the affordability rule in the underwriting.
• Cities decide the rest. A grant goes to the jurisdiction. Even under a loose notice, a city that underwrites each building gets more homes from a $10 million award than one that divides it by formula, as the San Jose numbers above show.

The comparison also shows where RESIDE money goes furthest. In San Jose, at market rents, many gaps are small enough that a grant closes them. Under the affordability rule most gaps grow past what a $60,000-a-home award covers, much like Denver and Philadelphia, where no screened building pencils with the modeled grant even at market values.

What this does not show

• Which buildings qualify. Only vacant and abandoned buildings are eligible: found unsafe by code enforcement with no fix 90 days after notice, or in receivership, nuisance abatement or abandonment under state law. Public GIS data cannot show that, so none of these buildings is known to qualify.
• HUD’s actual formula. There is none yet. The formula here is the model’s assumption.
• Real underwriting. Costs and values come from a screening model built on footprints and published heights, not from appraisals, bids or lender terms.
• Other cities. In Denver and Philadelphia no screened building pencils with the modeled grant, so there is no over-award to measure there.

Questions

Sources

1. U.S. Government Publishing Office, “Public Law 119-101, Section 210”
2. Legal Information Institute, “42 U.S.C. 12757, Revitalizing empty structures into desirable environments”
3. Legal Information Institute, “42 U.S.C. 3545, HUD accountability (subsection (d), limitation of assistance)”
4. Legal Information Institute, “24 CFR 92.250, maximum per-unit subsidy amount, underwriting and subsidy layering”
5. California Department of Housing and Community Development, “2026 Multifamily Tax Subsidy Project income and rent limits, effective May 1, 2026”
6. RentCafe (Yardi Matrix), “Average rent in San Jose, CA, updated August 31, 2026”
7. Federal Register, “HUD documents search”

More on the law: The ROAD to Housing Act explained · Environmental review changes · CDBG and HOME changes · Opportunity Zones · The Innovation Fund · The Build Now Act · Manufactured housing and the chassis rule