HUD has officially rescinded its 2021 rental subdivision policy that placed restrictions on subdivisions designed for rent. This change, effective April 28, 2025, has major implications for developers, lenders, and affordable housing stakeholders across the country.
The new decision means that rental subdivision policy guidance will shift to case-by-case evaluations—at least temporarily—until new rules are finalized.
Background: HUD’s 2021 Rental Subdivision Policy
The 2021 administrative memo addressed a growing trend: the rise of build-to-rent communities featuring:
- Detached single-family homes
- Duplexes and triplexes
- Townhouse clusters
While these projects were designed as rentals, they closely resembled traditional for-sale neighborhoods. HUD raised several concerns:
- Valuation uncertainties due to the newness of the model
- Fair Housing compliance challenges, particularly around design accessibility
- Legal and regulatory conflicts with the long-standing separation between single-family and multifamily categories
To maintain clarity, HUD’s rental subdivision policy required that at least half of all structures in a project include four or more units—effectively limiting projects built like neighborhoods.
2025 Update: HUD Rescinds Rental Subdivision Policy
As of April 28, 2025, HUD has rescinded the 2021 memo . This shift has three immediate effects:
1. Blanket Restrictions Removed
HUD no longer autmatically bars developers are from submitting build-to-rent concepts with single-family layouts.
2. Case-by-Case Review Begins
HUD will evaluate each project under existing HUD program requirements. There is no replacement guidance yet, so early HUD consultation is critical.
3. New Policy Is Coming
HUD has stated replacement guidance is in development. It will issue the new guidance after departmental clearance.
Implications for Affordable Housing Development
More Design Flexibility
Developers can now propose:
- Detached units
- Mixed-density layouts
- Scattered-site rentals
This opens creative doors for affordable housing innovation in both urban and suburban markets.
Fair Housing Compliance Still Matters
While HUD rescinded its previous rental subdivision policy memo, the Fair Housing Act and Section 504 rules remain in full effect. HUD may still apply accessibility standards to rental units with fewer than four units if included in insured multifamily projects.
Potential for Scattered-Site Models
Public Housing Authorities and nonprofits may now find new pathways to finance small-scale rental developments that serve voucher holders or low-income families.
What Housing Partners Should Do Now
If you’re exploring a rental subdivision project, here’s what to do:
- Engage HUD early. There are no standard criteria yet.
- Emphasize accessibility in all project proposals.
- Watch for future guidance from the Office of Multifamily Production.
- Coordinate with state and local officials for zoning and land-use compliance.
