The Department of Housing and Urban Development (HUD) and the Department of Agriculture (USDA) have announced the immediate rescission of energy efficiency standards for new construction of housing financed by these federal agencies, a move effective May 1, 2026. This significant policy reversal impacts a broad range of programs, including public housing, FHA mortgage insurance, and USDA rural housing loans. The decision comes after a federal court vacated the original "Final Determination" and amid the current administration's push to address rising housing costs and expand supply for American families. The rescission means that the 2021 International Energy Conservation Code (IECC) and ASHRAE 90.1-2019 standards will no longer be mandatory for these projects, reverting to prior, less stringent requirements.
The Statutory Mandate for Energy Efficiency
The requirement for HUD and USDA to set minimum energy standards for federally financed new housing originates from Section 481 of the Energy Independence and Security Act of 2007 (EISA). EISA amended the Cranston-Gonzalez National Affordable Housing Act of 1990, mandating that the agencies adopt updated versions of the IECC and ASHRAE 90.1 within one year of their release. If this deadline is not met, the agencies can still adopt the updated versions, but only if they determine that the revised codes "do not negatively affect the availability or affordability" of the covered housing, and the Secretary of Energy confirms improved energy efficiency. The IECC typically applies to single-family homes and low-rise multifamily buildings, while ASHRAE 90.1 applies to multifamily structures of four or more stories.
Regulatory Process and Judicial Intervention
The rescinded standards had a complex procedural history. HUD and USDA first published a Preliminary Determination on May 18, 2023, concluding that the 2021 IECC and ASHRAE 90.1-2019 would not negatively impact affordability or availability. Following public feedback and an updated economic analysis, the Final Determination was issued on April 26, 2024. Despite these adjustments, the agencies later sought additional comments in July 2025, signaling ongoing questions about the practical implementation of the new standards.
The regulatory process was further complicated by legal challenges. On January 2, 2025, a coalition of fifteen states and the National Association of Home Builders filed a lawsuit against HUD and USDA, arguing that the 2024 Final Determination violated the Administrative Procedure Act. The lawsuit culminated on March 5, 2026, when a federal court in the Eastern District of Texas denied the agencies' motion to dismiss and granted in part the plaintiffs' motion for summary judgment, effectively setting aside and vacating the Final Determination. This judicial ruling provided a clear, legal impetus for the rescission.
Economic Pressures and the Push for Affordability
Beyond the court's decision, the agencies cited a broader policy directive from the current administration as a key driver for the rescission. A Presidential Memorandum, "Delivering Emergency Price Relief for American Families and Defeating the Cost-of-Living Crisis," issued on January 20, 2025, mandated that executive departments pursue actions to lower housing costs and expand supply. HUD and USDA determined that the implementation of the energy efficiency standards was "antithetical" to this purpose.
Their analysis highlighted several economic factors exerting upward pressure on housing costs. Building material costs, for instance, increased by 43 percent between January 2020 and November 2025. Similarly, contractors' bid amounts for home construction rose by 42 percent between 2019 and 2024. The agencies also noted that the economic data used in the Final Determination's analysis, with some figures dating back to 2020, was outdated. Mortgage rates, at an average of 6.2 percent for 30-year financing, were significantly higher than the 5.3 percent assumption made in the Final Determination.
Further complicating the landscape are rising land costs and new competitive uses for land. A January 2026 report from John Burns Research and Consulting indicated that lot price appreciation continued to outpace falling new home prices in late 2025, particularly in closer-in suburban markets. The report also pointed to a growing trend of residential land sales being diverted for data center construction, further limiting housing development opportunities. These combined factors led the agencies to conclude that imposing new energy regulations would exacerbate affordability challenges for ordinary Americans.
The Diminished Role of Federal Incentives
The agencies also revisited the projected impact of federal tax incentives designed to offset energy efficiency costs. The 2024 Final Determination had suggested that significant resources from the Inflation Reduction Act, particularly the Section 45L New Energy Tax Credit, could help builders manage compliance costs. However, the rescission notice clarified that the Section 45L credit is not a direct subsidy for building to the 2021 IECC. More critically, the "One Big Beautiful Bill Act," Public Law 119-21, accelerated the sunset for federal energy tax incentives, with the Section 45L credit specifically set to expire for homes acquired after June 30, 2026. This legislative change significantly diminished the practical utility of these incentives as a means to mitigate the added costs of the energy standards.
Ultimately, HUD and USDA concluded that the "net effect of these realities is that affordability of housing in the Departments' respective covered housing programs would be negatively affected by implementation of the Final Determination," failing the statutory test under 42 U.S.C. 12709(d)(1). Coupled with the judicial vacature, the path to rescission became clear. The standards for these programs will now revert to those in effect prior to April 26, 2024.
