What the State Budget Means for the Rental Housing Industry
On Tuesday, Governor Josh Stein signed the state budget, SB 257: 2026 Appropriations Act, into law after it received bipartisan approval in the General Assembly last week. Most provisions of the budget became effective July 1, 2026. From permitting and development to disaster recovery and the court system, below are the provisions most relevant to the rental housing industry.
The General Assembly adjourned right before the July 4 holiday and is expected to return during the week of July 27 to consider additional business, including technical corrections to the state budget. AANC will provide another update in the coming weeks on what has become law and what issues remain pending before the legislature.
Court System Changes
Several provisions could improve the efficiency of North Carolina's court system. The budget adds additional magistrates in several high-growth counties and creates 44 new deputy clerk positions statewide, including in Wake County and other rapidly growing areas. Because magistrates and clerks handle many landlord-tenant matters, these additions could help improve processing times for eviction proceedings and other court filings.
The budget also includes a provision clarifying the law governing recoverable court expenses in civil cases by specifying which litigation expenses may be awarded to the prevailing party, as well as a technical change allowing judges to physically sign certain court orders rather than requiring an electronic signature.
And the budget restructures the North Carolina IOLTA Board of Trustees and places new restrictions on how IOLTA grant funding may be used. Because many legal aid organizations rely on these funds to provide legal representation in housing matters, these changes could affect the availability of eviction defense services.
Development and Local Government Regulations
The most consequential provisions for developers appear in Section 39.5, which overhauls how local land-use and zoning decisions can be challenged and relied upon. The legislation expands the legal grounds for challenging local zoning and permitting decisions, extends the statute of limitations for bringing those challenges from one year to three years, and broadens who may bring those challenges. Notably, under certain circumstances, trade associations may now have standing to challenge local government actions on behalf of their members. For organizations like AANC, this could provide another avenue to challenge local ordinances or permitting decisions that broadly affect the industry without requiring an individual member to serve as the named plaintiff.
The bill also provides additional clarity around who has standing to appeal administrative zoning decisions to a board of adjustment, creating greater predictability in the appeals process.
Another big win for the development community is the creation of a new "permit choice" protection. Developers will be able to rely on the zoning and development regulations that were in effect when their application was submitted, even if local rules change while the project is under review. This provides greater certainty for projects already moving through the development pipeline.
Finally, the legislation authorizes courts to award attorneys' fees when a local government unlawfully blocks or delays a project, creating an additional incentive for local governments to follow state law throughout the permitting process.
Permitting and Building Codes
The budget creates a new Building Codes and Interpretations Bureau within the NC Department of Labor, shifting building code oversight from the Office of the State Fire Marshal. While this does not change the building code itself, it does change which agency will oversee code interpretations and administration. The Building Code Council and recently created Residential Code Council will both be housed in the NC Department of Labor going forward.
Additionally, the NC Department of Environmental Quality was authorized to begin testing artificial intelligence to assist with environmental permit reviews. If successful, this could help shorten review times for permits needed for new development.
Disaster Recovery and Emergency Housing
More than $700 million in Hurricane Helene recovery efforts are included in the budget, including housing repair grants and a new Temporary Relocation Assistance Program.
The bill also makes an important change for apartment operators participating in disaster recovery efforts. Under the Hotel Safety Act, apartments are now included when they house individuals receiving CDBG-DR assistance while their homes are being repaired or rebuilt. In those situations, apartment owners will be subject to the same lodging and contract termination requirements that currently apply to hotels and similar temporary accommodations, making it easier to participate in disaster recovery programs.
Water and Infrastructure
The budget redirects funding toward water and sewer projects in certain areas of the state, including sewer line extensions that could support future residential development. At the same time, lawmakers extended existing restrictions on interbasin water transfers and directed a long-term study of water supplies in the Cape Fear, Neuse, and Catawba river basins. While these provisions will not have an immediate impact, they could influence future development opportunities in some of North Carolina's fastest-growing regions.
The budget also establishes a new Emerging Contaminant Mitigation Fund to help local water systems address PFAS and other emerging contaminants. Over time, this should improve water system reliability, although future infrastructure upgrades could eventually affect utility costs.
Taxation
The budget also includes a number of tax law changes. While most do not directly affect the rental housing industry, several may be of interest, including:
- Personal Income Tax: The budget continues North Carolina's scheduled reductions in the individual income tax rate, lowering the rate from 3.99% in 2026 to 3.49% in 2027, with additional phased reductions planned through 2032.
- Gambling Loss Deduction: The budget allows taxpayers who itemize deductions to deduct certain gambling losses from their North Carolina taxable income, consistent with federal tax law. The change applies retroactively to taxable years beginning on or after January 1, 2025.
- Insurance Premium Tax Changes: Beginning January 1, 2027, the budget eliminates the separate insurance regulatory charge that insurers previously paid and instead raises the gross premiums tax rates on most insurance policies, including workers' compensation insurance. This restructures how the state funds insurance regulation by folding those costs into the premiums tax rather than assessing them separately.
- Present-Use Value Property Taxes: The budget expands eligibility for the state's present-use value property tax program for certain trusts and allows eligible landowners who recently lost that classification to seek reinstatement and refunds. While primarily affecting agricultural and forestland owners, the change may be relevant for developers holding land intended for future residential development.
- Data Center Tax Changes: The budget repeals the sales tax exemption for electricity used by qualifying data centers while leaving other existing tax exemptions for data center property in place.
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