Texas House Bill 21, a law intended to close the “traveling” housing finance corporation loophole in affordable housing policy, has created divisions among real estate developers and politicians. The law was designed to prevent developers from securing tax credits on apartment complexes by partnering with housing finance corporations outside the county where the property is located.
Despite being supported by those seeking reform, HB 21 has drawn criticism from both developers who used the loophole and those who did not. A recent lawsuit filed by Texas Workforce Housing Coalition and an affiliate of Post Investment Group challenges the new law. Post Investment Group previously benefited from the loophole by obtaining tax credits through cross-jurisdictional partnerships.
John Drachman of Waterford Property Company, which did not use the loophole, criticized both the developers who exploited it and HB 21 itself. “They screwed this up for people doing in-jurisdictional deals,” Drachman said about developers that used the loophole. He also argued that HB 21 undermines local control: “anti-Texas” for undermining local control and the decisions of local housing authorities.
Drachman disagrees with claims made in the lawsuit that HB 21 will result in mass evictions of essential workers such as teachers, nurses, and first responders. “I think they’re trying to craft a story of victimhood for both them and their partners and lenders and tenants especially that is just patently false,” he said. He added: “If you don’t comply, you don’t get property tax exemptions. Then you have to pay your property taxes. I don’t know why that would lead to mass evictions.”
The lawsuit argues that increased tax bills could force developers to sell properties, potentially resulting in rent increases under new ownership. Drachman acknowledged there is some validity to concerns about HB 21 affecting existing contracts: HB 21 creates new affordability requirements for future deals while mandating compliance with stricter standards for previous arrangements.
Rep. Gary Gates of Houston sponsored HB 21 but has dismissed criticisms as irrelevant, grouping all opposing developers together regardless of their use of the loophole. Gates declined to comment on ongoing litigation.
HB 21 follows legislative efforts aimed at closing what lawmakers viewed as an exploitative gap in Texas’ affordable housing system (https://www.therealdeal.com/texas/2024/05/14/lawmaker-drops-reform-effort-of-crackdown-on-traveling-tax-credits/) (https://www.therealdeal.com/texas/2024/05/10/texas-is-asking-for-lawsuits-in-crackdown-on-housing-tax-loophole/) (https://www.therealdeal.com/texas/2024/06/11/gov-abbott-signs-bill-closing-texas-traveling-tax-loophole/).
