Texas House Bill 21, a measure aimed at tightening oversight of affordable housing tax exemptions, will remain unchanged for now after its author, Rep. Gary Gates, decided not to pursue immediate reforms.
Gates had considered an amendment that would have relaxed some requirements of the new law. However, in an August 22 letter, he explained that moving too quickly on reforms could jeopardize the gains made with HB 21. “It took a lot of work to get that bill passed,” said Gates, a Republican from Fort Bend County. “Let’s let it work its way and and let’s see the effects that it’s able to accomplish.”
HB 21 was introduced in response to concerns over a loophole in a decades-old affordable housing program. The original program was intended to promote affordable housing but was used by multifamily investors as a means to avoid property taxes during times of financial stress—such as rising interest rates and declining rents—which affected revenues in cities like Dallas, Houston, and Austin. By partnering with affordable housing entities outside their regions, these investors were able to secure full property tax exemptions and significantly reduce local tax rolls.
The new law not only closes this loophole but also requires all properties owned by housing finance corporations—including those previously compliant—to meet stricter affordability standards.
Gates had proposed an alternative compliance route for owners of existing deals during the Texas Legislature’s recent special session. This would have allowed such properties to gain approval from the Texas Department of Housing and Community Affairs if they paid local governments 10 percent of their exempted taxes.
Despite this proposal, critics remained concerned about the impact on future projects. John Drachman of Waterford Property Company argued that HB 21 undermines local control: “I don’t see any new HFC deals getting done again for a while until it’s very clear what the yearly audit process looks like for in-jurisdictional deals, because the way they changed the law makes it impossible to underwrite right now,” he said.
Gates has maintained his focus on closing what he describes as an abuse of state resources: “You’re not going to use the state of Texas to cover your negative cashflow by getting 100 percent tax exemption and not giving anything back to the state of Texas and its residents,” he said.
Recent legislative efforts reflect ongoing debates about how best to manage tax policy for affordable housing initiatives in Texas.
