As predicted, Texas’ divisive new affordable housing law has been targeted in a court.
The Texas Workforce Housing Coalition is challenging the constitutionality of House Bill 21 via a lawsuit against the Bexar Appraisal District, which values property for tax purposes in San Antonio.
HB 21, which was championed by Rep. Gary Gates, is the legislative answer to widespread use of a loophole in a 1970s-era affordable housing provision. But affordable housing developers and advocates say the law goes too far.
The law doesn’t just close the loophole, known as “traveling” housing finance corporations; it creates new affordability requirements for future housing finance corporations deals and requires that prior deals, including those that used the loophole, to come into compliance with the stricter standards.
The coalition claims HB 21 violates the Texas Constitution, which prohibits laws “impairing the obligation of contracts” and laws that “extend in scope or effect to matters which have occurred in the past.”
“To be clear, the Texas Legislature is free to amend Chapter 394 to create a different affordable-housing regime in Texas going forward,” the lawsuit read.
The ownership entity of Willowbend Apartments in San Antonio joined the coalition in bringing the lawsuit. The apartment complex is a traveling housing finance corporation deal where the owner, Los Angeles-based Post Investment Group, partnered with a housing finance corporation in Brownsville to get tax-exempt status for a property in San Antonio.
The lawsuit claims the passage of HB 21 has emboldened appraisal districts to go after the properties that used this loophole by denying their exemptions before the new law goes into effect in 2027, putting 2025 and 2026 exemptions “in jeopardy.” Specifically, the Bexar Appraisal District required Post Investments Group to submit a renewal request to maintain its exemption and has, so far, failed to make a determination.
The lawsuit asks the court to reinstate previously granted tax exemptions and to determine that the law violates the Texas Constitution.
HB 21 is the result of a campaign to outlaw traveling housing finance corporations.
The program, which aims to spur affordable housing, was instead used to buoy multifamily investors staring down the barrel of foreclosure after interest rates raised their debt service payments and historic deliveries depressed rents and cut into their revenues. By partnering with affordable housing entities in far-flung counties, they zeroed their property tax bills while wiping billions of dollars off property tax rolls in Dallas, Houston and Austin.
But the legislation that ended up getting signed was so divisive that it made enemies out of the loudest voices pushing for reform of the program.
Waterford Property Company’s John Drachman, who raised the alarm about traveling housing finance corporations, called the law “anti-Texas,” because it undermines local control and the decisions of local housing authorities.
Meanwhile, Rep. Gates, who is a multifamily operator in Houston, called the arguments of his detractors “red herrings.”
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