The proverb “the enemy of my enemy is not my friend” does not apply to the controversy around Texas’ House Bill 21.
The affordable housing reform law meant to close the state’s “traveling” housing finance corporation loophole has been heavily criticized by the same people who advocated for reform. But the law’s detractors aren’t all on board with a lawsuit challenging HB 21 that was filed last week.
The lawsuit exacerbated the drama, since one of the entities that brought it is affiliated with Post Investment Group, which has used the traveling housing finance corporations loophole. Meaning the firm got tax credits on apartment complexes by partnering with housing finance corporations in counties other than where the properties are located.
This divisive Texas law has politicians and developers squabbling in a climate where real estate often gets what it wants from the legislature, but in this case, real estate is divided.
It’s a Venn Diagram with three circles representing Rep. Gary Gates and his HB 21, affordable housing developers who didn’t use the loophole and developers who partook of traveling tax credits.
The first two overlap in their opposition to the affordable housing scheme. But the next two overlap in their opposition to HB 21, meaning developers who didn’t use the loophole oppose Gates, his law and the group of developers who used the loophole.
“They screwed this up for people doing in-jurisdictional deals,” Waterford Property Company’s John Drachman said of developers that used the loophole. But he also opposes HB 21, which he argues is “anti-Texas” for undermining local control and the decisions of local housing authorities.
Waterford belongs in the second circle, and Drachman has been raising the red flag about the loophole for over a year.
The lawsuit was brought by Texas Workforce Housing Coalition and an affiliate of Post, the ground lease tenant of a San Antonio apartment complex that is a traveling housing finance corporation deal. It aims to legitimize these cross-juridictional deals, emphasizing that Chapter 394 expressly allows these kinds of deals and claims they were affirmed by governmental bodies, including appraisal districts.
“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,” Drachman said.
In particular, he has a problem with the lawsuit’s claim that HB 21 “will cause mass evictions of teachers, nurses and first responders.” That’s a lie, he said.
“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,” he said.
The argument behind the lawsuit’s contention is that if developers lose properties due to increased tax bills, new ownership could raise rents.
Drachman concedes there’s merit to the lawsuit’s argument that HB 21 violates the Texas Constitution by affecting contracts already in place. HB 21 creates new affordability requirements for future housing finance corporations deals and requires that prior deals, including those that used the loophole, come into compliance with the stricter standards.
HB 21 is the result of a campaign to outlaw traveling housing finance corporations. 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.
Meanwhile, Rep. Gates, who is a multifamily operator in Houston, has repeatedly called the arguments of his detractors “red herrings,” treating the loophole-using developers and the developers who didn’t use it as the same group.
Gates’ office said he wouldn’t comment on pending litigation.
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