In a decisive bipartisan move, the Texas House of Representatives voted 113–15 over the weekend to overhaul a controversial tax exemption program tied to affordable housing, marking one of the most significant reforms to the state's housing policy in recent years.
The legislation, House Bill 21, authored by Rep. Gary Gates (R-Richmond), aims to rein in alleged misuse of Housing Finance Corporations (HFCs) — entities that allow apartment developers to receive 100% property tax exemptions in exchange for offering reduced-rent units. Critics say the program has failed to live up to its affordable housing promises, allowing developers to reap tax benefits while offering little relief to low-income renters.
“This bill ensures taxpayers are getting what they paid for — actual affordable housing,” Gates said in a statement. “For too long, some developers were handed a tax break and turned around to raise rents. That’s not what affordable housing should look like.”
Closing Loopholes, Raising Standards
The bill sets stricter criteria for rent reductions and who qualifies for them. Under the newly approved rules:
At least 10% of units must be reserved for tenants earning 60% or less of the area median income (AMI), with rents at least 60% below market rates.
An additional 40% of units must be leased to those earning up to 80% of AMI, which can be as high as $160,000 in affluent parts of Texas.
At least 50% of the annual tax savings must be applied directly to lowering rents, down from 60% in the original draft of the bill.
In another key change, “traveling HFCs” — entities that grant tax exemptions in cities or counties far from where they are based — are effectively banned, unless local jurisdictions explicitly approve the exemption. The move aims to restore local control and prevent school districts and municipalities from losing millions in property tax revenue without input.
Gates cited data showing that some properties actually raised rents after securing an exemption. “They signed up to offer affordable housing and got full tax forgiveness,” he said. “Now they say 50% back in rent reductions is too much? That’s not a good-faith deal.”
Strong Oversight and Transition Periods
The bill also boosts transparency and accountability. HFCs will now be required to conduct annual compliance audits and file them with both the Texas Department of Housing and Community Affairs and local appraisal districts.
Existing properties benefiting from HFC exemptions will have 10 years to comply with the new rules, unless the property is sold or refinanced, which would trigger immediate compliance. Additionally, previously approved traveling HFCs have until January 1, 2027, to obtain consent from affected local governments in order to maintain their tax-exempt status.
Divided Views and Legal Questions
While the bill received overwhelming support, it wasn’t without opposition. Rep. Nicole Collier (D-Fort Worth) and Rep. Harold Dutton (D-Houston) raised concerns over what they saw as retroactive application of the law. However, those objections were overruled after it was clarified that the bill includes “transition provisions,” not retroactive enforcement.
Notably, Rep. Ann Johnson (D-Houston) — whose district has over $1 billion worth of properties removed from tax rolls due to HFC and Public Facility Corporation (PFC) exemptions — voted against the bill. According to Gates’ office, her district’s use of the program costs local governments around $22.7 million annually in lost tax revenue.
Sen. Paul Bettencourt (R-Houston), a longtime critic of HFC and PFC abuse, is backing the effort in the Senate and has requested a formal opinion from Attorney General Ken Paxton on the legal use of HFC funds, particularly those operating in outside jurisdictions.
What’s Next
The Senate is expected to take up HB 21 as early as Thursday. With the bill receiving more than a two-thirds vote in the House, if it passes the Senate and is signed by Governor Greg Abbott, it will go into immediate effect.
For many lawmakers, this marks a pivotal step toward restoring trust in affordable housing incentives.
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