Texas will maintain House Bill 21, a law designed to address property tax exemptions in affordable housing programs, after the bill’s author, Rep. Gary Gates, decided not to pursue immediate reforms. The announcement follows debate over an amendment that affordable housing advocates criticized as excessive.
Gates had proposed changes to relax some of the new requirements but withdrew his effort in an August 22 letter. He explained that acting too quickly could threaten recent legislative achievements. “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.”
House Bill 21 was enacted to close what lawmakers described as a loophole in a decades-old affordable housing initiative. The program was originally intended to encourage affordable housing construction but had been used by multifamily investors facing financial difficulties due to rising interest rates and increased supply lowering rents. By collaborating with affordable housing organizations outside their own counties, these investors were able to eliminate their property tax obligations in major Texas cities like Dallas, Houston, and Austin.
The law now requires all properties owned by housing finance corporations—including those previously compliant—to meet stricter affordability standards.
During a recent special session of the Texas Legislature, Gates suggested allowing existing properties another path toward compliance: obtaining approval from the Texas Department of Housing and Community Affairs and paying local authorities 10 percent of previously exempted taxes.
However, this proposal did not satisfy critics such as John Drachman of Waterford Property Company. Drachman argued that the legislation weakens local control over housing policy. “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 dismissed many objections as distractions from closing the loophole itself. “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.
