A lawsuit has been filed by the Texas Workforce Housing Coalition challenging the constitutionality of House Bill 21, a new law affecting affordable housing developments in Texas. The legal action targets the Bexar Appraisal District, which handles property valuations for tax purposes in San Antonio.
House Bill 21 was introduced to address what lawmakers described as misuse of a provision from the 1970s intended to promote affordable housing. The so-called “traveling” housing finance corporations loophole allowed developers to partner with housing authorities in different counties, securing tax-exempt status for properties outside those jurisdictions.
Under HB 21, not only is this loophole closed, but new and existing deals must now comply with stricter affordability requirements. This includes retroactive compliance for projects previously benefiting from the loophole.
The coalition argues that HB 21 violates the Texas Constitution’s ban on laws that impair existing contracts or apply retroactively. “To be clear, the Texas Legislature is free to amend Chapter 394 to create a different affordable-housing regime in Texas going forward,” states the lawsuit.
Willowbend Apartments’ ownership entity joined the coalition as a plaintiff. The complex is an example of a “traveling” deal, with Los Angeles-based Post Investment Group partnering with a Brownsville housing finance corporation to gain tax-exempt status in San Antonio.
The lawsuit claims appraisal districts have started denying exemptions for such properties before HB 21 takes effect in 2027, putting their 2025 and 2026 exemptions at risk. Specifically, Post Investments Group was asked by Bexar Appraisal District to submit a renewal request for its exemption but has yet to receive a determination.
The suit seeks reinstatement of previously granted tax exemptions and asks the court to rule that HB 21 is unconstitutional.
HB 21 followed criticism of how some multifamily investors used the program during periods of rising interest rates and lower rents, reducing their property tax obligations and impacting local government revenues across major cities like Dallas, Houston, and Austin.
John Drachman of Waterford Property Company commented on the law’s passage: “anti-Texas,” saying it undermines local control and decisions by local housing authorities. Rep. Gary Gates of Houston defended his position on reforming affordable housing policy: he called opponents’ arguments “red herrings.”
For more background on recent changes affecting Texas affordable housing policies and legal responses:
– Lawmaker drops reform effort of crackdown on “traveling” tax credits (https://therealdeal.com/texas/2024/04/23/lawmaker-drops-reform-effort-of-crackdown-on-traveling-tax-credits/)
– Texas is asking for lawsuits in crackdown on housing tax loophole (https://therealdeal.com/texas/2024/05/02/texas-is-asking-for-lawsuits-in-crackdown-on-housing-tax-loophole/)
– Gov Abbott signs bill closing Texas’ “traveling” tax loophole (https://therealdeal.com/texas/2024/05/16/gov-abbott-signs-bill-closing-texas-traveling-tax-loophole/)
