During the 89th Texas Legislative Session, Representative Gary Gates authored and passed House Bill 21, a comprehensive reform of Chapter 394 of the Texas Local Government Code. This legislation, which became effective on May 28, 2025, introduces substantial structural changes designed to enhance oversight, strengthen affordability requirements, and ensure greater transparency in the operation of Housing Finance Corporations (HFCs) across the state.
HB 21 represents a direct response to growing public and legislative scrutiny surrounding the use of property tax exemptions by HFCs, particularly in jurisdictions where local governments had little to no input. Following on the heels of reforms to Chapter 303 last session, this legislation signals the state’s continued commitment to recalibrating housing finance tools in a way that balances development incentives with public accountability.
At a High Level, HB 21 Reforms Include:
- Jurisdictional Limits: HFCs are now prohibited from operating outside their jurisdiction without formal approval from the local government where the development is located.
- Rent Reduction Requirements: At least 50% of the tax exemption’s value must be passed through as direct rent reduction for qualifying residents. If this threshold is not met, the shortfall must be repaid to local taxing units.
- New Income & Rent Restrictions: Developments must meet specific rent and income set-asides based on Area Median Income (AMI), further aligning tax benefits with housing affordability outcomes.
- Voucher Acceptance Mandate: All HFC-supported developments must accept Housing Choice Vouchers and may not impose financial standards that discriminate against voucher holders.
- Annual Audits & TDHCA Reporting: Independent annual audits are now required to verify compliance, with reports submitted to the Texas Department of Housing and Community Affairs (TDHCA) and shared publicly.
- Expanded Tenant Protections: HB 21 includes robust tenant rights provisions, including lease protections and transparency requirements related to voucher participation and tenant organizing.
These changes have broad implications for developers, investors, public housing entities, and local jurisdictions involved in affordable housing initiatives. Navigating the new compliance and reporting structure will require early coordination, strong partnerships, and careful planning—especially for developments seeking to utilize Chapter 394 going forward.
