Texas has taken a legislative step to address the misuse of property tax exemptions in its housing sector with House Bill 21 (HB 21), recently signed into law by Governor Greg Abbott. The legislation aims to curb the repeated occurrence of Wall Street-backed landlords locking in lengthy tax breaks while offering minimal actual affordability. While the intention of the law is to bolster affordable housing, critics argue that the law contains significant loopholes that could prove detrimental in its enforcement.
The core problem lies in the determination of affordability, which is tied to the area median income (AMI). This method allows developers to designate units as “affordable” if they are reserved for residents making up to 80% of the AMI. As pointed out by critics, AMI can significantly vary across Texas, strikingly in high-income areas like Austin where an 80% AMI rent may equate to market rates elsewhere. Consequently, this metric might not adequately address the needs of families most in need.
Further complicating the issue is the lack of a stringent enforcement mechanism tied to HB 21. Audits intended to verify compliance occur only after tax exemptions are already granted. Thus, regardless of compliance, developers may continue acquiring upfront tax breaks with negligible risk of penalties. Moreover, should a project fall out of compliance, the exemption may be lost moving forward, but no measures are in place to reclaim already received benefits.
For instance, the federal Low-Income Housing Tax Credit has a provision that allows for recapture of improperly allocated credits over a span of 15 years. In comparison, Texas’s HB 21 lacks such a safeguard creating concerns about potential systemic exploitation.
Given the ongoing scrutiny of the housing affordability crisis in Texas, there is a call to revise HB 21 to include stronger enforcement along with tighter definitions of income thresholds. These measures would seek to align tax exemptions more directly with housing affordability outcomes, thereby increasing the stock of genuinely affordable homes.
The law has received mixed reviews, with some acknowledging it for addressing housing credit abuse, but also pointing out the potential for new forms of manipulation if enforcement is not tightened. As observed, the current framework might deter legitimate developers if perceived as excessively burdensome or opaque, potentially exacerbating the housing supply deficit.
In conclusion, while Texas HB 21 represents an initial legislative move to address housing credit issues, its effectiveness could be diminished without substantial amendments targeting its enforcement and metric specifications.