Client Alert
On May 28, 2025, Texas Governor Greg Abbott signed House Bill 21/Senate Bill 867 into law (the “Act”), which amends Chapter 394 of the Texas Local Government Code, the Texas Housing Finance Corporations Act (the “HFC Statute”). The Act is effective immediately, although specific provisions provide additional time for compliance.
Key provisions of the Act are summarized below. Chapman will issue further alerts detailing certain provisions and will continue to work with our industry colleagues to provide additional guidance and training materials.
HFCs must comply with Texas Open Meetings Act and Public Information Act
HFC meetings are now subject to Chapter 551 of the Texas Government Code, known as the Texas Open Meetings Act, or TOMA. HFCs were already required pursuant to Attorney General opinions to follow Chapter 552 of the Texas Government Code, known as the Public Information Act, and those requirements are now codified in the
HFC Statute.
HFC Permitted Area of Operation
The Act makes clear that HFCs cannot own property for residential developments or issue bonds to finance residential developments outside of the geographical boundary of the HFC’s sponsoring local government, unless the HFC receives a resolution from the applicable governing body and the local HFC. The new limitation applies to property acquired on or after May 28, 2025. Out-of-jurisdiction developments will not be eligible for an exemption from ad valorem property tax (the “Tax Exemption”) after January 1, 2027, unless local approving resolutions are obtained.
New Public Hearing Requirement for Bond Issuances
In order to issue bonds to finance residential developments, the applicable local government must conduct a public hearing. The previous language in the HFC Statute was widely interpreted as requiring only a hearing by the HFC in most instances, which could be satisfied by holding a TEFRA hearing.
Preapproval Requirements (for Non-LIHTC)
In addition to all other requirements of the Act, a newly-acquired multifamily residential development that is not receiving low-income housing tax credits (“LIHTC”) is only eligible for the Tax Exemption, and can only benefit from a sales and use tax exemption on materials for the development if:
- an HFC’s board of directors adopts a resolution to approve the development; and
- prior to the approval, the HFC obtains an independent underwriting report that allows the HFC board of directors to make a good faith determination of the development’s public benefit.
There will also be a one-time exemption application form, to be promulgated by the Texas Comptroller of Public Accounts.
Changes to Tax Exemption
Property acquired by an HFC after May 28, 2025 will be subject to taxes imposed by conservation or reclamation districts and emergency services districts for the property location, unless a payment-in-lieu-of taxes agreement is reached with the applicable taxing district(s).
New Affordability Requirements and Tenant Protections
Affordability/50% Rent Reduction Test:
- (i) 10% of the residential units are reserved for less than 60% area median income (“AMI”) and at least 40% of the residential units are reserved for less than 80% AMI or (ii) 10% of the residential units are reserved for less than 50% AMI and at least 40% of the residential units are reserved for less than 100% AMI; and
- Developments must show a rent reduction of at least 50% of taxes abated.
Equal Quality: All income-restricted units have the same finishes, equipment, and amenity and service access as non-restricted units.
Proportional Affordability: Income-restricted units are proportional across bedroom size for the development (e.g., if a development has 1- and 2-bedroom units, it cannot concentrate all income restricted units to the 1-bedroom units).
Rent Cap: The monthly rent charged for income-restricted units does not exceed 30% of the income earned by a resident in the respective AMI band (e.g., a resident occupying a residential unit reserved for 50% AMI is not charged more than 30% of 50% AMI, adjusted for family size).
*The above requirements apply to newly-acquired, non- LIHTC developments. These requirements also apply to existing developments beginning on the earlier of:
- December 31, 2035 or
- when the development is refinanced, sold or if the development owner transfers a majority of any beneficial ownership interests.
Voucher Use and Tenant Lease Protections: By January 1, 2026, all residential developments (regardless of the date acquired) must accept housing choice vouchers and incorporate certain tenant protections into lease agreements.
Annual TDHCA Audit Requirements
Developments will be subject to annual reporting and audit by TDHCA starting June 1, 2026 for existing developments, although there is an exception for the period in which a development is receiving LIHTC. The requirement will apply to newly acquired developments starting June 1 of the tax year following acquisition or June 1 following construction completion. Failure to comply or cure deficiencies in the audit could result in loss of the Tax Exemption in a given tax year. TDHCA rulemaking to implement this requirement is required by January 1, 2026.
