For decades, Texas has meticulously cultivated a reputation as a pro-business state by passing pro-growth policies and maintaining a reasonable regulatory environment. These policies have helped attract investment and jobs, raising living standards across the state.
House Bill 21 (HB21) threatens to undo that success. Signed into law in May, the legislation effectively rewrites the rules for hundreds of developments, and as a result changes the economics of projects that were conceived of and financed years ago. Billions of dollars are now at risk, as are thousands of homes for working-class Texans. The result is that the state is opening the door to stripping away tax exemptions that developers lawfully relied upon.
Because of this, a coalition of affordable housing developers have taken the matter to court, arguing that HB21 has effectively changed the rules for real estate investors by forcing long-standing projects to seek retroactive approval from county appraisal districts.
The potential fallout from this legislation extends far beyond housing. Every business sector – from energy infrastructure to manufacturing facilities – is watching this and asking whether the state might one day change its rules for them as well. HB21’s message to investors is that commitments made in Texas to investors may no longer be quite as ironclad as before.
The changes resulting from HB21 are a profound shift from the long-standing affordable housing framework in Texas. Since 1979, developers who partnered with local Housing Finance Corporations to build affordable rental units received a property tax exemption. This program delivered billions in investment and gave teachers, nurses, and first responders the chance to live in the communities they serve.
HB21 threatens to not only curtail new projects but it also reaches backward, altering the economics of existing developments and demanding retroactive compliance. By stripping away tax benefits and tightening affordability rules, HB21 will make it harder to finance and maintain affordable units. Developers will scale back, lenders will demand higher risk premiums, and current operators may face financial distress. Tenants – middle-class Texans who can least afford the disruption – could end up paying a price as well, potentially even facing eviction if they don’t meet the new, more stringent affordability criteria.
HB21 is anything but the affordable housing reforms its proponents claim, and threatens to raise costs, sow uncertainty, and risk chilling investment across the state.
Texas’s economic miracle has always rested on a trust that the rules won’t change after the fact, that contracts will be honored, and that the government won’t retroactively pull the rug out from under lawful investments, unlike how it’s done in most other states. HB21 upends that trust, and it could do lasting damage to the state’s pro-growth brand.
If lawmakers wish to rethink future housing incentives, that is certainly their prerogative, but they must leave past agreements intact.
