As Texas lawmakers gear up for the legislative session starting January 14, significant attention is being directed towards a contentious property tax exemption system for affordable housing. This system, managed by Housing Finance Corporations (HFCs), enables these entities to grant tax breaks to multifamily housing projects with affordable units, irrespective of whether these properties fall within their jurisdictions. Such exemptions have seen HFCs from different parts of Texas, such as central and south regions, removing apartment complexes in Houston from local taxation.
The current framework has been criticized by city officials like Mike Nichols, director of the Houston Housing and Community Development Department, who describes it as a legislative flaw. Despite its intention to foster affordable housing, the exemption system has not been fine-tuned by legislators, leading to its exploitation. State Representative Gary Gates of Fort Bend County, a property owner in Houston, is set to spearhead reform efforts. He aims to introduce legislation that tightens the system’s operation and has sought an opinion from the Texas attorney general to potentially nullify existing exemptions.
Gates argues that the current use of HFCs to circumvent local property taxation is beyond their authority. His concerns are echoed by State Senator Paul Bettencourt of Houston, who criticizes the policy that allows HFCs to operate across major urban areas, dismissing it as unsound public policy. The exemption, while aimed at keeping rental rates low, has often failed to do so, with some complexes charging near-market rents. In a revealing presentation for future investors reported by Houston Public Media, it was noted that a property in north Harris County claimed the exemption did not impact its revenue, underscoring the loophole Gates and others are determined to close.
The Pines at Woodcreek in Humble illustrates the system’s flaws. Granted a tax exemption by an HFC based in South Texas, the property retains average rents around $1,200, which many argue do not reflect truly affordable housing. While it pays a fee to the HFC, the lost property tax revenue affects Harris County. Avid Realty Partners, the owning firm, contends that such exemptions present investment allure and stabilize rent levels in the future. CEO Craig Berger defends the arrangement, stressing that it enables the company to offer high-quality living at reasonable rates to a working-class demographic.
Berger warns that any attempt by the attorney general to undo these deals could incite chaos, challenging the perceived stability of Texas’ business environment. Investment confidence might waver if legal structures are subject to abrupt changes. Gates, however, maintains that allowing these exemptions was a mistake and is willing to accept the resulting upheaval if it means rectifying the system.
The legislative push for change is driven by a need to restore integrity to the tax exemption process, ensuring it genuinely benefits those it was designed to help without inadvertently enriching developers at taxpayers’ expense. With the introduction of reformative bills, the upcoming session is poised to address these critical issues, reflecting Texas lawmakers’ commitment to refining housing policy for the betterment of local communities.
