HB21

HB21 tightens the rules for local housing finance corporations—public nonprofit organizations used to finance housing—and for rental developments seeking their property-tax benefits. It adds local-approval requirements, affordability and tenant protections, and annual compliance audits. It does not ban the corporations or automatically give every associated development a tax exemption. Final law; official history.

Where corporations may operate. Residential ownership and development generally must stay within the sponsoring city or county, or the combined sponsors’ boundaries. Outside those boundaries, approval is required from each affected city, the affected county for unincorporated locations, and housing finance corporations sponsored by those host governments. County-sponsored corporations are not limited to unincorporated areas. The new geographic provision does not prohibit outside-area property held for nonresidential purposes. Bond financing has a separate outside-area approval rule naming the host cities and, for unincorporated locations, counties. The law also aligns property-transfer and financial powers with these rules and removes the express “within and outside” wording from authority delegated to the state housing department. Sections 3–7 and 10.

Housing and bond qualifications. The general Chapter 394 rule retains its 90% low/moderate-income use or intended-occupancy test, now expressed in terms of households and the corporation’s income rules. A specific multifamily bond route permits either at least half the units for families earning below 80% of area median family income, or the alternative unit reservations described below, following the required public hearing and geographic rules. Another existing route uses the general chapter standard with local-government approval. These are distinct provisions, not a claim that every tax-exempt building must have exactly the same income mix. Sections 1 and 8.

Affordability in exchange for property-tax benefits. For covered multifamily rental developments—four or more attached or detached rental units—the new conditions generally require either:

• At least 10% of units for households earning no more than 60% of area median income and at least 40% at no more than 80%; or
• At least 10% at no more than 50% of area median income and at least 40% at no more than 100%.

Income limits are adjusted for family size. Restricted units must have the same finishes, equipment and access to community amenities and programs as unrestricted units; the bedroom-size distribution must reflect the required income-restricted mix. Rent includes mandatory recurring occupancy charges, not optional extras such as optional pet, storage or covered-parking charges. The statute sets rent limits using 30% of the applicable 50%, 60%, 80% or 100% area-income benchmark. These are income-based limits, not a promise that every tenant’s rent is 30% of that tenant’s actual earnings. For a particular unit, use the applicable HUD-derived limits and property agreement rather than calculating a dollar rent from this summary. The law incorporates federal annual-income and over-income-at-renewal rules; an income increase does not by itself mean automatic eviction. Section 9, 394.9026; federal annual-income rule; federal over-income rule, §42(g)(2)(D).

The rent benefit must justify part of the tax break. The annual rent reduction for restricted units must equal at least half the estimated property taxes otherwise payable, or the corporation/user must pay each taxing unit its share of the shortfall. “Maximum market rent” uses the average annual rent of unrestricted units in the same development with the same or a substantially similar floor plan. The ongoing test starts with the first tax year after the acquisition year, or after the year construction begins for new construction. Separate underwriting requirements use a forecast for years 3–5 after acquisition, or the first three tax years after new construction reaches 90% occupancy. The forecast and annual test do not have identical start dates. The assessment must be made before board approval, be no more than 180 days old, and be posted publicly. A one-time exemption application goes to the state housing department and the relevant chief appraiser. 394.9026(c)(2) and 394.905(b).

Voucher access and lease protections. Covered developments may not reject applicants because they use Housing Choice Vouchers or require voucher households to earn more than 2.5 times their own share of monthly rent. They must advertise voucher acceptance, notify local housing authorities and post their voucher policies. A tenant may still owe the difference when the voucher is less than the permitted rent. Income-restricted leases must protect tenant organizing, limit nonrenewal to the listed lease/eligibility violations, and require at least 30 days’ written notice of proposed nonrenewal. These lease protections cannot be waived. 394.9026(c)(6)–(9), (e)–(f).

Audits, transparency and consequences. The corporation or associated user must pay for an independent annual compliance audit and submit it to the Texas Department of Housing and Community Affairs (TDHCA). Initial reports are generally due June 1 of the tax year after acquisition or first occupancy of new construction, followed by June 1 each year; TDHCA may grant extensions for good cause. The law requires a public findings summary within 60 days of receipt, notice of identified noncompliance within 120 days, and—for the specified affordability/tenant conditions—additional notice offering corrective action and 180 days after receipt to fix the problem before the subsequent loss-of-exemption notice. Untimely audit submission is a separate ground for losing the property-tax exemption. Rules must provide an appeal process. The law limits the same auditor to three consecutive tax years for a corporation, followed by a two-year break. Audit records are public subject to tenant-identifying redactions, and open-meetings/public-information laws expressly apply to the corporations. Sections 2 and 9, and 394.905(c).

Important exceptions. Developments receiving qualifying low-income housing tax credits are excluded from the new 394.9026 conditions and, during qualifying periods, the 394.9027 audit requirement; specific underwriting/application and noncompliance provisions also have tax-credit exceptions. This is not a blanket exception from Chapter 394. For otherwise covered deals, water/sewer/drainage conservation or reclamation districts and emergency-services districts retain their property taxes unless there is a written payment-in-lieu agreement. The law does not create a new blanket franchise-tax exemption. 394.9026(b), 394.9027(l), 394.905(d)–(f).

Older deals have several different deadlines. May 28, 2025 is the acquisition/bond cutoff; the specified new tax provisions apply to tax years beginning on or after that date. Earlier acquisitions generally retain prior ownership authority, but not a permanent exemption from all new conditions. For pre-May-28 acquisitions, voucher and protected-lease requirements apply by January 1, 2026. The listed affordability, rent-benefit, amenity, bedroom-mix and rent-limit requirements apply by the earlier of the end of the tenth tax year following enactment or the end of the first tax year after specified refinancing, title transfer or majority-beneficial-ownership changes. The first audit for older acquisitions is due no earlier than June 1, 2026 under the transition provision. Separately, out-of-area developments owned on September 1, 2025 need the specified host approvals before January 1, 2027 to retain the exemption after that date. The new board/underwriting/location and district-payment conditions identified in Section 13(h) apply only to acquisitions on or after enactment. Section 13.

Implementation caution: The enacted law gives an acquired, already occupied development two tax years to meet particular income-reservation, amenity, bedroom-mix and rent conditions; it does not extend that grace to every requirement. TDHCA’s adopted rule 10.1204(4), effective March 26, 2026, instead states an end-of-following-tax-year deadline for all subchapter requirements after acquisition. The rule also describes the corrective-action period from notice issuance, while the statute says receipt of the additional notice. This explanation does not resolve those wording differences for an individual property. Consult the linked law and official monitoring guidance rather than treating this summary as a property-specific deadline ruling. TDHCA guidance and adopted rules.