Texas HB21: What Multifamily Owners and Operators Need to Know
Texas HB21: What Multifamily Owners and Operators Need to Know
June 27, 2025
Texas Governor Greg Abbott officially signed HB21 into law on May 28, 2025, creating major changes for multifamily property owners who rely on property tax exemptions. Here's what we know so far.
What is HB21?
HB21, or "House Bill 21," amends Chapter 394 of the Texas Local Government Code to target Housing Finance Corporations (HFCs), the public entities that help finance affordable housing. The law effectively introduces two key reforms: geographic restrictions on HFC operations and stricter requirements for property tax exemptions.
New Geographic Restrictions for HFCs
The days of HFCs having the freedom to operate anywhere in the state of Texas are over.
- Locals Only: HFCs can now only operate within the city or county that created it.
- "Traveling HFCs Need Approval:" HFCs seeking to finance projects outside their jurisdiction must obtain approval from both the local city and county governments where the development is located, plus any existing HFC in that area.
- Critical Deadlines:
- Existing projects: Must secure required approval by January 1, 2027, or lose property tax exemptions.
- New bonds: Any bonds issued after May 28, 2025, for out-of-jurisdiction projects need local government approval.
- Locals Only: HFCs can now only operate within the city or county that created it.
- "Traveling HFCs Need Approval:" HFCs seeking to finance projects outside their jurisdiction must obtain approval from both the local city and county governments where the development is located, plus any existing HFC in that area.
- Critical Deadlines:
- Existing projects: Must secure required approval by January 1, 2027, or lose property tax exemptions.
- New bonds: Any bonds issued after May 28, 2025, for out-of-jurisdiction projects need local government approval.
Why this matters? If any of your developments rely on HFC financing, especially those across different jurisdictions, start directing your efforts to securing local approvals immediately.
Stricter Property Tax Exemption Requirements
HB21 established new standards to ensure tax-exempt developments genuinely serve the public interest.
For Deals Closed Before May 28, 2025:
- By January 1, 2026: HFCs can now only operate within the city or county that created it.
- Voucher policy: Accept all housing choice vouchers, actively market to voucher holders, and publish voucher policies online.
- Tenant protections: Prohibit retaliation against tenant organizing, limit nonrenewal to specific violations, and provide 30-day nonrenewal notice.
- By December 31, 2035, OR the first tax year following a refinance, title transfer, or majority ownership change:
- Public Benefit Test: Prove total rent reductions equal at least 50% of your estimated property taxes. E.g., a million-dollar tax break requires at least $500,000 in rent reductions compared to market rates. Otherwise, you’ll owe local taxing authorities the difference.
- Affordability targets: Reserve 10% of units for tenants at 60% of the Area Median Income (AMI) and 40% at 80% AMI, or 10% at 50% AMI and 40% at 100% AMI.
- Unit standards: Affordable units must match market-rate quality and spread across unit types, with rents capped at 30% of applicable AMI.
For Deals Closed On or After May 28, 2025:
- Voucher/lease requirements: Effective January 1, 2026, for acquisitions.
- Public Benefit Test: Begins first tax year after acquisition, or the first year after construction start.
- Affordability requirements: Due by second tax year for acquisitions, or by June 1st after construction completion for new developments.
Why this matters? All of these new requirements, but especially the Public Benefit Test could significantly impact your financials if your rent reductions don’t measure up.
New Audit Requirements
Most developments will now face annual compliance audits to verify Chapter 394 compliance and confirm Public Benefit Test results.
- Review Process
- Texas Department of Housing and Community Affairs (TDHCA) reviews and publishes audit findings.
- 180-day correction period for noncompliance.
- Failure to correct results in loss of tax exemption for that year.
- Key Dates
- TDHCA must adopt audit rules by January 1, 2026.
- Audits due by June 1st of the tax year following acquisition or construction completion.
- Texas Department of Housing and Community Affairs (TDHCA) reviews and publishes audit findings.
- 180-day correction period for noncompliance.
- Failure to correct results in loss of tax exemption for that year.
- TDHCA must adopt audit rules by January 1, 2026.
- Audits due by June 1st of the tax year following acquisition or construction completion.
Why this matters? Increased scrutiny means you need robust compliance tracking systems in place to avoid losing your valuable tax exemption.
The Bottom Line
HB21 is a significant new piece of Texas legislation that represents a fundamental shift toward ensuring publicly subsidized developments deliver genuine public benefits. Success under the new law requires:
- Immediate action on pending approvals for traveling HFC projects
- Financial modeling to ensure rent structures meet Public Benefit Test requirements
- Compliance systems to handle increased audit scrutiny
- Strategic planning for future projects under tighter regulations