/>iThe Texas Workforce Housing Coalition (TWHC) is challenging the constitutionality of recently enacted House Bill 21 (HB21) in a lawsuit filed against the Bexar Appraisal District. The petition, filed on September 9, 2025, along with co-plaintiff Post WB Apartments, LLC, says the new bill will not only aggravate the affordable housing crisis in Texas, but also have a chilling effect on continued investment in Texas.
According to Gibson Dunn & Crutcher Partner Trey Cox, lead attorney in the case, "The unconstitutional implementation of HB21 is nothing less than the breakdown of the rule of law in Texas. Worse yet, the teachers, nurses, first responders, and other essential workers who currently benefit from affordable housing will be the ones hurt most as they will likely be forced to move from their homes when affordable housing units across the State begin to evaporate."
Supporters of HB21 cast the new law as an overdue update of Chapter 394 of the Texas Local Government Code that regulates the operation of housing finance corporations (HFCs) throughout Texas. HFCs are non-profit financial instrumentalities established by individual municipalities in Texas to help meet affordable housing needs throughout the state, usually through partnerships with private industry. Typically, developers who partner with an HFC on a housing development project in Texas receive a full property tax exemption in return for renting to low- or moderate-income Texans upon the project’s completion.
The old Chapter 394 placed no restrictions on where within the state of Texas these HFCs could operate. This has led to tensions between HFCs and local appraisal districts in situations where an outside HFC approves a project within the local appraisal district’s borders, and in effect reduces that district’s property tax rolls without local involvement or consent. The new rules purport to close this “loophole” by adding geographic limitations and mandating that, for developments outside of an HFC’s municipal boundaries, the local appraisal district in which the project is located needs to agree to any property tax exemptions.
Remarkably, the new Chapter 394 necessitates that HFCs must gain the retroactive consent of appraisal districts on outside projects, even for contracts completed before HB21 was signed into law. The new rules will unilaterally terminate property tax exemptions that were legally extended by HFCs for affordable housing developments in years past that lacked local consent.
Cox highlights that “The State of Texas lured billions of dollars worth of investments from real estate developers to build affordable housing for working-class Texans with the promise of favorable tax treatment, only to now pull the rug out from under those developers.” The plaintiffs assert that these retroactive changes undermine existing contracts in violation of the Texas Constitution.
Another perspective the lawsuit seeks to address is how these reforms to the old Chapter 394 will worsen a growing housing crisis in the state. Texas is feeling the impact of rapid population growth, as major companies across the US continue to relocate to Texas. North Texas has grown by over half a million since 2020 and the severe shortage of affordable housing stock in many cities tops the nation. This increasing short supply of affordable housing puts upward market pressure on rents in the state. As existing property tax exemptions are nullified under the new law, rents on existing apartment units will need to rise further to cover increased costs associated with the underlying loss of property tax exemptions, further exacerbating the challenges of a tight housing market.
The TWHC release concludes with a warning “that if the laws of the State of Texas can be changed at any time and applied retroactively to already closed deals, destroying the contracts and the economics of those deals, it will have a catastrophic chilling effect on investment in the State,” as well as a devastating impact on affordable housing in Texas.
