Housing Finance Corporations (HFCs) are under fire. 🔥

Critics call them loopholes, and some Texas legislators want to gut them entirely.

But this debate misses the real crisis: a property tax system that’s spiraling out of control, crushing any hope of affordable housing for working families.

HFCs aren’t perfect, before we dismantle them, let’s ask: Are we solving the right problem?

📈 Property Tax Assessments Are Out of Control

The numbers tell a brutal story:

• Skyrocketing Taxes: Median property taxes on Texas single-family homes surged 26% from 2019 to 2023, from $3,200 to $4,032, outpacing inflation (Texas Tribune, “Property Taxes Soar,” October 2023).
• Commercial Pain: In Fort Bend County, commercial property valuations jumped 8.9% from 2023 to 2024, adding millions to multifamily tax bills (Fort Bend Central Appraisal District, 2024 Report).
• National Burden: Texas has the 6th highest effective property tax rate in the U.S. at 1.68%, compared to 0.99% in California, with no state housing subsidies to offset the pain (Tax Foundation, 2024).
• Misvalued Affordable Housing: Assessors often value rent-restricted properties as if they charge market rates, inflating assessments by 20–30% (Housing Finance Magazine, “Appraisal Errors,” March 2024).

For multifamily operators, property taxes eat up 20–30% of operating budgets (National Apartment Association, 2024).

A 10% tax hike on a $10 million property adds $100,000 a year—$83/unit/month for a 100-unit complex.

Landlords face a grim choice: absorb the cost and risk bankruptcy or raise rents.

This isn’t greed; it’s math. 🤟

And it’s happening in Austin, Houston, Dallas, and beyond, eroding affordability faster than we can build.

Housing Finance Corporations (HFCs) are not without controversy. From accusations of reduced local tax revenue to concerns about transparency and fairness, critics raise legitimate points. But many of these criticisms focus on isolated flaws rather than the broader function HFCs serve. Here’s a closer look at the most common concerns—and what the facts actually show.

“HFCs reduce local tax revenue”

Yes, HFC-backed tax exemptions result in forgone property tax collections. But the full story is more nuanced:

• Affordable housing also reduces the cost of inaction. Displacement, homelessness, and workforce shortages strain public services and cost local governments far more in the long run.
• HFCs pay fees. Most collect 10–15% of the property tax savings as fees, which are often reinvested into local housing funds, supporting broader affordability initiatives.
• Stable housing supports the local economy. By keeping nurses, teachers, and service workers housed near their jobs, cities benefit from lower turnover, stronger tax bases, and increased consumer spending.
  

“HFCs benefit developers more than tenants”

Some deals have offered too few affordable units or priced them close to market rates—but that reflects inadequate oversight, not a structural flaw with HFCs:

• Strong Memorandums of Understanding (MOUs) can require deeper affordability targets—such as units reserved for tenants earning 30–60% of AMI.
• Rent caps tied to income and HUD guidelines ensure affordability when enforced properly.
• Annual audits, compliance checks, and community engagement can ensure HFCs deliver on their mission.

The problem isn’t that HFCs support developers—it’s when public benefit isn’t clearly defined or enforced. That’s solvable with policy, not prohibition.

“Out-of-county (traveling) HFCs sidestep local control”

This is a real flashpoint. Critics argue that HFCs from places like Cameron or Pecos County are authorizing tax exemptions in cities like Dallas or Austin without meaningful local input. And in some cases, that concern is justified.

However, the bigger issue is not who administers the exemption—it’s whether the community benefits from the deal.

• Many regions in Texas lack their own active HFCs. Without regional partnerships, developers would have no path to affordability.
• Local politics often derail or delay projects, even when there is overwhelming housing need.
• A standardized statewide framework for affordability thresholds, reporting, and fee structures would do more to protect the public than banning cross-county HFC participation.

If we care about outcomes—rent levels, income targeting, and housing supply—we need a system that works across jurisdictions, not one constrained by county lines.

This line graph shows the parallel rise in Texas median property taxes ($3,200 in 2019 to $4,032 in 2023) and median two-bedroom rents ($1,000 to $1,300) from 2019 to 2023.

Data from Texas Tribune and HUD Fair Market Rents underscore how soaring taxes fuel rent increases, worsening housing affordability.

🛠 Why HFCs Exist (and Why They Work)

“HFCs aren’t the problem—they’re a lifeline for families drowning in Texas’ property tax crisis.”

Housing Finance Corporations are nonprofit entities created under Texas Local Government Code Chapter 394 to promote affordable housing through property tax abatements. Here’s how they work:

• Structure: The HFC takes nominal ownership of a property, leasing it back to the developer for a nominal fee (e.g., $1/year). In exchange, the developer reserves a portion of units (e.g., 50%) for households earning below 80% of Area Median Income (AMI)—$48,000 for a family of four in Houston.
• Tax Relief: The property becomes exempt from ad valorem taxes, saving millions over decades. For a $10 million complex, this cuts annual taxes from $168,000 to $0, often with a 15% fee ($25,200) paid to the HFC.
• Affordability: Tax savings allow developers to cap rents at affordable levels (e.g., $950 for a two-bedroom vs. $1,500 market rate), making projects financially viable.

🏘 HFCs in Action: Real-World Success

HFCs aren’t just theory—they’re delivering results:

• Austin’s Bluebonnet Apartments: In 2022, the Austin HFC exempted $1.2 million in taxes for this 150-unit East Austin complex. Result? 75 units for households earning below 80% AMI ($48,000 for a family of four), with two-bedroom rents capped at $950—$400 below market. The project employs 20 locals and pays $180,000/year in HFC fees to fund city housing programs (Austin HFC, 2022 Annual Report).
• Houston’s Avenue Place: Partnering with the Harris County HFC, this 200-unit complex reserves 120 units for tenants earning below 60% AMI ($36,000 for a family of four). A $1.5 million tax exemption keeps one-bedroom rents at $800, saving tenants $300/month. The project includes a community center, partly funded by HFC fees (Houston Housing Authority, 2023).
• Contrast: Dallas Failure: In 2024, a planned 100-unit affordable complex in Dallas was scrapped after a 12% tax hike added $800,000/year to costs. Without HFC relief, the developer pivoted to luxury condos, leaving zero affordable units (Dallas Morning News, “Housing Dreams Derailed,” January 2025).

🏢 Our Experience: Our 272-unit in Dallas-Fort Worth, TX.

We recently navigated the Housing Finance Corporation (HFC) process—a journey that was anything but straightforward. The path lacked a clear roadmap, and much of the publicly available information was either fragmented or misleading. Despite these challenges, we persisted.

• In February 2025, we secured HFC approval.
• By March 2025, the county officially signed off on the property tax abatement.
• In April 2025, we completed a loan modification that formally integrated the HFC structure into our existing financing terms.
• And in May 2025, we received confirmation from our lender that we are no longer required to escrow approximately $56,000 per month for property taxes—unlocking significant monthly cash flow.

The final step in this process is the cash-out refinance, which we plan to complete after the Texas Legislature concludes its decisions on pending HFC-related bills.

This experience not only highlights the financial impact of HFC structuring but also underscores the need for more accessible guidance and consistency across jurisdictions.

These successes show HFCs can work when structured right, preserving affordability where market forces fail.

🏙 Addressing Common Criticisms

Housing Finance Corporations (HFCs) are not without controversy. From accusations of reduced local tax revenue to concerns about transparency and fairness, critics raise legitimate points. But many of these criticisms focus on isolated flaws rather than the broader function HFCs serve. Here’s a closer look at the most common concerns—and what the facts actually show.

“HFCs reduce local tax revenue”

Yes, HFC-backed tax exemptions result in forgone property tax collections. But the full story is more nuanced:

• Affordable housing also reduces the cost of inaction. Displacement, homelessness, and workforce shortages strain public services and cost local governments far more in the long run.
• HFCs pay fees. Most collect 10–15% of the property tax savings as fees, which are often reinvested into local housing funds, supporting broader affordability initiatives.
• Stable housing supports the local economy. By keeping nurses, teachers, and service workers housed near their jobs, cities benefit from lower turnover, stronger tax bases, and increased consumer spending.

“HFCs benefit developers more than tenants”

Some deals have offered too few affordable units or priced them close to market rates—but that reflects inadequate oversight, not a structural flaw with HFCs:

• Strong Memorandums of Understanding (MOUs) can require deeper affordability targets—such as units reserved for tenants earning 30–60% of AMI.
  
• Rent caps tied to income and HUD guidelines ensure affordability when enforced properly.
  

Annual audits, compliance checks, and community engagement can ensure HFCs deliver on their mission.
The problem isn’t that HFCs support developers—it’s when public benefit isn’t clearly defined or enforced. That’s solvable with policy, not prohibition.

“Out-of-county (traveling) HFCs sidestep local control”

This is a real flashpoint. Critics argue that HFCs from places like Cameron or Pecos County are authorizing tax exemptions in cities like Dallas or Austin without meaningful local input. And in some cases, that concern is justified.

However, the bigger issue is not who administers the exemption—it’s whether the community benefits from the deal.

• Many regions in Texas lack their own active HFCs. Without regional partnerships, developers would have no path to affordability.
• Local politics often derail or delay projects, even when there is overwhelming housing need.
• A standardized statewide framework for affordability thresholds, reporting, and fee structures would do more to protect the public than banning cross-county HFC participation.

If we care about outcomes—rent levels, income targeting, and housing supply—we need a system that works across jurisdictions, not one constrained by county lines.

HFCs aren’t flawless.

Some traveling HFCs grant exemptions with minimal local benefit, and weak oversight erodes trust.

But these are fixable problems—don’t throw out the baby with the bathwater.

🧨 Legislative Threats: SB 867 and HB 21

Proposed bills in the 2025 Texas Legislature threaten to gut HFCs without offering alternatives:

• SB 867 (Sen. Paul Bettencourt, R-Houston) and HB 21 (Rep. Gary Gates, R-Fort Bend) propose:
  • Requiring city or county approval for HFC exemptions, even if no local HFC exists.
  • Capping rents at 30% of 80% AMI, ignoring inflation or cost spikes.
  • Banning out-of-county HFCs, stifling regional partnerships.
  • Mandating public MOU disclosure and voucher protections.
• Supporters: Counties like Williamson and Dallas, losing $55 million in 2024 taxes, want local control (Texas Association of Counties, April 2025).
• Opponents: Texas Housers and developers warn the bills could halt 10,000+ affordable units annually by adding bureaucracy without funding (Texas Housers, “HFC Alert,” April 2025).
• Status: As of May 2, 2025, SB 867 is in the Senate Committee on Local Government, with a floor vote expected by June. HB 21 has a House Urban Affairs hearing on May 15. Amendments to preserve HFC flexibility are under discussion (Texas Legislature Online).

These bills risk killing HFCs before we fix the tax system, leaving families like Maria’s with nowhere to turn.