“Historically housing has played a really important role in Texas’ affordability story but restrictive land use policies and other disruptions to the creation of that supply have eroded the benefit.” – Nathan Kelley, TAAHP Government Affairs Committee Chair.

TAAHP was invited to testify at the Texas Senate Committee on Local Government in Austin September 13th related to the Committee’s interim charge on affordable housing. The charge seeks to study issues related to affordable housing, homelessness, and methods of providing and financing affordable housing and make recommendations to improve transparency and accountability, as well as to better utilize existing federal, state, and local programs.

For over five hours, affordable housing experts, organizations, and important stakeholders shared details about Texas’ housing affordability issues ideas for possible legislative solutions. Senate Committee members were actively engaged with questions, information, and resource requests and shared their own stories about how the affordability crisis has affected their constituents.

The hearing started with public testimony from various experts in the affordable housing industry. TAAHP’s board President, Jean Latsha and Government Affairs Committee Chair Nathan Kelley were among those who testified alongside TDHCA Executive Director Bobby Wilkinson. Latsha described the ongoing problems in the housing industry and shared TAAHP’s legislative priorities regarding Section 2306 with the committee. Kelley, followed with testimony primarily focused on Public Facility Corporations.

The Texas Senate is not the only Texas legislative body that included an affordable housing interim charge. This past July, TAAHP testified at the Texas House Urban Affairs committee hearing regarding its workforce housing interim charge.

Key Takeaways

TAAHP outlined proposed legislation to address regulatory barriers to increase supply and improve the distribution of housing tax credit development. The following are TAAHP’s legislative priorities that were debated.

Streamline Section 2306 – QAP

TAAHP is looking to support legislation that would streamline certain regulations in Sec. 2306, which governs the tax credit program. The following recommendations were mentioned at the hearing by Jean Latsha.

  • Removing the Two Mile Rule – The two-mile rule is intended to prevent the concentration of affordable housing developments in the same area. In practice, this rule limits developers from building in higher-income areas. When asked what would be the impact of eliminating the two-mile rule, Latsha, stated, “I believe it would allow developers more options when deciding where to go place housing tax credit developments and then lower land costs because there are more sites to compete for.”
  • Removing Census Tract limitations – “Developers who are competing for 9% credits all tend to chase the same site in the same census tract, which drastically drives up the cost of the land.” Sellers understand that when tax credit developers are seeking their land that they can get the highest prices for it. This is a huge inefficiency for the tax credit program – because it could produce more than 13,000 units if we weren’t spending half of it on expensive land because we’re driven to the same spot.
  • Increasing funding limitations per development – Raising the developer cap from $3 million to $4 million gives developers more flexibility to build economies of scale and have more financially feasible developments.
  • Removing cost/square foot limitations
  • Fixing the requirement of No Objection (RONOs) required for 4% tax credit developments

Long waiting period to receive HTCs

Senator Menendez was also interested in discussing the time it takes to close on the deal and how it affects the relationship between seller/buyer. Latsha described the current situation for 4% bond deals and how they are extremely oversubscribed. She gave an example about one of her own 4% developments that waited 11 months to get a bond reservation and then will have to wait 90 days for TDHCA to review the tax credit application. In total, this development will take 15 months to close. Several committee members agreed that it was too long of a waiting period.

Public Facility Corporations (PFCs)

Established in 2015, the Public Facilities Corporations (PFCs) tool has been used to stimulate growth and revitalization in targeted areas and encouraged private investment in areas that haven’t otherwise attracted private capital. In its essence, the PFC is an economic development tool utilized to spur the creation of housing in rural markets and put workforce housing units on the ground. Small- to medium-sized municipalities can then use that as part of their economic development strategy in attracting jobs to those markets. As a component of that, it can be used to revitalize or rehabilitate existing housing stock that is naturally occurring affordable housing.

However, the Public Facilities Program was recently scrutinized when questions were raised about properties being removed from tax rolls via tax exemptions and not returning a significant public benefit. The current statute does create opportunities for misuse, which violate its original intent as an economic development and revitalization tool.

Senator Menendez expressed his concern with the PFC program and its effects on other affordable housing programs. He stated, “When any tool gets abused, it hurts all affordable housing… We need every possible tool to create affordable housing, but we also need to provide the protections against any abuse or exploitation of this program or any other program.”

During the hearing, Nathan Kelley stated that “TAAHP will be focused on modifying the PFC statute to incorporate some best practices that are already present and prevalent in the affordable housing space, ensure improved transparency amongst those PFC sponsors, implement stricter accountability and compliance requirements, and to encourage further encourage rehabilitation of that aging roll stock or to provide deeper affordability within the existing communities acquired using this specific tool.”

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