Texas Housing Coalition Sues Over Controversial New Law

The Texas Workforce Housing Coalition (TWHC) has launched a legal challenge against the constitutionality of House Bill 21 (HB21), claiming the new law threatens affordable housing and investment in the state. The lawsuit, filed on September 9, 2025, in collaboration with co-plaintiff Post WB Apartments, LLC, targets the Bexar Appraisal District and contends that HB21 will exacerbate Texas’s affordable housing crisis.

Lead attorney for the plaintiffs, Trey Cox of Gibson Dunn & Crutcher, expressed concerns that the law undermines the rule of law in Texas. He stated, “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 argue that it is a necessary update to Chapter 394 of the Texas Local Government Code, which governs housing finance corporations (HFCs) in the state. HFCs are non-profit entities created by municipalities to address affordable housing needs, often collaborating with private developers. Historically, these partnerships have allowed developers to receive full property tax exemptions when building low- or moderate-income housing.

The previous iteration of Chapter 394 imposed no limitations on HFC operations, leading to disputes between HFCs and local appraisal districts. In many cases, outside HFCs approved projects within local appraisal districts without consultation, negatively impacting local tax revenues. The new provisions in HB21 aim to rectify this by imposing geographic restrictions and requiring local appraisal district approval for property tax exemptions on projects outside an HFC’s municipal boundaries.

Notably, HB21 requires HFCs to obtain retroactive consent from appraisal districts for developments completed prior to the law’s enactment. This provision could revoke previously granted property tax exemptions for affordable housing projects, raising significant concerns among developers and investors. Cox emphasized the potential fallout, stating, “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 argue that these retroactive changes violate the Texas Constitution by undermining existing contracts. They also highlight the broader implications of HB21 on the housing crisis in Texas, which is already grappling with rapid population growth fueled by corporate relocations. North Texas alone has seen an increase of over 500,000 residents since 2020, contributing to a severe shortage of affordable housing options.

This scarcity has led to rising rents across the state, as landlords must adjust prices to account for the loss of property tax exemptions. The TWHC warns that nullifying these exemptions will further strain the housing market and increase rent for tenants, making it even harder for low- to moderate-income families to find homes.

In a concluding statement, the TWHC cautioned that if Texas laws can be retroactively altered to invalidate existing agreements, it would have dire consequences for future investments. The coalition claims that such a shift would create a “catastrophic chilling effect on investment in the State,” ultimately worsening the affordable housing crisis that many Texans currently face.