A Texas lawmaker is stepping into a growing legal battle over a controversial affordable-housing tax program that allowed developers to partner with distant government agencies for major tax exemptions. The program, once widely used to lower project costs, is now central to a fight over retroactive regulation, lost public revenue, and the future of affordable housing development in the state.
State Rep. Gary Gates, a Republican from the Houston area and longtime real estate investor, is seeking to intervene in a lawsuit challenging House Bill 21, which he sponsored during the 2023 legislative session. The law significantly restricts the use of “traveling” housing finance corporations, entities created by local governments that had teamed up with developers far outside their jurisdictions. These partnerships let developers acquire apartments and remove them from property tax rolls by using the corporations’ nonprofit status.
For years, the arrangement operated under loose oversight. Local officials in the communities where the apartment complexes were located often had no role in approving the deals, and sometimes weren’t even aware of them until after the transactions were finalized. In exchange for tax exemptions, developers were expected to provide discounted rents or a set number of affordable units, but critics have argued that many projects charged market-rate rents while still reaping substantial tax benefits.
Gates said the program had morphed into an abuse of a law originally designed to expand affordable housing. “People took advantage of a loophole that was never meant to exist,” he said. “At some point, greed takes over, and somebody has to step in.”
Legislative Crackdown on Traveling Housing Corporations
H.B. 21, which Governor Greg Abbott signed in May 2023, largely prohibits agencies from operating far outside their home jurisdictions. Under the new rules, housing finance corporations can offer tax-exempt status to projects only within their own boundaries unless they secure approval from the local taxing entities where the property is located. The law also requires landlords to pass some of the tax savings directly to tenants in the form of lower rents.
Affordable housing groups immediately raised alarms. They argued that the new requirements go too far, making it financially difficult to build or sustain rent-restricted apartments. Some developers also claim the law illegally changes the rules after investments have already been made, threatening projects that were financed based on expectations created under previous state policy.
Lawsuit Challenges Constitutionality of HB 21
In September, the Texas Workforce Housing Coalition and Post WB Apartments LLC filed a lawsuit against the Bexar Appraisal District, claiming the new law is unconstitutional when applied to projects that were already completed or financed before the bill became law.
Post WB is a partnership between the Cameron County Housing Finance Corporation, based at the southern tip of the Texas border, and Post Investment Group, a real estate investment firm headquartered in Beverly Hills, California. The coalition behind the lawsuit includes several Post Investment Group executives.
The dispute centers on the Willowbend Apartments in West San Antonio, near Loop 410 and Highway 151. Post WB acquired the property in 2023 through a financing structure that relied heavily on a tax exemption granted through its partnership with the Cameron County agency. Real estate records show that the property was removed from the local tax rolls after the transaction.
But after H.B. 21 went into effect, the appraisal district informed the corporation that it would need to reapply for the exemption under the new standards. The agency submitted its renewal request, but the district delayed making a final decision, placing, according to the lawsuit, the project’s financial stability in jeopardy.
The plaintiffs want the court to declare that traveling housing finance corporations were operating legally under the previous state law and that their tax exemptions should be reinstated. They also seek a ruling that H.B. 21 cannot constitutionally be applied retroactively.
Gates Steps In
As the lawsuit advanced, Gates moved to formally join the case. Records filed with the state show that he established a nonprofit group, Concerned Property Tax Payers of Texas, in October. The nonprofit’s petition to intervene argues that members of the group, including an affiliated company that owns Bay Pointe Apartments in Baytown, have suffered financial harm because of lost tax revenue resulting from the exemption program.
The nonprofit claims that allowing traveling agencies to grant exemptions beyond their home regions “shrinks the tax base and shifts a disproportionate burden” to property owners who continue to pay full taxes, even when they provide affordable rental options of their own.
Gates says his involvement is not about personal interest, but about ensuring fairness. “If developers are getting major tax breaks but not delivering true affordability, that undermines funding for cities, counties, schools, and hospital districts,” he said. “And it puts every other property owner at a disadvantage.”
According to Gates, he previously submitted a letter to the Texas Attorney General’s Office outlining why he believes many of the exemptions granted by traveling agencies were unlawful. Some appraisal districts have since used his arguments as justification to deny tax exemptions for similar projects.
A Rush to Close Deals Before the Law Changed
The fight reflects broader tensions in Texas’ real estate and housing markets. Housing finance corporations have existed since 1979, but their use skyrocketed after lawmakers adjusted rules for a related entity known as public facility corporations. Although those reforms did not directly apply to housing finance corporations, many investors anticipated that the Legislature would eventually close the loophole. As a result, developers rushed to finalize as many deals as possible before new legislation took effect.
Gates estimates that nearly 400 transactions involving traveling agencies were closed between January 1 and May 28, 2023, the day Abbott signed H.B. 21 into law. In Bexar County alone, agencies from Pleasanton, La Villa, Maverick County, Pecos, and Edcouch, among others, partnered with developers on more than two dozen apartment projects.
Gates called the situation “a scam carried out on the backs of taxpayers.”
Developers Say New Rules Threaten Affordable Housing Pipeline
Developers and affordable housing advocates paint a very different picture. They argue that if exemptions are revoked or projects are forced to meet new requirements retroactively, many apartment communities will face financial strain. In some cases, they warn, owning entities might be forced to raise rents, remove tenants who no longer meet revised criteria, or shelve plans for additional affordable housing.
“Texas encouraged developers for years to bring affordable housing to communities statewide,” said Trey Cox, attorney for the plaintiffs. “Now the state is changing the deal after the fact, and it jeopardizes the entire ecosystem that supports building housing for working families.”
What Comes Next
The case is being watched closely across the state by developers, local governments, investors, and housing advocates. A ruling that upholds H.B. 21’s retroactive application could reshape the financing landscape for hundreds of apartment communities. A ruling in favor of the plaintiffs, meanwhile, could revive exemptions that many lawmakers believed were being abused.
For now, Gates shows no sign of backing down. “If they’re going to fight to keep these loopholes open,” he said, “then I’m going to fight just as hard to close them.”
