New report: TDHCA must improve replacement reserves policies to help ensure safe and decent conditions at older tax credit properties

This week, the University of Texas School of Law’s Housing Policy Clinic released an important new housing report, Best Practices to Prevent Substandard Conditions in Low-Income Housing Tax Credit Properties: An Examination of Replacement Reserves Policies in Texas’ LIHTC Program. 

Texas Housers initiated this project with the UT School of Law Housing Policy Clinic in order to identify ideas for ensuring decent conditions at older Low-Income Housing Tax Credit (LIHTC or HTC) properties. The HTC program is responsible for the majority of new low-income housing production in the state of Texas and is a key tool for ensuring that low-income Texans can access a decent, affordable home. 

In 2019, Texas’ state housing agency, Texas Department of Housing and Community Affairs (TDHCA), took the bold step to incentivize developers to commit to 45 years of affordability at their properties instead of the federal minimum of 30 years. This move helped to address the ongoing challenge of loss of affordability at older affordable housing properties. 

With 45 years of affordability at new HTC properties, now more than ever, TDHCA and developers must plan ahead for upkeep of older properties. Current rules offer too many loopholes for investors and owners to extract “replacement reserves” that are intended for improvements when they exit or sell the property to a new owner, just as one example. We see in cases such as Rosemont at Oak Valley in Austin and Coppertree Village in Houston that when replacement reserves are not well managed, tenants suffer from a spiral of worsening conditions, forcing them to live in unsafe and unhealthy conditions. 

The Affordable Housing Clinic report provides the following policy and strategy suggestions to ensure quality conditions for Texas’ entire HTC portfolio of properties as they age.  

1. Adopt More Robust Replacement Reserve Requirements.
2. Restrict the Use of Replacement Reserves.
3. Require Capital Reserves to Stay with the Property When it is Sold.
4. Strengthen Policies Governing Investor Exits and Property Sales.
5. Require Periodic Comprehensive Assessments of LIHTC Properties’ Short- and Long-Term Capital Needs. 

This report provides a blueprint for needed reforms that TDHCA must prioritize and pursue in order to ensure that tenants are protected and HTC properties remain in safe and decent condition as they age. Download and read the entire report below to learn more about the clinic’s findings and the opportunities for reform that they identified.