A low-income renter looking for housing in Texas probably has never heard of exotic quasi-governmental entities like housing finance corporations (HFCs) or public facility corporations (PFCs). Though few in Texas are aware of the scope, housing projects from these entities – along with public housing authorities (PHAs) – have exploded across the state in the last decade. Collectively, these projects are referred to as Tax Exempt Private Partnerships (TEPPs). TEPPs are one of Texas’ most promising affordable housing tools, but a lack of regulation has led to serious questions about whether these deals are actually providing needed affordable housing.
The problem with TEPPs is that it is not clear at all whether the housing that is being provided is actually affordable to cost-burdened, low-income Texans. TEPPs can appear complex and opaque, but at the core they’re very simple. Local governments give up property taxes, and in exchange the properties are supposed to produce affordable housing. It sounds great, but the well–documented problem with TEPPs is that in many cases the housing that is produced is not any cheaper than market rate properties that pay their taxes. Meanwhile, potentially billions of dollars have been removed from already strained local tax rolls.
Most income-restricted units at these properties are affordable at 80% of AMI. But across Texas, many 80% AMI households are not housing cost-burdened, while a spectacularly high share of lower-income households are (those that make 60% of AMI, 50%, 30%, and below). The central question is this: If these properties are not providing housing that is affordable to cost-burdened Texans, and if the rents aren’t any cheaper than market rate units, why are we starving our already strained local tax bases to support these projects, when they desperately need this tax revenue to fund schools, roads, and other critical public services?
This is not a theoretical problem. Local governments in places like Corpus Christi are actively seeking to void existing TEPP properties that they argue do not pass muster of providing actual affordability.
Yet TEPPs are one of the most promising–and one of the only–tools for affordable housing that the State of Texas has created in a generation. There is nothing inherently wrong with the use of tax exemptions to produce affordable housing. Quite the opposite: it is essential to the project of affordable housing in Texas that we recalibrate the TEPP tool to produce affordable housing for the cost-burdened Texans who need it. The last thing that the affordable housing movement in Texas needs is any truth to the accusation that these projects are more effective as tax shelters for developers than they are as low-income housing.
The University of Texas School of Law Affordable Housing Clinic has released an invaluable new report, Strengthening Public Benefits in TEPP Properties. The report drills down on TEPP properties in Travis County. This valuable case study reveals the nature and extent of the issues with TEPPs, and suggests a set of reasonable, common sense policy reforms that will ensure that the TEPP tool achieves its purpose of providing needed affordable housing.
Among the report’s most eye catching findings:
- Massive scale: Nearly a fifth of multifamily properties in Travis County are TEPPs, resulting in approximately $109 million in annual tax revenue that is not being collected by local governments in the county.
- No uniform standards: Local TEPP entities (PHAs, HFCs, and PFCs) do not have uniform standards for affordability and tenant protections, which allows private developer partners to seek out the TEPP entity with the weakest standards and pushes these entities toward greater concessions to their private partners.
- Unclear public benefit: Local TEPP entities do not consistently assess or disclose the extent to which exemptions are directly tied to lowering rents. For some properties, there is no requirement that any of the tax benefit goes toward lowering rents. It is true that some 80% AMI households are cost burdened, but it is a reasonable expectation that a tax exempt project should have to show that they are actually lowering rents compared to what they would be able to charge at market rate.
- Vouchers and awareness: Rates of housing vouchers at these properties are extremely low. Although these properties must accept housing vouchers by law, it is often unclear to voucher holders that these properties are available to them. In Texas, where market-rate landlords are not required to accept housing vouchers, income-restricted properties are an essential source of housing for voucher holders to access before they lose their voucher. That is not happening at TEPP properties.
- High eviction rates: Eviction filing rates are higher at TEPP properties than they are in the general population of rental housing, and also higher than at LIHTC properties.
The report then lays out five common sense reforms. Individual TEPP entities can and should adopt these reforms. However, to achieve uniformity, ultimately the Texas Legislature must establish more effective regulations statewide.
- Establish a strong public benefit threshold
- Ensure rents are truly affordable
- Regulate junk fees
- Remove access barriers for voucher holders and low-income renters
- Adopt strong eviction mitigation policies
Read the full report or the executive summary.
Learn more about prior reforms to Housing Finance Corporations and Public Facility Corporations.
