Changing laws and applying them retroactively usually violates the Texas Constitution
AUSTIN, Texas (Texas Insider Report) — A sweeping housing reform bill signed into law earlier this year is now facing a major legal challenge, with housing developers warning the reforms will displace thousands of working-class Texans and accelerate an intensifying affordable housing crisis. According to the lawsuit, some of the so-called reforms included in House Bill 21 (HB 21) will fundamentally rewrite the terms of affordable housing development deals that were signed years ago, retroactively changing the rules – a violation of the Texas Constitution, lawyers argue in the filing.
The Texas Workforce Housing Coalition, which represents developers responsible for thousands of affordable units in Texas, on Tuesday sued the Bexar Appraisal District. The lawsuit alleges that House Bill 21, which was signed into law in May, is unconstitutional and will devastate communities by forcing mass evictions of tenants who no longer meet the law’s stricter affordability standards.
"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," said Gibson Dunn & Crutcher Partner Trey Cox, lead attorney in the case. For decades, Texas law (Texas Local Government Code § 394, or "Old Chapter 394") offered real estate developers a straightforward deal: partner with a publicly-sponsored Housing Finance Corporation (HFC), rent to low- or moderate-income Texans, and receive a 100% Property Tax Exemption.
The Workforce Housing Coalition said that arrangement successfully attracted billions of dollars to Texas.
Developers relied on Old Chapter 394 to invest billions of dollars in Texas on long-term projects that provide affordable housing for families – including teachers, nurses, first responders, and other essential workers – allowing them to live in the same communities where they work.
However, HB 21 rewrote the rules.
HB 21, passed in May 2025, changed the laws governing these arrangements and impairs the contracts signed under Old Chapter 394 by applying them retroactively, a violation of the Texas Constitution.
The retroactive application of new regulations in the legislation, championed by State Rep. Gary Gates, who himself owns multifamily rental properties in Houston, would upend the laws governing the agreements.That has put billions of dollars at risk by undermining the laws upon which contracts were signed, the coalition said.
The lawsuit accuses the Bexar Appraisal District and others of going even further by reversing their own prior approvals of deals they now say were never legal to begin with under the long-existing law.
The coalition is warning that this puts the supply of affordable housing units in the state at risk – and could spark a flood of evictions and developers reconsider the new economic reality.
“Worse yet,” said Cox, "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.”
Critics argue that HB 21 amounts to a bait-and-switch.
Developers entered into decades-long agreements with lenders, investors, and HFC partners on the promise of a stable legal framework. Now, midstream, the Legislature has changed the rules.
Last week, the coalition filed a petition to intervene in an ongoing HB 21-related lawsuit filed by Williamson County against the Cameron County Housing Finance Corp. located in the Rio Grande Valley's city of San Benito, Texas.
The coalition is represented by Gibson, Dunn & Crutcher LLP and Chasnoff | Stribling LLP.
Post WB Apartments LLC, an apartment complex in San Antonio and a member of the coalition, joined the lawsuit as co-plaintiff.
