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In recent years, the impact of soaring inflation, high interest rates and snarled supply chains has exacerbated housing costs to unaffordable levels for many of our most vulnerable neighbors. With the threat of more economic uncertainty looming, the challenges of housing affordability and lack of adequate housing stock will continue to increase pressure on cities and communities to find innovative solutions. Permanent supportive housing and affordable housing are critical to addressing these crises, and robust public financings have emerged as a vital tool for creating and sustaining solutions.

Tax-Exempt Incentives

Tax-exempt mechanisms are the key incentives currently used for these needed affordable housing initiatives. In today’s economic environment, government subsidies are essential to encourage developers to produce quality housing that is affordable for lower-income families. Several public finance tools are used to mitigate the housing crisis, including Low Income Housing Tax Credits (LIHTC), property tax exemptions, tax-exempt bonds, and federal funding such as HOME, CDBG and ARPA. Public-private partnerships between developers and public facility corporations (PFCs), housing finance corporations (HFCs) and public housing authorities (PHAs) are also pivotal in these efforts.

Home to one of the fastest growing populations and highest rates of new housing production in the country, Texas has set an example for achieving successful affordable housing projects using many of these public finance mechanisms. Texas-based Bracewell has played a significant role in advancing these achievements. In 2024, Bracewell’s public finance lawyers closed over 40 affordable and mixed-income projects, resulting in more than $2.35 billion in housing investments in Texas alone. These projects encompass approximately 8,100 units closed with our lawyers serving as bond and general partner counsel.

Successes and Case Studies

Bracewell’s closings through the LIHTC Program frequently include novel parties in public-private partnerships for housing. One notable project is Magnolia Lofts in Fort Worth, Texas. This new 67-unit 9% LIHTC project is a mixed-use development, combining commercial and residential spaces on land originally owned by the Tarrant County Hospital District as part of its John Peter Smith Hospital campus. The timeline to develop the partnership between Tarrant County Hospital District PFC and The NRP Group spans from Q4 2020 to Q4 2024, showcasing a tremendous collaborative effort and perseverance to overcome multiple obstacles in the development of this project combining housing and access to healthcare. Multiple lenders, including Freddie Mac and the Texas Department of Housing and Community Affairs (TDHCA), contributed to the success of this venture.

Also among the powerful tools of government are tax-exempt bonds, which allow developers access to lower-cost capital to build multifamily developments. In order for these bonds to qualify for tax-exemption, at least 40 percent of the housing units are required to be set-aside, and in many cases up to 100 percent, for tenants earning less than 60 percent of the area’s median income. Multifamily bond transactions include several critical steps: the inducement resolution by the issuer, which may be a PFC, HFC or the TDHCA; securing volume cap from the Texas Bond Review Board; a public hearing and approvals from the Texas Attorney General. Typical financing structures involve mortgage-backed bonds or cash-collateralized bonds, with secondary loans from various sources.

Bracewell also has helped make significant strides for clients who have paired tax-exempt bonds with other financing sources to fund long-term investments in affordable housing, including the Harris County Housing Finance Corporation (HCHFC). Driven by the findings of the Kinder Institute’s 2021 “My Home is Here” report, which highlighted the need for 200,000 new housing units over the next decade, the Harris County Commissioners allocated $120 million from the American Rescue Plan Act (ARPA) to the HCHFC for affordable housing. HCHFC utilized the ARPA funding to purchase underlying land in numerous multifamily projects in various stages of development, which it then leased back to the private developer under a 99-year ground lease in order to achieve “permanent” affordability. This marked a significant shift for the HCHFC, which traditionally acted solely as a conduit bond issuer, as it now took an active role in property ownership and providing tax exemptions.

The effort required extensive collaboration between Bracewell’s lawyers and various parties to establish a business framework and to negotiate layering the ARPA financing with other sources of debt and equity. To date, HCHFC’s ARPA funding provided financing for 17 projects, resulting in over $531 million in total investment and creating more than 2,000 affordable housing units, with 229 reserved for tenants at 30 percent of the area median income. The HCHFC board is committed to continuing this progress, setting an ambitious goal to provide 10,000 affordable housing units annually starting in the next five years.

Benefits of Public Finance for Affordable Housing

The advantages of public finance in affordable housing are manifold, encompassing economic, social and legal benefits.

Public finance saves money for governments and taxpayers through cost savings from tax exemptions and credits. It also stimulates increased investment in local communities, driving economic growth and development. Affordable housing development creates construction jobs, ongoing property management positions, and increased economic activity as residents spend their incomes locally. Studies have shown that every dollar invested in affordable housing may generate a much higher value impact in local economic activity through these multiplying effects.

Improved access to affordable housing for low-income families is a significant social benefit of public finance. It aids in preventing families from experiencing homelessness and reduces the need for emergency shelter services. It also enhances community development and revitalization, making neighborhoods safer, more vibrant and inclusive. Children in stable housing perform better in school, potentially reducing special education costs and improving long-term educational outcomes. Workers with affordable housing near job centers reduce transportation costs and commute times, improving productivity and reducing infrastructure wear.

Affordable housing projects ensure compliance with federal, state and local laws, facilitating efficient resolution of legal issues related to housing development. Utilizing seasoned legal counsel is crucial in structuring and executing public finance transactions.

Innovative financing structures employed by experienced firms like Bracewell further streamline processes and help close transactions. Bracewell’s innovative financing structures such as public-private partnerships (P3s), government entity ownership and leasing to development entities have revolutionized affordable housing projects.

Bracewell also actively participated in developing legislation including HB 2071 in the 88th Texas Legislature, which supports the continued use of PFCs as effective tools for affordable housing, and also advised on legislation in the 88th Texas Legislature focused on developments financed by HFCs.

Public finance has become indispensable for the success of affordable housing initiatives. It offers economic, social, and legal benefits that transform communities and improve lives. Policymakers and stakeholders must support public finance initiatives to ensure the continued growth and sustainability of affordable housing projects. Bracewell’s extensive experience in public finance can help navigate these complex transactions, delivering substantial benefits to the communities they serve.

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