Housing USA: Texas’ Affordable Housing Ruling, Five Years Later

6 min read

Texas is well-known for its fast growth, yet ability to stay affordable. The state has a mostly elastic housing market (of the 50 largest U.S. metros, four of the top 12 in permitting rates are in Texas). This has allowed professionals and families to move there in droves, without the same price inflation and displacement seen in high-growth coastal metros. The median home prices in metro Houston and San Antonio, for example, are well below the national median, while metro Dallas-Fort Worth prices are just slightly above. But as this continues—Texas had by far the highest net growth since 2010—demand pressures statewide are bound to catch up. Knowledge of that was the motive behind recent “disparate impact” litigation that will push affordable housing into more affluent neighborhoods statewide.

In March 2018, the state’s comptroller cited two studies that showed housing costs growing. One, a Federal Reserve analysis, noted that price increases in Texas had outpaced the national average. Another, by Texas A&M University researchers, found costs outstripping incomes. It’s premature to conclude that the state is careening toward an affordability crisis, but the lower end of the market certainly faces higher burdens. Average rents in Austin, for example, are $1,400, while home price medians throughout the entire metro are $442,000 – 57 percent above the national median.

Low Income Housing Tax Credit-financed housing could help with this, especially now that it has broader use. The state saw a landmark court case on “disparate impact,” finding that local zoning laws could be considered discriminatory if they disproportionately burden certain demographic classes.

In 2015, the U.S. Supreme Court heard a case brought by an affordable housing nonprofit accusing Texas’ Qualified Allocation Plan of keeping housing from high-opportunity areas. In Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., SCOTUS found, writes lawyer Bryan Cave, that “an allocating agency violates the Fair Housing Act if its QAP ‘disparately impacts’ a protected minority even though the allocating agency did not have a discriminatory intent.”

Inclusive Communities Project (ICP), the plaintiff, claimed that the bulk of tax credits were allocated to areas that were already lower income, robbing tenants in LIHTC-funded projects of opportunity.

In an interview with several members of the Texas Association of Affordable Housing Providers, I learned about the background of the case (though TAAHP was not part of the case, it followed it through partners).

Terri Anderson, a TAAHP board member, says the original lawsuit that motivated the SCOTUS case was brought against the Dallas Housing Authority. The only public housing in DHA’s jurisdiction was about 3,800 units restricted to a point west of Interstate 35, which ICP argued was a low-opportunity zone.

After winning that case, ICP then took action against the state as a whole for such practices. SCOTUS ruled in favor of ICP, arguing that the doctrine of disparate impact could be applied to housing laws to uphold the Fair Housing Act. Moreover, the court ruled, the plaintiff need not necessarily prove discriminatory intent, but did need to strongly prove that a discriminatory outcome was due to internal policy, and not the result of standard means of doing business.

Before the ruling, says Anderson, there was limited criteria around locating LIHTC projects close to economic opportunity centers. In the mid- to late-1990s, several such projects were built around Houston and Austin, which were easier markets to build in at the time than elsewhere in the state. But such projects in Texas need permission from state legislators, including letters of support from the legislature. Then there were local zoning codes, which made construction harder in some areas and easier in other, poorer areas. On top of that, says Janine Sisak, the association’s president and VP of development at Austin-based affordable housing developer DMA, the Texas tax credit program’s goal was to put private investment into underserved areas that needed it. All these factors meant that LIHTC projects were often isolated in distressed areas, far from jobs, services and good schools.

The 2015 SCOTUS ruling, which split five to four along predictable ideological lines, resulted in Texas housing authorities creating a rule that LIHTC-financed housing should be built in “opportunity areas.” Projects cannot be proposed or built near heavy manufacturing sites, power facilities or high crime zones.

Texas housing authorities introduced new scoring criteria for where LIHTC projects could be built. The scoring is distinct from federal rankings, in that it looks not only at the income levels of census tracts but includes other factors, like proximity to desirable schools. Texas will not now permit a LIHTC project near an underperforming school (defined as one that falls below state standards two consecutive years). The state has even stricter criteria on awarding the nine percent credit.

TAAHP argues that the SCOTUS ruling and harder QAP scoring has not cooled LIHTC construction. The process of applying for LIHTC funding in Texas is “extremely competitive – oversubscribed typically eight to one,” says TAAHP representatives. And, per the new rules, the number of projects going into desirable neighborhoods has increased.

But the process hasn’t been perfect. In 2016, a year after the SCOTUS ruling, a court in Northern Texas dismissed another case ICP brought trying to prove disparate impact against the Texas Department of Housing and Community Affairs. Nor will the ruling overturn local zoning (although I’ve argued in Market Urbanism Report that restrictive zoning should be challenged before SCOTUS precisely on disparate impact grounds). As Paul Hancock and Andrew Glass write on the case, “While supporters of the disparate-impact theory may perceive the Court’s decision as a ‘win,’ the decision imposes significant limitations on the application of the theory, which provide an important benefit to defendants in FHA cases.”

While Texas faces affordability challenges, the newfound ability to build LIHTC units in diverse areas will help with its otherwise solid reputation for low-cost home production. Meanwhile, the factors that motivated the ICP lawsuit in Texas exist nationwide. Disparate impact may prove to be a useful litigation tool in other metros dealing with segregation and exclusion.

This article featured additional reporting from Market Urbanism Report content staffer Ethan Finlan.