Texas PFC and HFC Affordable Housing Structures

Use this page as the router. For the Chapter 303 PFC lane, use Texas PFC Affordable Housing Structures. For the Chapter 394 HFC lane, use Texas HFC Affordable Housing Structures. For shared tax-benefit, rent-reduction, lender, valuation, and deal-document mechanics, use Texas Public-Entity Property Tax Exemption Underwriting.

The clean distinction:

• Texas CHDO and HOME Set-Aside Mechanics is about federal HOME allocation, PJ certification, and a qualifying nonprofit owner/developer/sponsor role.
• Texas PFC/HFC is about public-purpose ownership, tax-exemption eligibility, local approval, audit, affordability, and rent-reduction requirements under Texas law.

Why The Structures Matter

Texas property taxes are large enough to make exemption status a central feasibility variable. If a PFC or HFC structure removes or reduces the tax line, the value can support lower rents, deeper affordability, more debt proceeds, a higher land bid, additional reserves, or a larger developer economics package. The underwriting task is to prove where the benefit goes.

That is why the post-2023 and post-2025 reform environment matters. Current Texas policy is trying to distinguish legitimate public-benefit affordable housing from structures that capture tax savings without enough tenant benefit, local oversight, or compliance evidence.

Tax-Benefit Underwriting Math

Underwrite PFC/HFC value as a bridge, not as a binary exemption toggle:

Step 1: Conventional case
Taxable value x aggregate tax rate = baseline annual tax

Step 2: Public-entity case
Remaining taxable value or PILOT + public-entity fees + audit/compliance cost + required reserves = post-structure burden

Step 3: Benefit allocation
Baseline tax - post-structure burden = gross savings
Gross savings - required rent reductions - tenant benefit commitments = sponsor/property-retained savings

The retained savings can improve the model in four different places, and the memo should identify which one is being used:

For acquisition or mixed-income workforce structures, calculate the resident-facing affordability benefit separately from sponsor NOI. A deal can have a large gross tax saving and a much smaller investable benefit after rent reductions, public-entity fees, reserves, audits, and compliance staffing.

Rent-Limit Interaction

PFC/HFC restrictions are not always the same as HOME or LIHTC restrictions. The rent model should identify each restricted unit by bedroom count, income tier, governing agreement, utility allowance treatment, and whether the cap is based on HUD income limits, TDHCA limits, a local regulatory agreement, a bond document, a HOME agreement, or an HFC/PFC agreement.

The conservative model uses the most restrictive enforceable cap:

Final collectible rent
= minimum(HFC/PFC agreement cap, HOME cap, LIHTC cap, bond cap, local soft-fund cap, voucher/HAP rule)
- tenant-paid utility allowance

Do not capitalize a PFC/HFC tax benefit and also assume unrestricted market rents unless the public documents actually allow that result. The tax benefit and rent restriction are part of the same public-benefit bargain.

PFC Lane

TDHCA monitors PFC multifamily developments subject to Local Government Code Sections 303.0421 and 303.0425 that were initiated on or after June 18, 2023. TDHCA describes the 2023 reforms as changing the Public Facility Corporation Act for multifamily affordable housing, including eligibility conditions, lower/moderate-income unit allocations, compliance audits, and a Legislative Budget Board study of long-term fiscal effects.

For full underwriting mechanics, see Texas PFC Affordable Housing Structures.

Important underwriting implications:

• the exact initiation date and statutory applicability matter;
• some PFC developments are excluded from the monitored class, including certain public housing, RAD, tax-exempt bond, and LIHTC-assisted developments;
• annual audit reporting can affect ongoing exemption value;
• lower/moderate-income unit mix and bedroom-category matching can matter;
• occupied-acquisition structures may face rehabilitation, renovation, reconstruction, repair, or rent-reduction tests;
• public hearing, local governing-body approval, notice, and published underwriting assessment requirements may affect timing and political risk.

HFC Lane

TDHCA now monitors HFC multifamily residential developments required to comply with Local Government Code Sections 394.9026 and 394.9027, as amended by HB 21, effective May 28, 2025. TDHCA states that first audit reports for covered HFC developments are due June 1, 2026, with subsequent reports due annually by June 1.

For full underwriting mechanics, see Texas HFC Affordable Housing Structures.

The MBA point is that HFC exemption value should no longer be treated as a static capitalization assumption. The memo should include the HFC sponsor, governing approvals, statutory section, affordability mix, rent-reduction logic, audit calendar, tenant protections, and exemption-loss remedies.

CHDO/PFC/HFC Interaction

A single Texas affordable housing project can include multiple public-benefit tools:

Underwriting Checklist

1. Identify whether the structure is CHDO/HOME, Tax Code nonprofit exemption, PFC, HFC, LIHTC, bond, or a combination.
2. Cite the statute and public entity: Chapter 303 PFC, Chapter 394 HFC, Tax Code 11.182/11.1825, HOME Part 92, or LIHTC Section 42.
3. Identify the exact public approvals, notices, hearings, board actions, and recorded restrictions.
4. Model the tax benefit explicitly and show whether savings flow to rent reductions, reserves, public-entity fees, developer returns, or debt capacity.
5. Build a unit-by-unit rent matrix showing governing cap, AMI tier, utility allowance, final collectible rent, and controlling document.
6. Confirm audit/reporting deadlines and the consequence of noncompliance.
7. Stress-test exemption loss, PILOT obligations, appraisal-district challenge, local political challenge, and transfer/refinance restrictions.
8. Do not use "affordable" or "workforce" labels as evidence of enforceable affordability. Tie every restricted unit to a recorded or contractually enforceable source.

Related Pages

• Texas PFC Affordable Housing Structures
• Texas HFC Affordable Housing Structures
• Texas Public-Entity Property Tax Exemption Underwriting
• Texas CHDO and HOME Set-Aside Mechanics
• CHDO Affordable Housing Structures
• CHDO Underwriting and Partnership Diligence
• Affordable and Workforce Housing Underwriting
• LIHTC Underwriting and Capital Stack
• LIHTC Policy and Market Structure
• Physical-Economy Workforce Housing
• Texas
• Texas Geography Hub
• Multifamily Hub

Sources

• Source: Texas PFC and HFC Affordable Housing Structure Research 2026-05-05
• Source: Texas CHDO HOME and Public-Private Affordable Structure Research 2026-05-05

Provenance

Created during the 2026-05-05 Texas CHDO depth pass to prevent CHDO/HOME analysis from being blended with Texas public-entity property-tax-exemption structures.