The effect of tax increment financing development on housing affordability in Houston, Texas

Tax Increment Financing (TIF), which is called TIRZ in Texas, has become a popular, if controversial, economic development tool used by local jurisdictions across the country. TIF has been used for a variety of purposes and its efficacy has not been widely studied. The few studies on TIF’s effectiveness have been concentrated in the Midwest. This report specifically evaluates the effect of TIF development on housing affordability in Houston, Texas. This work broadly focuses on how TIF district designation and new development in these districts affect overall land and housing costs and thus the supply of affordable housing units in the districts. The City of Houston has historically been averse to formal land use planning such as zoning, but it has enthusiastically embraced TIRZ district creation to raise property values and for the purpose of general “economic development.” This aggressive use of this mechanism in Houston raises critical questions about the purpose and effects of TIRZ financing on the overall tax base and trends in general tax revenues available to meet citywide needs. During the time period examined, 2000-2016, three of the four districts saw substantial increases in housing costs and all showed increases in the number of households burdened by those costs. TIF-related investments were not allocated directly to stimulate the development of new affordable housing units in any of the four districts. Improved transparency is needed to evaluate the efficacy of TIRZ financing as an economic development tool.