By Jeanne Kuang | CalMatters
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Many landlords providing new low-income housing in California won’t be able to increase the rent on their tenants by more than 10% per year, under a rule imposed this week by a state committee.
The cap, passed Wednesday by the California Tax Credit Allocation Committee, affects all future developments built with the help of Low Income Housing Tax Credits. California awards the federal and state credits to build about 20,000 new units a year; the program is the primary government funding source for private developers to build affordable housing.
The rule is similar to a 2019 state law for other tenants — restricting annual increases to either 5% plus inflation, or 10%, whichever is lower.
The cap doesn’t directly protect those living in the roughly 350,000 existing low-income units statewide financed by the tax credits. But officials expect most property owners to comply anyway because they need the state committee’s approval to sell the properties, or to get new tax credits for renovations.
Marina Wiant, the committee’s executive director, said the committee can’t legally impose new rules on developers who have already entered contracts with the government to receive the tax credits.
“We wanted to essentially apply it to all of the tax credit units,” she said. “The general impact to most affordable housing owners and operators is they will comply regardless.”
The cap closes what many tenants have decried as a loophole in state law. CalMatters reported in December that, during a period of record inflation, the lack of a rent cap in affordable housing allowed landlords of some of the state’s poorest tenants, some of them for-profit developers, to hike rents by double-digit percentages in a year. To qualify for such a unit, tenants need to earn less than local average incomes.
But tenants’ advocates aren’t fully satisfied with the rule.
Leah Simon-Weisberg, legal and policy director for the Alliance of Californians for Community Empowerment, said low-income renters should instead be protected from being charged more than a certain share of their individual income, similar to other affordable housing programs.
“It’s a step in the right direction, but it’s not low enough,” Simon-Weisberg said. “We need to think about, ‘What can the tenant pay?’”
The alliance is working to qualify local ballot measures in five Bay Area and Central Valley cities this fall that would impose further rent caps, of between 3% to 5%.
When state lawmakers passed the 2019 rent cap for most private-market renters to address the soaring cost of living in California, they created numerous exceptions, including newer homes, some single-family homes and, ironically, any affordable housing that has received government subsidies.
That carveout frustrated low-income renters and their advocates who argued the law, known as the Tenant Protection Act, left out those who most needed safeguards against high and frequent rent hikes.
Affordable housing run by public housing authorities is subject to strict federal regulations that prevent tenants from being charged more than 30% of their income. That’s not the case in these privately owned, tax credit-funded properties, where restrictions on rent are tied not to each tenant’s individual income but to the local median income, a figure calculated by the U.S. Department of Housing and Urban Development each year.
In recent years, high inflation led to median incomes rising. In areas that were already wealthier than their surroundings, this meant the rent ceilings on low-income housing projects went up especially high.
Nine other states already place rent caps on low-income housing, and the Biden administration this week announced a nationwide 10% cap.
California lawmakers considered applying a rent cap to low-income housing last year, but the bill floundered early in the legislative session over concerns raised by nonprofit affordable housing developers. Many of those housing providers, advocates said, had lost rental income when their tenants couldn’t afford to pay during the COVID-19 pandemic, faced rising insurance and operating costs and had kept rents stagnant for much of the decade prior when median incomes hadn’t risen.
Under the new rule, landlords in that situation can ask Wiant to waive the cap if a rent increase “is necessary to ensure financial stability or fiscal integrity of the property.” The committee can also waive the rule without asking for permission in some circumstances, such as when tenants’ incomes go up or they move to a larger unit.
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