A legislative committee this week passed a rule prohibiting many landlords in California who are building new low-income housing units from raising their tenants’ rent by more than 10% annually.
The cap, which was approved by the California Tax Credit Allocation Committee on Wednesday, will have an impact on all upcoming projects that use Low Income Housing Tax Credits.
About 20,000 new units are awarded federal and state credits by California each year; this program serves as the main government financing source for private developers creating affordable housing.
The regulation is comparable to a state statute that went into effect in 2019 for other tenants in that it caps annual hikes at 10% of inflation or 5% plus it.
The approximately 350,000 low-income apartments now in existence in the state that are funded by the tax credits are not directly protected by the cap.
However, because they require the state committee’s consent to sell the properties or obtain fresh tax credits for renovations, officials anticipate that the majority of property owners will comply in any case.
The committee’s executive director, Marina Wiant, stated that the group is unable to lawfully impose new regulations on developers who have already signed agreements with the government to obtain the tax credits.
“We wanted to essentially apply it to all of the tax credit units,” she stated. “The general impact to most affordable housing owners and operators is they will comply regardless.”
The cap closes what many renters have criticized as a state law loophole. The lack of a rent ceiling in affordable housing allowed landlords of some of the state’s poorest tenants—some of whom were for-profit developers—to raise rents by double-digit percentages in a year amid a period of record inflation, according to a December CalMatters investigation.
Tenants must make less than the average income in the area to be eligible for such a unit. Advocates for tenants, however, are not entirely happy with the ruling.
Rather, like other affordable housing initiatives, low-income tenants should be shielded from being charged more than a specific percentage of their individual income, according to Leah Simon-Weisberg, legal and policy director of the Alliance of Californians for Community Empowerment.
“It’s a step in the right direction, but it’s not low enough,” Simon-Weisberg stated. “We need to think about, ‘What can the tenant pay?'”
This fall, the coalition is trying to qualify local ballot measures that would impose additional rent caps, ranging from 3% to 5%, in five cities in the Bay Area and Central Valley.
In order to address the skyrocketing cost of living in California, state lawmakers established the 2019 rent cap for the majority of renters in the private market.
However, they made a number of exclusions, including newer homes, certain single-family homes, and, paradoxically, any affordable housing that has received government subsidies.
Low-income renters and their supporters were displeased with this carveout, arguing that the Tenant Protection Act did not protect those who most needed protection from excessive and frequent rent increases.
Strict federal restrictions prohibit public housing authorities from charging renters more than thirty percent of their income for affordable housing.
This isn’t the case in these privately held, tax credit-funded homes, where rent limitations are based on the annual local median income rather than the individual income of each renter, as determined by the U.S. Department of Housing and Urban Development.
Low-income housing is already subject to rent limitations in nine other states, and this week the Biden administration announced a 10% national cap.
Last year, California lawmakers debated imposing a rent ceiling on affordable housing; however, the plan was shelved early in the session due to objections voiced by charity developers of cheap housing.
Advocates claimed that a large number of those housing providers had lost rental income due to renters’ inability to pay during the COVID-19 pandemic, faced increased insurance and running costs, and had maintained flat rates for a large portion of the previous 10 years during which median salaries had not increased.
