California’ s New Rent Cap Law Sparks Debate in Affordable Housing Industry. Read the article here
In September 2024, California Governor Gavin Newsom signed AB 846 into law. CCAH followed this pending legislation through the 2024 legislative session with some concern due to the potential impacts that capping rent increases for tenants in Low Income Housing Tax Credit (LIHTC) and Private Activity Bond (PAB)properties might have.
“We know this law was well intentioned, but we worry that AB 846 could have unintended consequences.” said Jenna Abbott, Executive Director of the California Council for Affordable Housing. “Affordable housing is, by definition, already rent restricted based on resident income. Placing further restrictions on allowable rent reduces the available operating income to support the quality and maintenance of the housing, and is likely to exacerbate the state’s housing crisis.” Abbott also noted that the law comes at a time when inflation is driving up costs, materials are facing upward market pressure, and utilities and insurance premiums are rising rapidly. “Operators already struggle to cover these rising expenses, potentially making new projects financially infeasible” she concluded.
The law also introduces new administrative challenges for property owners and managers as restrictions must be tracked for each tenant individually. This increased oversight could create compliance burdens and financial uncertainty for LIHTC property operators. Additionally, the law applies retroactively to all LIHTC and PAB-funded developments, not just new projects and some affordable housing leaders fear that these restrictions will discourage investment in California’s already strained housing market. “The retroactivity feature of AB 846 is particularly concerning” said Abbott.
There is no disputing that California is in severe housing crisis. Policymakers must find a balance between tenant protections and the financial realities of affordable housing development. Without careful adjustments, AB 846 risks becoming another obstacle in the state’s struggle to provide safe, stable, and affordable housing for all its residents. The California Council for Affordable Housing will continue to monitor the effects of AB 846 and advocate for policies that support both tenants and the long-term sustainability of affordable housing development.