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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Inland cities including Bakersfield, Fresno, Visalia and Riverside — once cheaper options than pricey places such as the Bay Area — are no longer refuges from California’s housing affordability crisis.

Since the beginning of the pandemic, the typical asking rent in these former bastions of relative affordability have exploded by as much as 40%, according to data from the real-estate listings company Zillow.

California’s inland rent spike is yet another lasting effect of the COVID-19 pandemic. Beginning in 2020, California’s dense metropolitan coast saw an outflux of people, as educated white-collar workers, suddenly untethered from the office, packed their bags in search of cheaper and more socially distanced modes of living.

For many smaller California towns, the surge of new residents competing for housing has placed new financial pressures on lower-income residents, upended local housing markets and, in some cases, shifted the politics around housing and affordability.

In Santa Maria, just an hour up the 101 from Santa Barbara, the last three years have been a “perfect storm” for renters, said Victor Honma, who oversees housing vouchers across the region for the Housing Authority of the County of Santa Barbara.

The town was awash in suburb-seeking homebuyers from Los Angeles, the Bay Area and nearby Santa Barbara and San Luis Obispo. The suddenly hot housing market persuaded many longtime local property owners to sell their rentals to the wave of new homebuyers, reducing the rental stock further. And though Santa Maria had always had a “healthy supply of inventory,” said Honma, the available homes ran on the large side, leaving few one-bedroom units to go around for many suddenly desperate renters.

These trends were in the works prior to 2020, but “the pandemic was a stimulus,” he said.

It’s the same story in Bakersfield, where rents have jumped 39% since March 2020, as priced out Angelenos migrated north of the Grapevine, said Stephen Pelz, executive director of the housing authority in Kern County.

Since then rising interest rates have cooled the national housing market. But Pelz said the higher cost of borrowing has only added to the woes of Kern County renters: Fewer people purchasing homes has meant more competition for the area’s remaining rental units.

An inevitable consequence

Jeff Tucker, an economist at Zillow, said the inland rental crunch is the inexorable result of California’s overall housing shortage, as the affordability crisis along the coast ripples outward. Cities in the Central Valley used to enjoy a healthy “affordability advantage” over coastal urban areas, he said. But that advantage has begun to shrink over the last three years.

“People have been moving towards that more affordable option when they don’t have anywhere else in California that they can afford,” said Tucker.

According to Zillow’s seasonally adjusted “observed rent index” — a kind of gussied-up average that strips out exceptionally pricey or cheap outliers in a given market — the typical rent in the Fresno metropolitan used to be 54% cheaper than that in San Francisco. As of June 2023, that discount dropped to 40%.

Further south in Bakersfield, where renters used to pay roughly half of L.A. area tenants, on average, the difference has narrowed to 40%.

In part, that’s just a function of arithmetic. In both the Bakersfield and the Los Angeles metro areas, the typical rent increased by a little more than $500 since the beginning of the pandemic. Because Kern County rents were much lower to begin with, $500 represents a larger percentage hike.

But for the average Bakersfield area resident, that $500 rent hike pinches a lot harder: The average income in Kern County is roughly $25,000, according to the most recent Census data. In L.A. County, the average is $38,000.

Some modest relief could be on the way.

The cities of Bakersfield, Visalia and Fresno have all permitted roughly 15% more units in 2021 and 2022 than they did in the two years before the pandemic, according to data collected by the state Housing and Community Development Department.

The city of Santa Maria has permitted 150% more. The bulk of the new or incoming units around town are accessory dwelling units — backyard cottages and annexes. For a city short on lower-cost single bedroom places to live, the new crop of ADUs are “really filling that gap,” said Honma.

Pro-renter advocates unsuccessful

While building more places for people to live is one part of the battle, others have tried to soften the impact on rents of existing housing stock.

Earlier this year, tenant rights and anti-poverty advocates mounted a campaign to push the city of Fresno to adopt a rent control ordinance. For a city whose most notable politico, Democratic U.S. Rep. Jim Costa, lent his name to a state law that restricts local governments for enacting or expanding rent control laws, it was a symbolic push.

Further south, activists in Delano were competing to see which town would be the first in the Central Valley to enact a permanent cap on rent hikes.

Neither campaign was successful. Fresno’s city council declined to include a rent stabilization program in its budget for this fiscal year and elected leaders in Delano agreed only to study the issue.

In Sacramento, many of these same advocacy organizations have been pushing a bill by state Sen. María Elena Durazo that would have, among other things, lowered a statewide cap on annual rent increases from 10% to a mere 5%. But that provision was stripped out, leaving only new rules that make it harder for landlords to evict tenants without cause.

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