Passed in the state legislature last year, AB 846 caps allowable rent increases in most affordable housing. This helps insulate low-income renters in deed-restricted affordable housing from large increases in rent driven by Santa Clara County’s sharply rising area median income. A necessary regulation to prevent sudden, unsustainable rent increases for low income tenants, AB 846 may also present challenges for affordable housing developers who rely on rent revenue to cover operating costs, debt service, and long-term maintenance.

In 2019, the California State Legislature passed the Tenant Protection Act of 2019, or AB 1482. This law limits maximum rent increases to the Consumer Price Index (CPI) +5%, or 10%, whichever is lower. This helps protect tenants who may be at risk of homelessness or displacement if they receive a large rent increase: a 2020 study by the U.S. Government Accountability Office finds that for every $100 increase in median rent, homelessness increases by 9%. 

AB 1482 does not cover residents in deed-restricted affordable housing. This is a common exemption from rent stabilization laws, as rents in affordable housing are relatively low, and are required to be calculated based on a percentage of the area median income (AMI). However, in many areas, especially in Santa Clara County, we often see large increases in AMI levels, which lead to large increases in allowable rent for affordable housing.

In April 2024, the California Tax Credit Allocation Committee (CTCAC) adopted regulations for Low Income Housing Tax Credit (LIHTC) properties that received tax credit allocations after April 3, 2024, or were seeking ownership transfers within five years. The regulations cap rent increases on those properties to 5% + CPI or 10%, whichever is lower. In September of 2024, the state legislature passed AB 846, which limits rent increases in all remaining affordable housing financed through the LIHTC program. CTCAC met in December 2024 to draft updated regulations reflecting the bill. Beginning January 1, 2025, all properties that received LIHTC are subject to the same rent increase cap, of 5% + CPI or 10%, whichever is lower. Notably, these rent caps only apply when the area median income is rising faster than the cap of 5% + CPI or 10%; otherwise rent limits are still calculated on the basis of AMI.

While AB 846 provides essential protections for low-income tenants by preventing extreme rent increases, it also may present challenges for affordable housing developers who rely on rent revenue to cover operating costs, insurance, debt service, and long-term maintenance. Unlike market-rate landlords, nonprofit affordable housing operators must balance financial sustainability with their mission to provide rent-limited affordable housing. The ability to adjust rents each year allows developers to maintain enough cash flow to cover costs, ensuring properties remain viable over time.

However, this policy does not mean developers with a need to raise more revenue will be left without options. Affordable housing owners who can demonstrate a financial need—such as prolonged periods of below-market rents or unexpected operating cost increases—can apply for a waiver through the CTCAC. This process allows flexibility for developers facing legitimate financial constraints while still prioritizing tenant stability. Ultimately, AB 846 is a net positive, reinforcing the core mission of affordable housing: providing long-term security for low-income renters while maintaining the financial health of the developments that house them.