Juan Turcios was thoroughly shaken last summer when he received unexpected news from the company that manages the low-income affordable apartment complex in Lincoln Heights where he lives.
The news was that his rent was about to go up by 42%.
“It was devastating,” recalled the 53-year-old school bus driver.
The notice said rent for the three-bedroom apartment he shares with his wife, who works as a nursing assistant, and their two children in a development called Mission Village, would be going from $1,247 per month to $1,779, not including utilities.
His first thought was, “I now have to come up with another $500.”
His second thought was there was no way this could be legal.
His second thought turned out to be wrong.
How could this be legal?
Mission Village was built in 1998 with the aid of the Low-Income Housing Tax Credit program and refurbished in 2016 with the help of a second round of tax credits.
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LAist Senior Reporter Ted Rohrlich spent months investigating the Low-Income Housing Tax Credit program — a major driver of housing for low- and very low-income families in L.A.
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In a four-part series, he's explaining:
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- How this complicated industry fuels corporate profits
- How many tenants living in affordable housing buildings are struggling to afford rent
- And why some think the program should go away entirely.
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And here's his backstory: Making Good On My 30-Year-Old Vow To Take A Hard Look At Affordable Housing Programs In LA
The program is the federal government’s largest effort to create and refurbish affordable housing. Each year it forgives billions of dollars in corporate income taxes in return for corporations that owe the money investing much, but not all, of their tax savings. California law requires a promise to keep new or rehabbed properties affordable for 55 years.
That kind of promise exempted Mission Village and all other tax credit buildings from a 2019 state law that limits most rent hikes in California to no more than 10% in a year.
The author of that Tenant Protection Act, former Assemblymember and now San Francisco City Attorney David Chiu, said through a spokesperson that he included the exemption because he thought tenants of tax credit-financed buildings were already shielded from rent hikes of that size.
That turned out to be wrong too.
What Chiu apparently didn’t realize while drafting the legislation was that only some of the tenants in tax credit buildings were already protected: those benefiting from additional federal rent subsidies, like Section 8 vouchers. Those tenants were covered by federal Department of Housing and Urban Development (HUD) regulations that capped their rent payments at 30% of their incomes, period.
Majority of tenants are unprotected
Everyone else without a subsidy living in a tax credit apartment is subject to more complicated Internal Revenue Service rules that allow rent hikes when median incomes in an area increase, even if tenants’ incomes do not.
That is a possibility faced by an estimated 28,000 households in L.A. who do not receive additional rental subsidies, according to an LAist review. For those tenants — the future could hold significant rent spikes with no local, state or federal regulations to reel landlords in. These tenants are also explicitly exempted from protections under L.A.’s rent control law unless their buildings were built before 1978.
Renter resources
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How Much Can My Rent Go Up Right Now? Here’s Your SoCal Rent Hike Cheat Sheet
For these tenants, rents are pegged to various percentages of Los Angeles County median incomes that are selected by developers while their construction projects are still on the drawing board.
Developers typically choose to have rents pegged to 60% or less of the area median income, and assign rents at different levels to different apartments.
Most of Mission Village’s apartments are designated as 60% units, according to a state report on its 2016 tax credit grant.
In L.A, monthly rent for tax credit apartments pegged to 60% of area median income are currently capped at $1,340 for a one-bedroom, $1,608 for a two-bedroom and $1,858 for a three-bedroom, including utilities. Back in 2016, when Mission Village received its second round of tax credits, so that it could be rehabilitated, Turcios’ apartment was designated for a household earning 60% of the median income, which was roughly $67,400 per year for a household about the size of his.
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Most government housing aid programs are offered through the Department of Housing and Urban Development, which has a simple rent formula. Tenants are required to pay rent equal to the government’s affordability standard, which is 30% of their household income.
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But the Low-Income Housing Tax Credit program is different. It operates under the jurisdiction of the Internal Revenue Service which has more complicated rules. These requirements don’t link rents to a tenant’s income — at least not directly. Each apartment has a rent level intended to be affordable to a tenant earning a specific percentage of median income in the area. Under IRS rules, developers of buildings that offer these apartments can qualify for tax credits if:
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- They promise to make at least 20% of all units affordable to tenants earning 50% or less of the area median income
- Or if they promise to make at least 40% of all units affordable to tenants earning 60% or less of the area median income
- Or if they promise to make their average apartment available to tenants earning 60% or less.
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Because winning tax credits is highly competitive, developers almost always choose to make 100% of their units available to tenants earning 60% of median income or less. Tenants are then charged rent equal to 30% of their apartment’s assigned median income level. If tenants’ incomes fluctuate, or don’t keep pace with increases in area medians, they can wind up paying more than 30% of their incomes in rent.
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UC Riverside housing economist Bree Lang explains:
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“In reality, a household living in a LIHTC [Low-Income Housing Tax Credit program] unit may earn much less than [the percent of area median income assigned to the apartment] but the rent level will not be adjusted to their income.”
Median incomes for that group rose by more than 40% in Los Angeles County from 2016 to 2022, according to calculations published by HUD.
Turcios’ family income kept pace.
Still, a sudden notice of a 42% rate hike was a bitter jolt.
Turcios and others protest
Turcios helped organize a tenants’ union that summer to protest the rent increase — the first since 2016. The union claimed in letters to politicians and bureaucrats that all tenants at Mission Village had received notices of a 42% increase, which LAist was unable to independently verify. One letter pleaded: “Many of us are on a Social Security fixed income and we can hardly afford to pay our rent as it is now.”
Many of us are on a Social Security fixed income and we can hardly afford to pay our rent as it is now.
But when the city’s housing department looked into Turcios’ complaint, an official told Turcios nothing could be done. It was lawful, according to correspondence reviewed by LAist.
Turcios wrote to his city councilmember, Kevin de León, and one of de León’s staff members wrote the housing department to urge city officials there to talk with the management company anyway.
The staff member contacted Turcios in September with better news: After a meeting with a housing department official, the company that operates Mission Village, Barker Management, dramatically scaled back the planned rent hike to 10% for most tenants and 5% for seniors.
The company president, Peter Barker, did not respond to an interview request, but had a spokesperson contact LAist by email to say, “The rents are in compliance with regulatory agreements and were reduced after further review.” The spokesperson declined to elaborate.
Similar stories elsewhere
Similar stories have been playing out in the last year or so around California as median incomes rise, according to Marcos Segura, a California-based attorney for the National Housing Law Project who specializes in the tax credit program.
Over the last year, he said, he has fielded inquiries from multiple legal aid lawyers about the legality of even higher planned rent hikes at some tax credit properties.
“We’re talking 50%, 60% rent increases,” he said.
We’re talking 50%, 60% rent increases.
When the increases were described to him, Segura said he reluctantly concluded they complied with the law.
Segura said he could not release names of the buildings because of attorney-client confidentiality considerations and was not sure how they played out. But at LAist’s request, he contacted some of the attorneys who consulted with him about the large rent hikes and they agreed to provide summary information.
One of them, Jia Min Cheng, an attorney with Disability Rights California, said she looked through her records and found that she had three cases of large increases since mid-2022.
One case involved a client in San Diego who reported receiving a notice from Alabama Manor Apartments that her rent was being raised by 21%, from $935 to $1,135. The new total was more than her monthly disability check from Social Security. But Cheng said that under rules governing tax credit apartment rents, the increase appeared to be legal. Representatives of Alabama Manor did not respond to an LAist request for an interview.
Rafael Bautista, executive director of the San Diego Tenants Union, said he’s seen similar challenges. In recent years, he helped tenants at the Mercado apartments in Barrio Logan, a neighborhood in San Diego, fight a threatened 25% rent increase. The owners eventually relented, he said, but have twice issued 10% increases.
LAist reached out to the CEO of the Mercado’s nonprofit operator, Arnulfo Martinez, who did not respond to a request for comment. However, he told the San Diego Union Tribune in 2020 that the increases were needed to pay for increasing operating costs.
Turcios wonders whether another increase is in store for him and other residents of Mission Village in October, the one-year anniversary of their 10% rent raise.
“We’re seeing a lot of abuse in these types of properties,” Bautista said. “It’s difficult to understand why a government program is allowed to have exclusions from things like the Tenant Protection Act.”
