What’s the difference between affordable housing and homes that rent for market rates?
It’s more than just the price. In fact, the rental value may sometimes be around the same, and the difference is in who pays the majority of that rent.
Affordable housing and market-rate rentals differ primarily in how rents are set and who qualifies to live there. Affordable housing is typically government-subsidized or regulated to ensure rents remain within reach for low- to moderate-income households. Eligibility is based on a tenant’s income, often defined as a percentage of the Area Median Income (AMI). These properties may receive tax credits or other incentives to offset lower rental income.
Market-rate rentals are priced according to current demand and supply in the local rental market, without income restrictions for tenants. Property owners have more flexibility in setting rents, increasing them, and choosing tenants based on broader criteria.
Understanding the distinction is crucial for rental property owners in California, where state and local policies continue to evolve in response to housing shortages. Whether you’re investing in a rental property for the first time or growing a diverse portfolio of both rental types, our team at Bell Properties understands the implications of each model and can help you navigate regulations and make informed financial decisions.
Quick Look:
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Affordable Housing in California Rental Markets
Affordable housing refers to rental units that may be priced below market value to serve low-income and moderate-income tenants. These units are typically regulated by federal, state, or local housing authorities, with rent levels tied to a tenant’s income, commonly between 30% and 60% of the Area Median Income (AMI).
Programs such as the Low-Income Housing Tax Credit (LIHTC), Section 8 vouchers, or local inclusionary zoning ordinances often play a role in determining affordability and compliance. When we talk about affordable housing in California, we’re talking about rents that are income-restricted and sometimes set below market levels. Rents can sometimes be at market levels, however, even in an affordable housing situation. The difference is that a subsidy or a voucher will contribute to the full rental amount, making up for the amount that the tenants themselves cannot pay.
To qualify for an affordable housing rental unit, the tenants must meet certain criteria. They must meet income eligibility criteria. These properties will often receive subsidies, tax incentives, or grants.
Owners in California renting out a property to someone receiving housing benefits must comply with strict reporting and inspection requirements.
Interested in renting to tenants who receive subsidies? Or, wondering how to lawfully screen tenants who apply with housing vouchers as their source of income? Contact us at Bell Properties, and we’ll make sure it’s done correctly.
Market-Rate Rental Housing in California
Market-rate rentals are units that do not receive public subsidies and are leased at whatever price the local market can support. Rents are set by supply and demand and are not tied to the tenant’s income.
Landlords generally have more autonomy in managing market-rate properties, although there are still rent control laws (such as AB 1482) and local ordinances in place pertaining to tenant protections, habitability standards, and fair housing.
In market-rate housing, we see:
Rents are determined by current market conditions.
No income restrictions are in place for tenants.
Greater flexibility in setting lease terms and selecting tenants.
Fewer reporting and regulatory requirements.
May be more sensitive to economic shifts and vacancies.
In the past, landlords were able to advertise that their rental homes were not appropriate for tenants with Section 8 or other affordable housing benefits. That’s no longer permitted. All qualified tenants must be considered for any rental home, regardless of their source of income.
Management Strategies for Each Property Type
In some ways, there’s rarely a difference in how these properties are managed. There are responsibilities around maintenance, habitability, and disclosure that apply to every rental home in California, whether it’s a Section 8 tenant or a lease with no income restrictions.
But, there is a bit of nuance when it comes to some management details. At Bell Properties, we’re here to help California property owners navigate those differences. Owning both affordable and market-rate units requires distinct management approaches, and here are some of the ways that we recommend each type of property is handled.
1. Compliance and Documentation
With affordable housing, it’s especially important to stay on top of income verification, annual re-certifications, and property inspections. The government agency providing the subsidy or the voucher will likely need to inspect the property annually. Making any of the repairs or updates that they require is crucial in keeping the rent paid. Maintenance is important in all rental properties, but affordable rental homes will have that extra bit of oversight. Partnering with a property manager experienced in compliance and affordable housing is often necessary, and our team is especially good at assisting owners with this part of management in the affordable housing market.
Market rate properties come with fewer compliance burdens, but owners will still need to ensure they are adhering to state and local laws on rent increases, just cause evictions, and fair housing practices.
2. Tenant Screening and Leasing
Screening is going to require careful attention regardless of whether tenants are applying with housing benefits or without. New screening laws in California require landlords who are accepting application fees to screen applications in the order that they’re received, and to approve the first application that meets their rental standards.
In practical terms, this means that an owner cannot set aside an application from an otherwise qualified individual who has a Section 8 voucher in order to screen a few more applications from tenants who are paying market rents on their own.
Follow all guidelines around tenant eligibility and be careful about screening beyond income verification and basic background checks. If there are any questions about fair housing guidelines or rental criteria, contact us at Bell Properties. Screening on your own in California is risky.
3. Rent Increases
The amount by which rent is raised at renewal time will depend on a number of things. When it comes to affordable housing, rent increases are typically capped or dictated by funding program rules or AMI adjustments. Local housing authorities are more likely to have rules and limits around rental increases, so in many ways the amount owners can raise the rent will depend on where they are.
For market rate properties, rent increases are allowed within the limits of rent control laws, such as the 5% + CPI cap under AB 1482 for properties subject to statewide rent control. Single-family homes and units in newer multifamily buildings will have more flexibility when it comes to rental increases.
Cash Flow and ROI Expectations
Instinct might suggest that those market-rate rental homes will earn more for their owners than properties rented by tenants who are in affordable housing programs. It’s not quite that simple, however. While rents are potentially lower in affordable housing units, tax credits and stable, long-term tenants can provide reliable income. Operating costs may be offset by subsidies or reduced property taxes. There’s a huge demand for affordable housing and tenants needing housing vouchers outpace the availability of funds. That means lower vacancies and fewer turnover costs.
Higher rents can certainly and predictably lead to stronger cash flow, but this comes with greater exposure to vacancies, economic downturns, and competition.
Structuring a California Rental Portfolio
Given a choice, which type of property would be best for a growing real estate portfolio?
There’s no single answer. Every investor has a unique set of goals and investment strategies. As property management experts who work with a number of rental property owners throughout the state, we can tell you that many California landlords are finding value in diversifying their portfolios with both affordable and market-rate properties. Affordable housing can offer stability and long-term funding incentives, while market-rate rentals provide flexibility and growth potential in strong rental markets.
If you’re considering acquiring or developing affordable units, connect with local housing agencies early and understand the obligations tied to funding. We can put you in touch and manage the relationship.
Market-rate and affordable housing each come with their own set of rules, opportunities, and challenges. As a landlord in California, understanding these differences, and adjusting your management strategy accordingly, can help you stay compliant, maximize returns, and contribute meaningfully to your community’s housing landscape. Whether you're focused on profit, stability, or social impact, both models can play a strategic role in your investment portfolio.
Let’s talk about how to proceed as an investor with an open mind. Contact us at Bell Properties.
