The Los Angeles City Council is considering changing the way it sets annual allowable increases for rent-controlled properties for the first time in nearly 40 years. That’s good. The law needs to do more to protect tenants from price shocks in times of high inflation, while ensuring landlords can recoup the costs of managing their properties.
Approximately 650,000 units in the city were built before October 1, 1978, and are subject to rent stabilization ordinances. This accounts for almost 75% of Los Angeles apartments.
Los Angeles has one of the most unaffordable housing markets in the country; driving force Behind the city’s homelessness crisis. more than half of the tenants In the greater Los Angeles area, high rent burdens mean they spend more than a third of their income on housing and less on savings, health care, transportation and other needs.
More than 10% of renters spend more than 90% of their income on rent, leaving them vulnerable to ending up on the streets. As a result, city leaders are very interested in keeping rents stable to help tenants find housing.
But the city is also interested in making sure landlords can charge enough to properly maintain their units and get enough return on investment to stay in the rental business.
Los Angeles froze rent increases for nearly four years after the COVID-19 pandemic hit, far longer than most jurisdictions. Landlords have had to forego the cumulative 16% rent increases allowed under the current formula. The 4% increase allowed on February 1 was the first since the pandemic.
At the same time, owner operating expenses, including wages, maintenance, utilities and insurance, have grown faster than inflation in recent years.
For policymakers, balancing these competing interests is not easy. But the formula for determining how much rent-stabilized unit owners can raise their prices each year could be reasonably modified.
The city’s ordinance sets annual rent increases between a guaranteed minimum of 3 percent and a maximum of 8 percent, based on the Consumer Price Index, which measures inflation. As inflation has remained low for a long time, increases allowed have exceeded CPI in 23 of the past 30 years, meaning rents have been allowed to rise significantly higher than inflation.
In 1985, when the city adopted the current formula, the fair market rent for a one-bedroom apartment was $490. If allowed rent increases tracked the Consumer Price Index, the same unit would rent for $1,500 today. However, with a guaranteed minimum allowable rent increase of 3 percent, rent would reach $1,705, according to an analysis by tenant advocacy coalition Keep LA Housed. That’s still below the current market rent of about $2,000 a month.
Based on inflation, Los Angeles allows increases of up to 8% per year, which is higher than most other cities with rent control. The city also allows landlords to charge an additional 1% if gas bills are paid and an additional 1% if electric bills are paid. The current formula allows landlords to increase most tenants’ largest monthly expense by a significant amount at a time when tenants are already struggling due to rising prices.
Tenant advocates are urging the City Council to set a 3% cap and fix consumer price index increases at 60% to slow rent growth over time. Landlord groups want the council to remain in place so its members can make up for the rent freeze during the pandemic.
The housing sector has reached a good compromise: a new cap on allowable rent increases of 5% and a new guaranteed minimum increase of 2%. This will prevent significant rent increases while helping landlords cope with rising business fees and expenses that may not be reflected in the Consumer Price Index. Department staff also recommended eliminating an additional 2 percent that might be allowed on utility charges after a study found that additional rent increases could exceed service costs.
Other proposals from the Housing Department require more scrutiny from council members. To help landlords cope with rising costs if inflation exceeds the 5% annual cap, staff recommends a “banking” increase of more than 5% and be applied when the Consumer Price Index falls below 5%. This could cost tenants more because the additional percentage growth will be applied to higher base rents in future years.
The Housing Department also proposed increasing rents based on a different measure of inflation that does not include housing costs, which have been a major driver of inflation. Tenant advocates have warned the proposed measures could be destabilizing, while landlords say it does not adequately reflect their costs.
Rent control is an important tool for maintaining community stability and preventing displacement and homelessness in an expensive real estate market. It would make sense to adjust the city’s formula for allowing rent increases to strike a better balance.
But ultimately the solution to Los Angeles’ housing crisis is to build more housing, especially affordable housing. A top priority for the City Council and Mayor Karen Bass should be making housing construction faster, easier and cheaper in every neighborhood in the city.
