The Los Angeles City Council is considering changes to how it sets allowable annual increases for rent-controlled properties for the first time in nearly 40 years. It’s good. The law must do more to prevent price rises for tenants during periods of high inflation while ensuring landlords can recoup the costs of running their properties.
Approximately 650,000 housing units in the city were built before October 1, 1978, and are regulated by the Rent Stabilization Ordinance. This represents almost 75% of apartments in Los Angeles.
Los Angeles has one of the least affordable housing markets in the country, and it’s the driving force behind the city’s homeless crisis. More than half of the tenants In the greater Los Angeles area, rent burdens are high, meaning they spend more than a third of their income on housing, leaving less money for savings, health care, transportation and more. other needs.
More than 10% of tenants spend more than 90% of their income on rent, which makes them vulnerable to the risk of ending up on the street. Municipal leaders therefore have every interest in maintaining stable rents to help tenants stay housed.
But the city also has an interest in ensuring that landlords can charge enough money to properly maintain their homes and get enough of a return on investment to keep them in the rental business.
Los Angeles froze rent increases for nearly four years after the COVID-19 pandemic began, far longer than most jurisdictions. Landlords had to forgo the cumulative 16% rent increase that would have been allowed under the current formula. The 4% increase authorized on February 1 was the first since the pandemic.
At the same time, homeowners’ operating expenses, including salaries, maintenance, utilities and insurance, have increased faster than inflation in recent years.
It is not easy for policymakers to reconcile these competing interests. But reasonable changes can be made to the formula that determines how much rent-stabilized housing owners can raise their prices each year.
The municipal ordinance sets an authorized annual increase in rents between a guaranteed minimum of 3% and a maximum of 8% based on the consumer price index, which measures inflation. Because inflation has remained low for so long, allowed increases have exceeded the CPI in 23 of the last 30 years, meaning rents have been able to rise much more than inflation.
The fair market rent for a one-bedroom apartment was $490 in 1985, when the city adopted the current formula. If the authorized rent increases had followed the consumer price index, the same accommodation would rent today for $1,500. However, with the guaranteed minimum rent increase of 3%, the rent would be $1,705, according to an analysis by Keep LA Housed, a coalition of tenant advocates. That’s still lower than the current market rent of about $2,000 per month.
Los Angeles allows annual increases of up to 8 percent based on inflation, which is higher than most other rent-controlled cities. The city also allows homeowners to charge 1 percent extra if they cover gas and the same if they pay for electricity. At a time when renters are already being crushed by higher prices, the current formula allows landlords to increase most renters’ largest monthly expense by a significant amount.
Tenant advocates have pushed the City Council to set a maximum of 3% and set increases at 60% in the Consumer Price Index to slow the rise in rents over time. The landlord groups want the council to keep the formula as is so their members can offset the pandemic rent freeze.
The Ministry of Housing found a good compromise: setting a new maximum authorized rent increase of 5% and a new guaranteed minimum of 2%. This would prevent sharp 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 suggested eliminating the additional 2 percent potentially allowed for utilities after a study found additional rent increases were likely greater than the cost of the service.
Other proposals from the Department of Housing require a little more scrutiny from board members. To help landlords cope with rising costs in years when inflation exceeds the 5% annual cap, the services suggest “banking” increases above 5% and apply them when the home price index consumption falls below 5%. This could cost tenants more because the additional percentage increase would be applied to higher base rents in future years.
The Housing Ministry also suggests basing rent increases on a different measure of inflation that does not include housing costs, which have been a major driver of inflation. Tenant advocates warn the proposed measure may be volatile, while landlords say it doesn’t adequately cover their costs.
Rent control is a valuable tool for maintaining the stability of communities and preventing displacement and homelessness in an expensive real estate market. It makes sense to adjust the City’s authorized rent increase formula in order to achieve a better balance.
But ultimately, the solution to Los Angeles’ housing crisis is to build more housing, especially affordable housing. The top priority of the City Council and Mayor Karen Bass should be to make housing construction faster, easier and less expensive in every neighborhood across the city.
