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 prevent price shocks for tenants during periods of high inflation while ensuring landlords can recoup the costs of managing their properties.
About Rent Control in Los Angeles
About 650,000 units in the city were built before Oct. 1, 1978, and are regulated by the rent-stabilization ordinance. That’s nearly 75% of L.A.’s apartments.
The Need for Change
Los Angeles has one of the least affordable housing markets in the country, and that’s the driving force behind the city’s homelessness crisis. More than half of tenants in the greater L.A. region are rent-burdened, meaning they spend more than a third of their income on housing, leaving less money for savings, healthcare, transportation and other needs.
More than 10% of tenants spend more than 90% of their income on rent, making them vulnerable to ending up on the street. So city leaders have a keen interest in keeping rents stable to help tenants stay housed.
The Current Formula
L.A. has one of the most liberal rent control formulas in the country. The city ordinance sets an allowable 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 was low for so long, allowable increases have exceeded the CPI in 23 of the last 30 years, meaning rents were permitted to rise significantly more than inflation.
A Proposed Change
The Housing Department has suggested setting a new maximum allowable rent increase of 5% and a new guaranteed minimum of 2%. This would prevent sharp rent hikes while helping landlords keep up with rising business fees and expenses that may not be reflected in the consumer price index.
Other Proposals
The Housing Department has also suggested “banking” increases above 5% and applying them when the consumer price index falls below 5%. Tenant advocates warn that this could cost tenants more because the extra percentage increase would be applied to higher base rents in future years.
The department has also suggested 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 that this measure can be volatile, while landlords say it doesn’t capture enough of their costs.
The Way Forward
Rent control is a valuable tool for keeping communities stable and preventing displacement and homelessness in an expensive real estate market. It makes sense to adjust the city’s formula for allowable rent increases to strike a better balance.
But ultimately the solution to L.A.’s housing crisis is to build more housing, especially affordable housing. The top priority of the City Council and Mayor Karen Bass should be making homebuilding faster, easier and cheaper in every neighborhood of the city.
Conclusion
The city has a unique opportunity to strike a balance between preventing price shocks for tenants and ensuring landlords can recoup their costs. By making reasonable changes to the formula, the city can prevent sharp rent hikes while still allowing landlords to make a profit.
FAQs
Q: Why is the city changing the rent control formula?
A: The city is changing the rent control formula to better balance the needs of tenants and landlords. The current formula has allowed for large rent increases during periods of high inflation, which has made it difficult for tenants to afford housing.
Q: What are the proposed changes to the rent control formula?
A: The proposed changes include setting a new maximum allowable rent increase of 5% and a new guaranteed minimum of 2%. The changes also suggest “banking” increases above 5% and applying them when the consumer price index falls below 5%.
Q: Will the proposed changes help or hurt tenants?
A: The proposed changes are intended to help tenants by preventing sharp rent hikes and ensuring that rent increases are more closely tied to inflation. However, tenant advocates have expressed concerns that the changes could still lead to higher rent increases for some tenants.
Q: Will the proposed changes help or hurt landlords?
A: The proposed changes are intended to help landlords by allowing them to recoup their costs and make a profit. However, landlords have expressed concerns that the changes could limit their ability to increase rents and recoup their costs.
