The Los Angeles City Council has approved major changes to the city's rent control ordinance. This is the first major overhaul in 40 years. Own or manage rent-controlled properties in Los Angeles? These changes will directly impact your operations and financial planning.
What Happened?
On Wednesday, the City Council voted 12-3 to implement new rent increase limitations. These are expected to affect approximately 42% of all Los Angeles households living in rent-controlled units.
What are the Key Rent Control Changes?
There will be an Annual Rent Increase Cap. Regardless of inflation rates, rent increases will now be capped at 4% annually. Under the previous system, things worked differently. To keep up with inflation, rent increases could reach as high as 10%. During periods of lower inflation then rents would decrease less.
A New Calculation Formula will be included. This equation determines the exact allowable increase each year. It will equal 90% of the change in the region's Consumer Price Index (CPI), with a maximum ceiling of 4%.
What about a Minimum Floor Established? In years of low inflation, landlords will still be able to increase rent by at least 1%. This is better than nothing. But, compared to the previous guarantee of a 3% minimum it feels very small.
The Utility Pass-Through will be eliminated. This is the additional 2% annual increase that landlords could previously charge when paying for tenant utilities has been removed entirely. While it can be a relief for tenants, it's rough for property owners.
Who Is Affected by the Los Angeles Rent Control Change?
These regulations apply to the same properties currently under rent control in LA. The list starts with apartments built before October 1978. It also includes replacement units for demolished rent-controlled properties. Also, new units attached to older buildings can't escape the change.
Because most occupy older properties, this change affects a substantial portion of the rental market. Nearly two-thirds of LA residents live in rental housing.
Timeline and Implementation
The reforms aren't effective immediately. The City Attorney's Office must first draft the new regulations. Then they present them to the Council for a final vote. Property owners should monitor this process closely. They need to understand when the new rules will take effect and how to ensure compliance.
The Property Owner Perspective
Multiple landlord groups have expressed concern about these changes. Property owners face rising costs including skyrocketing insurance premiums, increasing maintenance expenses, and property taxes. The new cap may make it more challenging to keep pace with these escalating operational costs.
During the COVID-19 pandemic, rent increases were banned for nearly four years, creating additional financial pressure on property owners. The new 4% cap, while higher than what tenant advocacy groups requested (3% at 60% of inflation), still represents a significant reduction from what was previously possible during high-inflation periods.
What Property Managers Should Do With LA's Historic Rent Control Reform
Stay Informed: Track the City Attorney's Office progress in drafting the final ordinance and the date of the final Council vote.
Review Your Portfolio: Identify which properties in your portfolio are subject to rent control and assess how the new cap will impact your financial projections.
Plan Accordingly: Adjust your budget forecasts and long-term financial planning to account for the more restrictive increase limits.
Document Utility Costs: With the elimination of the utility pass-through, carefully evaluate properties where you cover tenant utilities and consider how this impacts your bottom line.
Communicate with Owners: If you manage properties for other owners, ensure they understand these changes and how they may affect investment returns.
Looking Ahead
This reform represents a significant shift in LA's rental housing landscape. Council Chair Nithya Raman stated that "extraordinary rent increases are driving people out of the city..."This frames the changes as necessary to address housing stability and homelessness prevention.
However, some council members, including John Lee, warned that stricter regulations could discourage new housing development at a time when the city is trying to expand its housing supply through initiatives like Mayor Karen Bass's executive directive to speed up affordable housing approvals.
Property owners and managers will need to navigate these competing priorities while maintaining viable rental operations. Understanding these changes and adapting your property management strategies accordingly will be essential for success in LA's evolving rental market.
This blog post is for informational purposes only and does not constitute legal advice. For legal questions, property owners should consult with legal counsel.
