The City of Los Angeles’s Housing Department has proposed modifications to the city’s existing rent increase formula, which appears to have a great deal of support on the City Council. These proposed changes include:

• Reducing the maximum annual allowable rent increase (“Cap”) from 8% to just 5%.
• Reducing the minimum allowable annual rent increase (“Floor”) from 3% to 2%, even if inflation is less than 2% or the economy is experiencing deflation.
• Removing allowances to increase rent by another 1% each for housing providers that pay for gas and/or electricity.
• Revising the formula for how increases by basing increases on inflation instead of on the Consumer Price Index that includes housing – the city could use an index that excludes rising housing costs, which would then lead to lower allowable increases.
• Potentially considering an option to “bank” some portion of allowable rent increases to be carried over to future years.

After suffering for nearly four-years without allowable rent increases in the City of Los Angeles’ knee-jerk reaction to the pandemic, and at that same time while experiencing an unprecedented period of inflation, we then also experienced the doubling of mortgage rates and now the more recent tripling or even quadrupling of insurance rates in what has become the “California Insurance Crisis.” Despite all of that, the city’s latest proposal to drastically reduce allowable rent increases will only further erode and eventually destroy the livelihoods of housing providers who lack the resources to continue providing badly needed housing services.

Time and again, the City of Los Angeles somehow always sees fit to further burden the city’s small housing providers with complicated ordinances that vastly increase their risk profile, leading them to be extorted by unscrupulous attorneys for alleged harassment, habitability and numerous other claims, with higher taxes and inspection fees, quadrupling water rates, and enormous relocation fee payouts even just for the mere pleasure of allowing owners to live at their own property. And now, the city seeks to strip these housing providers of the allowable rent increases which were already made life financially challenging to keep up with rapidly rising costs of operations and comply with city mandates.

The City Council has seemingly been waging constant attacks on the city’s hardworking and honest rental housing providers. There is never any attempt at balance ever in any of the proposed regulatory changes, and there’s only a continued effort to place a tighter stranglehold on property owners to the point we can no longer breathe.

This latest proposal by the city merely amounts to stealing and it is further evidence of housing providers being forced to fund and participate in what can only be described as a private welfare system when welfare and supporting the downtrodden should be and must be the job of government, and not that of private property owners. No other businesses, not even healthcare, grocery stores, nor even city government itself, are subjected to such draconian price controls like rent control. On the heels of the aforementioned nearly four years of zero allowable rent increases, eviction moratoriums and raging inflation, and now an insurance crisis, all rental housing providers have already been struggling to keep up with costs that have been careening out of control.

As a bright spot in all of this suffering, I am relieved that the city is giving consideration to the preservation of the 2% floor, but I feel that the ceiling of 5% is completely baseless and a total “crap shot” and could even end up lower. Just because a few other jurisdictions have such low rent restrictions doesn’t mean that the other cities are being fair and giving owners a “shot” at survival. Any price control is an artificial barrier for rental property owners as there is no companion “cap” on costs increases, including all of those under the city’s control such as water, sewer, trash hauling, permits, inspection fees, etc., etc. If owners cannot cover costs while providing housing services under this imposed artificial “cap,” then owners will be merely forced to exit the rental housing business either by sales or foreclosure, and with that, we will lose a great deal of badly needed rental housing.

Even under the existing 8% “cap,” the City is already experiencing losses of many rent stabilized properties whose owners are just “up and leaving” the market. In setting this proposed new “cap,” the city is playing Russian Roulet with its rent stabilized housing stock and now is not the time for such reckless actions. As for the elimination of the allowable increases for gas and electricity, this is completely reprehensible! Many older properties have single meters and must be allowed to charge separately for gas and electricity. It is cost prohibitive for these old properties to now install individual meters, and if they are prohibited by the city from collecting these necessary and appropriate costs, then the city is dooming them to destruction. Only a fool would think such a removal is appropriate as these are clearly justifiable costs.

One glimmer of light here is the Housing Department’s creativity in proposing a rollover or ability to bank unused rent increases.

Price controls on rents have been proven time and again to be bad policy, which in the long-term leads to housing shortages, resulting higher rents as supply cannot keep up with demand, and neighborhood gentrification. We have had these same policies in place here in Los Angeles for more than 5 decades, and today we have severe shortages of rental housing, the highest rents, and the worse homelessness situation in California. Ratcheting down these already bad policies will only make matters worse. It is a shame the City of Los Angeles is too inept to figure this out.

A far better and targeted approach would be to provide rental assistance to those renters who qualify, rather than attempt to lower rental prices for everyone, including for wealthy renters. Housing affordability is a societal issue, yet the financial burden of the solution is thrust upon one group of individuals who happen to own and manage rental housing. Forcing artificially low rents do not “protect” renters and, in fact, results in more renters being displaced as entire buildings are sold when existing owners are unable to keep up with substantially rising costs of repairs and maintenance as well as city provided services such as water, sewer and trash hauling.

Rents in the City of Los Angeles are already limited under the Rent Stabilization Ordinance based on the rate of inflation. If rent “caps” are further lowered, it will result in such properties operating in the red, which is unsustainable for any owner, and especially for the smaller, independent owners. This will force these independent owners who are providing what economist refer to as “naturally occurring affordable housing” to lose their retirement incomes. Upon exiting the rental housing business, the likely new owners of these properties will be corporations, real estate investment trusts or institutional investors that are only looking to maximize return on investment, and they will tear down these typically older buildings and replace them with luxury units, condominiums or McMansions for high-income residents. Then, the city will continue to quickly gentrify and become more unaffordable to lower-income renters. Bad policy after bad policy leads to a death spiral.

Written by Daniel Yukelson.

Daniel Yukelson is the Executive Director of the Apartment Association of Greater Los Angeles. He lives in a Los Angeles Area apartment with his 140-pound St. Bernard named Bella.