By Daniel Yukelson, Chief Executive and Executive Director

Apartment Association of Greater Los Angeles (AAGLA)

If Los Angeles were trying to destabilize its own housing system, it could hardly do better than the policy mix it has now chosen. The City has discovered the exact combination of rules that looks harmless on paper but behave, in practice, like dry rot in an old building: slow, quiet, and ultimately structural.

The formula is simple: “cap” any rent increases at politically pleasing levels while letting every major cost category—insurance, utilities, labor, materials, and regulatory mandates—all rise at full speed. The result isn’t an abstract “market tension.” It’s a widening budget hole that eventually consumes the very rental properties tenants rely upon for their housing.

New York City learned this lesson the hard way. Its housing system didn’t crumble overnight. It eroded over years as the economics of regulated buildings were pushed past their limit. Costs rose faster than allowable rents, owners postponed maintenance they could no longer justify, lenders backed away, and thousands of units drifted into distress. Today many of those apartments sit vacant because restoring them costs more than the rent that regulators allow. That is the end stage of a policy that views affordability as a slogan rather than a financial equation.

Los Angeles is now stepping into the same pattern. Recently, the City Council in Los Angeles voted to drastically reduce allowable rent increases for its nearly 650,000 rent stabilized units by reducing its formula to 90% of the Consumer Price Index (CPI) from 100% of CPI, by reducing the maximum allowable increase or “cap” by 50% to 4% (vs. 8%) and reducing the minimum allowable rent increase or “floor” by two-thirds to 3% (vs. 1%). As if this weren’t enough, the City Council also now prohibits property owners from recovering costs of utilities paid on behalf of their tenants, utilities like gas and electricity that owners had been allowed to tack on an additional 1% each utility and now prohibits charging an additional 10% when adult occupants are added to an existing lease.

Politico called it a “historic vote” and framed it as a victory for tenants. The timing, however, is impossible to ignore: these drastic rent limits come precisely as cost pressures for housing providers are reaching their highest point in a decade. Such severe changes will have certain harmful impacts on the City’s housing providers already struggling to keep pace with rapidly rising costs, particularly following nearly 4 years of no allowable rent increases and millions of dollars in unpaid rent due to eviction moratoriums imposed during the global pandemic. Rental housing in the City of Los Angeles will face certain doom and destruction at a much faster pace than ever before in the nearly 50-year history of this horrible rent control regime.

City records make clear just how severe those destructive financial pressures are. A briefing filed with the City Clerk reported a “sharp rise” in operating costs across the board, noting that insurance premiums jumped 17% in just twenty months and that maintenance costs have run 25% higher than the consumer price index over the past decade. A separate analysis from a Southern California property-management firm describes the same picture from the ground: utilities rising, property taxes edging upward, contractors and vendors charging more, and insurance—especially fire-related coverage—becoming costlier and harder to secure.

These financial pressure points are obvious to anyone who operates an apartment building. Landlords testified before the City Council that escalating utility rates, inspection and trash fees, new compliance rules, rising insurance premiums, and higher labor costs have made the economics of rent-stabilized housing increasingly precarious. ABC (TV) Channel 7 News summed up the burdens bluntly: it is simply more expensive to provide housing in Los Angeles today than it was even two years ago. Meanwhile, the City’s own data shows that excluding financing costs (insurance and principal) nearly a third of every rent dollar goes to operating expenses alone—and that proportion has only grown. For most landlords, financing costs turn many of the City’s struggling housing providers from the “black” to the “red.”

Insurance is an especially troubling indicator. Even the state’s Insurance Commissioner admits that California is experiencing an “insurance crisis.” Following consecutive wildfire seasons and growing losses, State Farm sought rate increases in California of up to 22% for homeowners and nearly 38% for rental dwellings, and to add insult to injury, such costlier insurance premiums all come with less coverage. These numbers matter because insurance is not optional. When coverage prices soar or insurers pull back entirely, the financial foundation of older apartment buildings becomes unstable almost by definition.

In addition, California’s well-known litigious regulatory environment has exposed landlords to increased legal claims for habitability issues, discrimination and harassment, all of which claims often force landlords into costly out of court settlements rather than pursuing even costlier litigation to prove their innocence. This form of legalized extortion often paid to “bad actor” tenants is a fast-growing problem for today’s landlords. And, we have not even addressed the exposure landlords have to fraudulent rental applications and squatters who move-in and take over properties often leaving them after prolonged eviction lawsuits and only after causing costly damages—the squatter problem is considered to be a civil matter and not a criminal matter handled by law enforcement.

This is the context in which Los Angeles now “caps” rents so tightly. Most of the City’s older housing stock—especially buildings constructed before 1978—is already subject to the Rent Stabilization Ordinance. These are the properties that anchor the City’s naturally affordable housing supply as “naturally occurring affordable housing.” When economics breaks down, these buildings don’t convert smoothly to market rates. They slip into disrepair, change hands under distress, or exit the rental market altogether. That is exactly what happened in New York, where thousands of rent-regulated units are now offline because owners cannot legally charge enough to justify the repairs needed to make them habitable.

Los Angeles is just a bit earlier in the timeline, but the signals are similar. Lenders are growing cautious. Insurance markets are tightening. Some ownership groups are quietly discussing partial exit strategies. The City, meanwhile, continues to add new regulatory mandates that may be well-intentioned but carry real costs—seismic retrofits, environmental upgrades, new inspection cycles, expanded reporting rules—without acknowledging how these expenses interact with strict rent “caps.” Every new rule assumes the existence of a revenue model that no longer exists.

The danger is not the sudden collapse of the City’s rental housing market. Housing systems don’t fail that way. They decline slowly, through mounting deferred maintenance, delayed capital work, and shrinking investment appetite. By the time the symptoms become public—a wave of deteriorating buildings, a rise in vacant but uninhabitable units, or lenders refusing to back rent-regulated properties—the underlying economics are already beyond repair. Foreclosures will be commonplace.

Los Angeles still has time to avoid New York’s outcome, but only if it treats housing policy as a balance sheet rather than a press release. Rent protections must be aligned with the real cost of maintaining buildings, not with a political desire to freeze prices in place. If the City is going to impose additional regulatory mandates such as green building standards and maximum indoor air temperature habitability requirement, it must also establish mechanisms to fund them. And if Los Angeles wants to preserve its older, more affordable housing stock, it cannot continue constructing a regulatory framework that makes reinvestment unaffordable and forces its housing providers to look for the “exit ramp.”

There is no mystery here. Housing is simple math. When revenue is “capped” and expenses are not, the structure eventually fails. New York learned it too late. Los Angeles is approaching the same point of no return. If policymakers continue insisting that buildings can operate on a financial model that no longer adds up, the City won’t need a crisis to lose its affordable housing—it will have designed the failure itself. For the City’s rental housing providers, the “math is simply not math-ing.”

Daniel Yukelson is currently the Chief Executive and Executive Director of the Apartment Association of Greater Los Angeles (AAGLA). As Certified Public Accountant, Yukelson began his career at Ernst & Young, the global accounting firm, and since then had served in senior financial roles principally as Chief Financial Officer for various public, private and start-up companies. Prior to joining AAGLA, Yukelson served for 12 years as Chief Financial Officer for Premiere Radio Networks, now a subsidiary of I-Heart Media, and then 3 years as Chief Financial Officer for Oasis West Realty, the owner of the Beverly Hilton and Waldorf Astoria Beverly Hills where he was involved with the development and construction of the Waldorf. Yukelson also served for 6 years as a Planning Commissioner and for 3 years as a Public Works Commissioner for the City of Beverly Hills.