Heads Landlords Win, Tales Tenants Lose [Update]

City Council baked tenants a full loaf of protections when it unanimously adopted an ‘urgency ordinance’ in January. Annual rent increases were limited to 3% and significant relocation fees were obligated for any involuntary tenancy termination. That put the brake on no-cause evictions, and residents who rent have waited for such protection from City Hall for 30 years. But a month later it looks like landlords have gobbled half that loaf!

When City Council in January limited increases, added fees, and, most importantly, created a rental unit registry to collect data on landlords, units and tenancies, they took a key step toward implementing a real rent stabilization program.

The full loaf of tenant protections baked for tenants in January of 2017 promised us a good taste of what residential stability is really like. Sustainable rent increases, for example, and relocation fees. These were big steps forward. Read the summary of that January meeting outcome for more details.

But what Council gives it can also take away. In February, City Council modified key protections we won the prior month under a new rent stabilization ordinance (adopted on February 21st).

The 3% cap on the maximum rent increase is now a floating inflation-adjusted cap. But it only floats upwards. The new allowed increase is the greater of 3% or the change in consumer prices for Chapter 6 tenants. As high as inflation rises, so will the maximum allowed rent increase. But when inflation trends down, even to zero, the maximum increase can still be 3%.

Landlords now can ride the tide of inflation up with annual rent increases but never hit bottom when the tide goes out because of that 3% floor (if they choose to take advantage of it).

Chapter 5 tenants have no effective floor. That’s why over decades they have seen increases barely over 1% in any year. Inflation was low; so was their increase because it too was linked to 100% of the consumer price change.

The substantial relocation fees from January are now cut by one-third across the board. (See the figures in the urgency ordinance). A reduced relocation fee also diminishes the landlord’s disincentive to evict.

Relocation fees compared
January’s relocation fees (left) are reduced by one-third in February’s adopted ordinance. The $2,000 bump-up for vulnerable tenants actually disadvantages them if they are in 1-BR or 2-BR units relative to the previous fee schedule. Score another one for landlords!

The new relocation fees are now indexed to consumer prices too, so they will rise with inflation but when inflation is low and the maximum rent increase can still hit 3% those fees will increment upward at a slower rate. For example, at 1% change in consumer prices (CPI) the rent can rise 3% at the next increase but the fees will notch upward by 1%. Over time the fees can fall behind.

Landlords now can ask for a ‘rent adjustment.’ If the new rent stabilization policy cuts into a landlord’s ‘just and reasonable returns,’ the new ordnance says, he can come to the city and ask for a rent increase above the cap.

Under that program the landlord can ask to pass on to tenants any (and all) of these everday costs of doing business:

  • Legal and other professional expenses for evictions;
  • Improvement costs for fixtures and appliances; and,
  • Maintenance costs such as landscaping, painting and exterior finishing.

That’s not all. The landlord can also ask for an upward ‘rent adjustment’ if the cost of capital improvements (from foundation to roof) that he makes at his discretion dents his bottom line. The ‘benchmark’ year for comparison is 2016 – the high-water mark for rental income since the economic crisis. That could include the cost of seismic retrofit too.

The city’s hearing officer need only give the landlord the OK to pass-on those costs to tenants in the form of a higher increase. THERE IS NO CEILING ON THE INCREASES LANDLORDS MAY BE GRANTED under the rent adjustment process. That process must be important because it comprises 7 of the 17 pages of the entire February ordinance!

I call it, Heads landlords win, tails tenants lose.

Landlord Fingerprints Are All Over This

AAGLA logoWe must remember that the landlords and their industry associations are working hard to deprive residents who rent of the sort of basic protections offered by nearly every city that has rent stabilization.  Industry associations like the Beverly Hills Property Owners Association; the Apartment Association of Greater Los Angeles; and the California Apartment Association work behind the scenes, lobbying city councils and the state legislature.

Indeed the rent adjustment section of the ordinance reads like it was authored by a landlords’ bookkeeper. Read the final urgency Ordinance for the full laundry list of expenses as well as the accelerated timetable for amortizing them across the tenant in the building. For a briefer read try the staff report. Still too much? Skim the city’s press release which notably doesn’t dwell on the rollback of January’s renter protections. Of course it doesn’t!