2017 Dialogue #2: Hardball on the Allowed Rent Increase

Professor Sukhsimranjit Singh’s facilitated dialogue #2 was a departure from Monday’s first session in that here we drilled down to the single concern important to every tenant and landlord: How much can the rent rise each year? The ‘consensus’ position that emerged will not make tenants happy!

Monday’s first dialogue collected participants’ concerns and identified several issue areas for further discussion. This session drilled down to a single concern: the rent increase. Recall that in January, City Council reduced the allowable increase for most tenants from 10% per year to 3%. It sounds like a big reduction and it is. But then remember that at 3% it is nearly double inflation and 50% higher than the recent rise in consumer prices.

To the annual allowed increase are sometimes added pass-throughs costs for city-imposed water penalties and trash fees. (The current policy is spelled out in April’s ordinance. For more info read the city’s FAQ.)

Our task tonight was to recognize property owners’ interest to maintain their operating margins and to preserve their property’s value. Tenants concerns include residential stability, and that means protection from unreasonable rent increases.

Dialogue #3: room view

At our table were seated three tenants and two property owners. (We were unsuccessful in bidding a third property owner to join.) While my table-mates couldn’t agree on any single proposal, we had a very substantive discussion and the table came up with three alternatives.

Two tenants recommended an annual rent cap of 3% or less and tied that much of an increase to improved living conditions. The third called for the rent increase cap tied in some way to the change in the consumer price index (rather than an arbitrary percentage).

The two property owners at my table agreed with those proposals. “This is Beverly Hills, and a lot of these landlords have gotten away with murder,” he said, and he didn’t mind a lower cap. The other owner, who was also a resident in his own duplex, was more concerned about being able to choose his only tenant; the cap was less of a concern as he didn’t much raise rents anyway. Interesting perspectives that depart from the hard-line of the Apartment Association of Greater Los Angeles (‘The Voice of Multi Family Housing Since 1917’).

The association lobbyist was actually at our table too. He liked a 7% annual permitted increase plus he wanted to pass to tenants half of a property owner’s improvement costs. That would get us near to the old 10% allowed increase. Why push half of the landlord’s investment in his own property back onto tenants?

That’s our table. How did the room as a whole feel?

And the Survey Says…!

There were round-robin poster paper presentations by the tables and then an unexpected straw poll. Singh said, “Between 5% and 7% is what I’m hearing.” After some more discussion and a couple more straw polls, he said, “A lot of you believe we can meet in the middle at 6% to 8%.” Then he added, “Plus a pass-through for capital improvements.”

Ouch!

My table proposed 3% or below and no cost pass-through. Another table recommended a cap tied to CPI (which this year was just 1% because inflation is so low). The “somewhere in the middle” position mentioned by the facilitator was FIVE TIMES the last increase in consumer prices last year.

poster: final proposals?
The in-the-middle percentage with the winning vote tally of ’40’ plus, you know, a few add-on provisions that won’t work to tenants’ advantage.

Moreover, that in-the-middle proposal would give property owners a bonus not envisioned in our current policy: subsidized property improvements. That would make each tenant an investor in the property without building equity.

But wait, there’s more! Also recommended was a rent bank. The concept allows property owners to increase the rent more than is allowed if he had not earlier maxed out his allowed increases. Another bad deal for tenants.

On the table, too, were two significant carve-out exceptions where rent stabilization might not apply at all. One would have exempted households with no senior in residence (most of us) and another exception for any building with six or fewer rental units (more than half of all properties). These were disingenuously labeled “small” carve-outs.

What is the most remarkable about the in-the-middle proposal is that it would be even worse for tenants than the old policy. We would be going backwards. Indeed the proposal than emerged from the ‘consensus’ straw-polling at this Wednesday dialogue was worse for tenants than the proposal that came from the landlords’ own lobbyist tonight!

How could a roomful of tenants and landlords charged with coming up with a reasonable proposal suggest onerous terms for tenants? There are a few reasons.

Property owners outnumbered tenants by 2-to-1. From the 8,000+ households who rent in Beverly Hills, fewer than twenty tenants bothered to show up. We can’t ask City Council to take a stand on tenant protections if we’re not willing to stand up for them ourselves.

Dialogue #3: landlord speaks
This property owner summoned many reasons why the sky should be the limit when it comes to rent increases.

Second, many property owners were not interested in compromise. For example: the current cap is 3% and that is actually three times the rate of inflation. But property owners spoke with a unified voice: “We like eight percent.” On the rental unit registry, “We don’t want to send the information to the city.” These objections came in the first fifteen minutes.

And third, Professor Singh at the outset framed the dialogue in terms that advantaged property owners. To spark the discussion on the allowable increase he asked, “Is it 3% or is it 10%?”

That implicitly eliminates consideration of a cap tied to the consumer price index as tenants want. It also puts back on the table a provision of the old law — the 10% increase — both councilmembers and property owners already agreed is not reasonable.

What was not on the table for discussion was asset appreciation: the stupendous return-on-investment after a decade or more of ownership. Also, no property owner mentioned the significant federal tax benefits of owning real estate. Nobody flagged the generous depreciation they deduct or the other expenses that attend to the apartment leasing business.

I believe that Professor Singh’s framing was not intended to prejudice the proceedings. But it did suggest the challenge of these time-limited dialogues when the stakes are high and each side, tenants and the property owners who house us, may argue from polarized positions.

Indeed the most vocal property owners weren’t in the mood for a conversation; instead they wanted to simply demolish the current rent stabilization policy. And they outnumbered us!

Want to have a voice in this process? Show up for the next facilitated dialog on Monday, July 17th at 7 p.m. at Roxbury Park. Read about the current policy. Prepare ahead with your key concerns. It’s time to take this seriously.