The City’s Roadmap for Rent Stabilization This Fall

Beverly Hills City Council continues its 18-month long discussion about rent stabilization starting at its August 7th meeting, where staff will present findings from the city’s consultant study for consideration. Council will also identify the next steps in the policy process, which may include yet more facilitated dialogues between tenants and landlords. Then City Council will get down to business on a final rent stabilization ordinance in September or October. This process will move very quickly come the end of the summer with the process wrapped up before the holidays. Here’s what to expect!

There is not much certain about where the policy process is headed. The last substantial City Council action came last November with the hiring of a consultant to study rent stabilization in Beverly Hills. Council defined for the consultant, HR&A Advisors, a scope of work that addresses the allowed rent increase, the final relocation fee schedule, and a proposal to exempt from rent stabilization as many as 1,100 units. This is the only map we have of the road ahead, so I go into the details below.

As important is what is not included in the scope of work and so may not be on the agenda. There is no discussion in City Hall about preserving the existing supply of rental housing. There is no discussion about tenant protections like relocation expenses for temporarily displacement (like for unit repairs) or a right of return after an extended remodel. And there is not a word about including specific penalties in the rent stabilization ordinance for landlord retaliation or other unlawful business practices.

Most obviously what is not on the City Council agenda this fall is a broader discussion about the extent to which our city is prepared to proactively protect residents who rent housing. City Council funded our Rent Stabilization Program at fifty cents on the dollar. To my mind that is a half-commitment to a robust program to protect those who rent.

Roadmap to the Policy Process

This fall the policy focus will narrow as Council revisits the changes made last spring to the rent stabilization ordinance. Also enumerated in the consultant HR&A Advisor’s scope of work are several other issues of concern.

Two key issues are the allowed annual rent increase and the relocation fee schedule. The cap on the allowed annual rent increase was recently raised from 3% to 4.1% for Chapter 6 tenants and, accordingly, the relocation fees were incremented upward by 4.1% due to inflation. Policy papers produced by tenants last summer describe our positions going into the fall, so do have a look at the annual increase position paper and the relocation fees position paper .

Also on the fall agenda is a carve-out from tenant protections for a substantial proportion of renting households. The proposal would exempt entire categories of rental properties from rent stabilization. For example, owners of duplex, triplex or fourplex properties, under the landlords’ plan, would not have to respect city protections for tenants. Today all occupants of rental apartments are covered by the law; come the fall City Council could exempt as many as one-in-seven Beverly Hills households from rent stabilization protections.

In addition to addressing those three key issues, the consultant’s revised scope of work added several more provisions of interest to landlords: rent-banking and rent adjustments.

Rent-banking allows landlords to reach backward in time to recapture rent increases they were allowed but actually didn’t levy on tenants. Imagine that the rental market softens before picking back up again. A landlord who refrains from increasing the rent to keep his tenants in a downturn could then hit his tenant with a whopping increase that makes up for his foregone past rent increases. Where did this come from? Rent-banking wasn’t substantially discussed during last summer’s facilitated dialogues but there it is in the scope of work!

The rent adjustment lets a landlord raise rents by more than what the ordinance allows. The property owner must demonstrate that his ‘fair return’ on investment was harmed by changes to the ordinance. If his net operating income has been negatively affected – if it declines relative to the benchmark year of 2016 – then he can ask for a higher-than-allowed increase. (It uses a complicated formula that takes into account nearly all business expenses including seismic upgrades but does exclude deferred maintenance.) HR&A Advisors will review both the rent adjustment provision and the fair-return standard.[1]

Also added to the revised scope of work was an issue important to tenants: protection from involuntary termination. That includes appropriate remedies when a tenant is evicted. Last fall Tenants requested that City Council review the city’s allowance of no-just-cause termination because we’re seeing that unjustified evictions undermines residential stability. (City staff know well that no-just-cause discourages tenants from reporting health-and-safety violations too.) We said as much in our position paper. Allowing no-just-cause eviction precludes any Chapter 6 tenant from realizing the meager protections afforded by the state’s Ellis Act. So a property owner can remove any, or all, of his units from the market with just 60 days notice.[2]

Data Will Inform the Policy Discussion

Tenants, landlords and councilmembers all agreed that a paucity of data impeded last year’s rent stabilization policy discussion. So a task for our consultant HR&A Advisors is the collection and analysis of relevant data. Council identified these categories for data analysis:

  1. Tenant household socioeconomic conditions including household income and rent paid;
  2. Characteristics of the rental housing stock including age and condition; and,
  3. Landlords net operating income (closely held!) or some proxy for it like sampled anonymous income tax return data or perhaps some sampling of gross (rent) receipts reported to the city.

Landlords already wanted tenant data and they were about to fund a study themselves to get it. Then the city stepped in to do it for them. Categories 1 and 2 are both of value to landlords. They argue that the data would support two of their arguments: that only deserving households should benefit from tenant protections; and that older rental properties are more expensive to maintain and that cost should be passed on to tenants in the form of a higher annual rent increase (7% or 8% annually they claim).[3]

The third data category — net operating income — is important to tenants because it could gets to the landlords’ call for a higher allowed rent increase. Landlords talk about costs escalating by 8% every year and that comports, they say, with their call for a cap of not less than 8%. Yet that overstates the case: most housing inputs don’t increase by nearly that much. But net operating income numbers for apartment rental businesses are unobtainable. Thus tenants are at a disadvantage when it comes to the available data: landlords want data that makes their case yet they won’t open their books.[4]

This Important Question is Not in the Scope of Work

If it is not in the consultant’s scope of work then it may not get discussed this fall. That’s why one of my greatest concerns is the overarching question left out of the discussion so far: Exactly who should benefit from the protections afforded by rent stabilization?

Mayor Gold raised that question during the rent stabilization discussions last fall and again mentioned it when we talked at his recent meet-the-mayor event. He called out for scrutiny tenants who pay $10,000 per month. While it’s not difficult to feel less sympathy for the most advantaged, they simply do not represent those who rent in Beverly Hills.[5]

Who should benefit? It is a crucial question because a unit that is exempted from rent stabilization represents a household that goes without protections like a cap on the annual rent increase and a relocation fee if  occupants are evicted. How do other councilmembers feel? We can’t begin to know. But the issue of ‘deserving tenants’ summons both a philosophical question about regulation but also a practical one with high stakes for both tenants and landlords.

Take the property-owner front group, Apartment Association of Greater Los Angeles (AAGLA). The organization wears its philosophical position on the sleeve: an illustration of a hammer and sickle recently appeared in its magazine under the byline of a local landlord turned AAGLA executive director. But AAGLA also has a more pressing, practical reason to limit rent control: it means higher operating margins for owners of rental housing. AAGLA has argued that rent stabilization should apply to seniors only, for example, or perhaps only low-income households. (Landlords point to rent-stabilized cities that do exempt certain properties or units for justification.)

But those AAGLA proposals would exempt as many as four-in-five households in Beverly Hills from tenant protections That’s why reducing the reach of our rent stabilization program is so important to landlords.

My view: every tenant is the kind of tenant who should benefit from rent stabilization. The cities that do exempt certain smaller properties apply very tightly-constructed requirements – and usually only on a temporary basis when an owner is an occupant too. But landlords here have proposed no such tightly-constructed exemptions.

Next Steps

We expect that City Council will stick to this road map for the fall discussion. It will likely commence in late September or October – and the fall is fast-approaching. Working backwards on the timeline, we can expect a reprise of the facilitated dialogues in August or September prior to Council meetings with a first step coming quite soon on August 7th when a facilitator may be chosen by Council in August.

Again the timeline is fluid but one thing is for certain: after months last spring of ambling meetings and a year now of process-only discussion, this process will move fast. The Mayor has said he wants to wrap up the entire rent stabilization ordinance package this fall.

But there is one other thing for certain also: the final package will not include many of the protections that we need. They’re simply not on the roadmap now but I am hoping for a detour!

It is very important that we residents who rent in Beverly Hills keep ourselves aware of the coming rent stabilization policy process this fall. We need everybody’s participation and input. Please sign-up for email news from Renters Alliance so I can share the latest developments with you as they happen.

  1. The rent adjustment surprised tenants in February of 2017 when it appeared on the City Council agenda with scant notice (Friday on a holiday weekend!) and then was adopted with no discussion at the Tuesday Council meeting. It’s was a complicated provision that seemed cooked-up by the landlords’ bookkeeper as I remarked then. Read more about the provision in Municipal Code section 4–6–11.)  ↩
  2. In most rent control localities in California, the Ellis Act imposes both conditions on the withdrawal of rental units from the market and also provisions (such as greater advance notice) for tenants to cushion the disruption. In Beverly Hills the relocation fee would apply, but generally none of the Ellis protections would kick-in because it’s more expedient for an owner to hand every occupant a 60-day notice of termination. Were no-just-cause cease to be allowed in Beverly Hills, then the landlord would have to proceed through compliance with the Ellis Act before displacing any tenant.  ↩
  3. Tenants are unmoved by the claim that older properties are more expensive to maintain and thus obligate a higher allowed annual rent increase. We don’t dispute that they are more expensive to maintain; many are approaching 80 years of service. One need not be clairvoyant to see that landlords have under-maintained many of these properties. Repair costs will of course be higher when original plumbing and wiring reaches end-of-service. The question is, Why were they not replaced? Old fixtures and systems periodically deprive tenants of the housing service for which we pay. And second, the same landlords that complain about high ‘maintenance’ costs have purchased an asset for a price that presumably reflects aged systems. They surely inspect the property and every lender wants to protect its investment. If a buyer has gone blind into a purchase, or, as happens more frequently, has overpaid, that then is a potential business loss and it is up to no tenant to make up for the poor judgment of the commercial property owner/operator.  ↩
  4. Landlords say that higher household incomes justify excluding some tenants from the rent cap, relocation fee, and other aspects of rent stabilization. The Census and the American Community Survey provides some insight into household incomes, rent burden, and other proxies for relative affordability. Actual rent amounts are available though the city’s rental unit registry. As for characteristics of the housing stock, landlords like to claim that older buildings cost them more and there is available data concerning property age and condition available via the tax assessor and to some extent city surveys, respectively. When it comes to the third category, estimates of net operating income, which could make the tenants’ case that landlords don’t need a whopping annual rent increase, the data is not available.  ↩
  5. Few tenants pay $10,000 or thereabouts for a rental apartment. The city’s rental unit registry data provided to the Human Relations Commission in a March briefing show that the median rent for each unit size averages across all size categories to about $3,000.  ↩

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