The City’s Roadmap for Rent Stabilization This Fall

Beverly Hills City Council continues its 18-month long discussion about rent stabilization starting with findings from a city consultant. With data in hand Council will then move on to the next step in the policy process: will that be more facilitated dialogues this summer? Or will City Council get straight to business on a final rent stabilization ordinance? Will the ordinance changes be wrapped up before the holidays? Here’s what we can expect.

The last substantial City Council action on rent stabilization came last November with the hiring of a consultant to put some numbers to the current rental housing market in Beverly Hills and suggest some policy options. The consultant’s report to Council will likely focus the policy discussion this fall.

Process Roadmap

Enumerated in the consultant HR&A Advisor’s scope of work are issues central to the rent stabilization ordinance.

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 in the revised scope of work was an issue important to tenants: No-just-cause 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.

In addition to addressing those key issues, the consultant’s revised scope of work added two provisions of interest to landlords:

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!

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.

The consultant will also review the rent adjustment process that lets a landlord ask for a raise above what the ordinance would allow if he is not making a ‘fair return’ on his investment. That is, if his net operating income has been negatively affected by the recent ordinance changes relative to the benchmark year of 2016. HR&A Advisors will review both the rent adjustment provision and the fair-return standard.

Context 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 Council identified these categories for data analysis:

  1. Tenant household socioeconomic conditions in Beverly Hills including household income and rent paid;
  2. Characteristics of the rental housing stock in the city 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.

The third data category — net operating income — is important to tenants because landlords talk about their costs escalating by 8% every year. Yet we know that most housing inputs don’t increase by nearly that much. Even a volatile cost like energy, which can fluctuate by that magnitude, decreases too. However landlords will not open their books, which forces the consultant to use a proxy for net operating income.

The key question not in the Scope of Work: Exactly who should benefit from the protections afforded by rent stabilization? Mayor Gold raised that question during the rent stabilization discussions last fall. He again mentioned it when we talked in an aside at his recent meet-the-mayor event. It is a key question because any household exempted from rent stabilization in Beverly Hills is a household that goes without important protections like a cap on the annual rent increase and a relocation fee.

Next Steps

We can expect a reprise of the facilitated dialogues in August or September. Once those conclude, the process will move fast: the Mayor has said he wants to wrap up the entire rent stabilization ordinance package this fall. But many of the protections that we need are not included in the process roadmap today.

We must keep ourselves aware of the rent stabilization policy process as it unspools this fall. We need everybody’s participation and input! Please sign-up for email news from Renters Alliance so we can share the latest developments with you as they happen.