Beverly Hills recently posted the maximum allowed annual rent increase percentage for Chapter 6 tenants and we breathed a sign of relief: it has dropped to 3.1% from last year’s 4.1%. That’s because the rise in consumer prices has slowed and, with it, the cost of providing housing. But most localities don’t cap rents and those that do take various approaches even in the same rental market. How does Beverly Hills compare?
The maximum allowed annual rent increase in Beverly Hills is set by the annual change in consumer prices (CPI) for the Southern California region. It is announced by the Bureau of Labor Statistics each May and then the Rent Stabilization office announces the allowed percentage in June.
Today the maximum allowed annual rent increase for Chapter 6 tenants is 3.1% (the same percentage as CPI because Beverly Hills uses 100% of the CPI percentage). Chapter 5 tenants are allowed a very similar percentage as we explain in Fundamental Concept: Maximum Allowed Annual Rent Increase.
City of Los Angeles also uses 100% of CPI but Los Angeles tenants could face a 4% increase this year when Beverly Hills tenants can see only a 3.1% increase. Why? Because these cities calculate percentages at different times of the year. A few months ago those percentages were reversed!
But worse, Los Angeles also allows the landlord to raise the rent an additional 1% for electricity and yet another 1% for gas if he provides either service. That is not an additional percent on the base rent, mind you, but an additional percentage atop the allowed increase. And there is a big difference! A tenant in Los Angeles who pays for neither gas nor electric can see a whopping 6% annual increase.
On the other hand there are hundreds of localities in California that don’t limit rent increases at all. In our region, for example, tenants in Long Beach, Pasadena and Burbank can see unlimited increases (and also allow no-just-cause eviction). Glendale doesn’t cap a rent increase but does allow only just-cause eviction.
Exemptions from rent stabilization vary too. In Beverly Hills every multifamily rental property (duplex or larger) built before 1995 comes under the ordinance. In contrast, both Santa Monica and Los Angeles allow certain exemptions for smaller properties on request. Most every city does not categorically extend protections to households renting single-family homes. But Los Angeles County now does under a recently-enacted interim rent control ordinance.
The point is that rent control provisions are unique to each locality. Here we take a look at the allowable annual increase among our neighboring localities because the cap on increases is the one aspect of rent control that is both intuitive and a crucial determinant of renter stability.
Where Does Beverly Hills Stand?
Among localities that put a cap on the maximum allowed annual rent increase, Beverly Hills falls in the middle of the pack: we are not as aggressive in limiting rent increases as some but not as inclined to unnecessarily subsidize residential rental landlords as are others.
(This table is sorted from greatest protections to least protections. It does not include cities in Southern California that do not impose some kind of cap on the rent increase, of which there are 82 in Los Angeles County.)
Some Key Points
Santa Monica has adopted among the most stringent rent control measures. This year the city’s general adjustment to the maximum allowable rent is 2% — with a $44 cap on the annual increase for rents of $2,175 and up. The increase is relatively low because Santa Monica allows landlords just 60% of the change in consumer prices (CPI).
Santa Monica voters have consistently supported progressively-stronger measures even as the supply of rent controlled units continues to diminish. (Every demolished rent-controlled unit is a lost unit because it is not replaced by a rent-controlled unit.) However the city is a leader in constructing relatively-affordable new units. The city is distinguished by an elected rent control board with complete control over its budget and a city attorney fully ready to defend tenants against rogue landlords.
West Hollywood also bests Beverly Hills when it comes to tenant protections. This year West Hollywood allows only a 2.25% rent increase, according to the latest rent control newsletter, which is 75% of the annual change in consumer prices. Why 75%? West Hollywood looked very carefully at the state’s requirement for ‘fair return’ to the landlord and found that 75% of CPI is sufficient to compensate them for the increase in their costs year-to-year. The city also recently decided that landlords could afford to pay 100% of seismic retrofit costs.
West Hollywood also takes tenant protection seriously. It is the only city that mandates a scheduled replacement of interior fixtures and furnishings, so carpets and paint won’t wear appreciably because the landlord must renew them regularly. Perhaps that’s a model for our future rental habitability standard! The city’s Rent Stabilization Commission, too, could be a model for our own new commission. Commissioners take their responsibilities very seriously.
Los Angeles County is a latecomer to rent control but has stepped up with a strong interim ordinance. County supervisors in April stunned landlords unincorporated, county-governed areas by slapping a temporary cap of 3% on rent increases and extending protection against eviction to renting households in single-family homes.
Supervisors are hammering out a final ordinance and should have something in place by December, but in the meantime the moratorium on no-just-cause evictions acknowledges how investors have moved aggressively into the detached home rental market precisely because tenants throughout the state have scant protection against eviction and unlimited rent increases.
Beverly Hills is in the middle of the pack but deserves credit for moving quickly to improve protections for Chapter 6 tenants. The county edges it out here only because our city extends zero local tenant protections to households that rent condominiums or single-family homes. Those tenants can see a 10% increase with only 30 days notice and the sky’s the limit with 60 days notice. Households in duplex and larger properties not exempt from rent stabilization can see a maximum increase of 3.1% this year.
However that percentage comes with a caveat: Beverly Hills puts a floor under the range in which the CPI-indexed percentage rent increase can float: 3%. That makes for a big subsidy to the landlord in low-inflation years as we note in our commentary, Make the Chapter 6 Maximum Rent Increase Floor-Free!.
City of Los Angeles is a mixed-bag when it comes to tenant protections and so takes the rung below Beverly Hills. The city requires mandatory inspections of rental housing (good) but also puts a 3% floor under the allowed increase. And then there’s that additional percentage increase of 1% each for gas and electricity. (Read the the city’s latest rent bulletin for more on that.) That’s a totally unwarranted subsidy because those utilities are presumably priced-in to the rent already. over the long run, CPI will reflect the landlord’s increase utility costs (even if energy prices are volatile over the short run) because CPI includes energy in the consumer basked of goods and services .
Culver City is also a latecomer to rent control and looks ready to lock in an interim policy this week. The interim ‘urgency’ ordinance would put a 4% cap on the annual rent increase and introduce other tenant protections. With consumer prices rising at 3.1% this year, allowing a 4% increase is a giveaway. In fact, it was 3% in earlier discussions. Tenants are not particularly organized there, though, and that allows the Apartment Association of Greater Los Angeles to roll back protections at the margin (from a 3% cap to 4% for example).
That one percentage point puts the interim allowed rent increase fully one-third greater than we allow in Beverly Hills. We share the broader rental housing market, of course, but Culver City in particular will see its rental market roiled by the relatively greater development there. The 4% cap on the annual increase may not bring the stability the city may like to see.
Culver City Council voted 4 to 1 on August 12th to adopt an interim ordinance that puts a lower, 3% cap on annual rent increases and introduces a just-cause provision to block landlords from evicting tenants for no-just-cause. The protections expire in a year. Kudos to Culver City!
Inglewood is also fighting the tide of tenant displacement. This city is better known for a giant donut and memorable (if quotidian) locations in Tarantino movies, but when the Rams announced the team will move to a new $5B football stadium it shook the rental market. Metro then followed up with an announcement of a new light rail line to the city.
The city has responded with a 5% cap on the annual rent increase plus a relocation fee for households that have been resident in a unit for two years or more. But that 5% allowance is two-thirds higher than the actual change in consumer prices this year; and the relocation fee is relatively small (three times the average rent or about $5,500 today).
Important note: like Beverly Hills and Los Angeles, the Inglewood cap of 5% is actually the floor on the range in which the allowed increase can move. When consumer prices rise the allowed percentage will rise with it, but when they decline (even to zero) those households can still pay 5% more rent each year. We’ve called that ‘heads landlords win, tales tenants lose.’
Of the seven localities in our region identified here that cap rent increases, three did so this year. Another four localities in the region recently adopted tenant protections without capping the rent increase. We draw a few conclusions from looking at what we might call a rent control renaissance today after four decades of relative inactivity:
- Cities that come late to rent control tend to adopt higher percentage caps on the annual rent increase without engaging in a substantive conversation about ‘fair return.’ For example Inglewood and Culver City (population 110,000 and 40,000 respectively) adopted interim ordinances that established 5% and 4% fixed-percentage caps without examining the actual annual change in the cost of providing the rental housing.
- Cities seem to eschew existing, proven approaches to rent control that have been in place for decades in Santa Monica or West Hollywood in favor of one-off approaches to a very complex set of policies (even though all cities share the same sub-regional market for rental housing).
- City councilmembers without dedicated support staff must grapple with complicated tenancy law and complex housing policy and that allows an industry association like the Apartment Association of Greater Los Angeles to maximize its political influence over the process.
- Time and again, property owners roll out the same arguments against rent control. Though supported by demonstrably thin evidence, and often no evidence at all, their specious claims obfuscate the issues. Rarely do policymakers or tenant advocates bring in actual data and experiences from localities where rent control is successful in stabilizing the rental housing market.
- When policymakers and tenant advocates are ill-prepared to rebut claims made by landlords (and well-funded allies like realtors), we are more likely to lose at the margins where the Apartment Association is most effective in rolling back strong rent control.
We saw many of these lessons here in Beverly Hills. We may still see them yet as many issues go before our new Rent Stabilization Commission.
When Less Democracy May Be Better
One interesting outlier is Los Angeles County: supervisors moved ahead with a 3% interim cap on rent increases and a raft of tenant protections that even protect (for now) households in single-family rented homes from no-just-cause eviction. Why? Perhaps because the Board of Supervisors is sufficiently powerful to withstand challenges from property interests.
Indeed the board has been disparaged as the least democratic of all local governments because each supervisor represents two million district constituents. The property interests’ influence is this relatively diluted compared to a city of 40,000 or even 100,000 where a city council’s five at-large members are more exposed to pressure from the industry.
Take Culver City as an example. The city may adopt an interim ordinance on Monday that caps rent increases at 3% as was originally proposed. That percentage is entirely consistent with the state requirement for ‘fair return.’ But Council may choose to allow a 4% annual rent increase as is currently proposed. That would suggest the influence of landlords backed by the Apartment Association.
In the rent control arena we depend on elected officials to watch out for our interests even for those of lesser means or who turn out at the polls at lower rates compared with those who own property. In that sense, it be that less democracy is a blessing fi what we need are better tenant protections.