City Council Bunts on Residential Moratorium

City Council deferred all decisions on the residential moratorium until sometime February when the impact of the Omicron variant might be better understood. Left unchanged is the tentative sunset date of March 31st and until that time at least the prohibition on eviction for nonpayment and for no-fault remain in force. Rent increases are on hold too. But the discussion suggested how councilmembers are thinking about ending the moratorium — and the costs that tenants may bear for rent increases delayed.

On the January 18th agenda were several discussion questions:

  • When to sunset the Beverly Hills moratorium tenant protections which include the moratorium on eviction for non-payment of rent, the moratorium on no-fault evictions, and the moratorium on annual rent increases;
  • When to require repayment of rent that was delayed under the Beverly Hills moratorium; and,
  • How to determine the maximum allowable rent increase after the moratorium on rent increases sunsets if delayed rent increase are to be recaptured whole or in part.

The ostensible purpose of the discussion was to address the Rent Stabilization Commission’s October recommendation to summarily end the tenant moratorium. Councilmembers largely sidestepped the commission recommendation when it last came to the agenda that same month, and they sidestepped it again. (It was hardly mentioned.) Policy changes are reserved for formal evening meetings so today’s meeting was about direction.

The short take: Councilmembers agreed to delay any decision due to Omicron until a future (February) meeting at the earliest. Councilmembers seemed to agree that landlords should be allowed to carry-forward at least some of the rent increase(s) prohibited during the moratorium. Councilmembers also directed the rent stabilization division to come back with data about outstanding tenant debt to landlords, the progress of state disbursement of COVID funds to landlords, and how to possibly restart Beverly Hills COVID relief to tenants and landlords if necessary.

For background our preview post: City Council Will Revisit Local Moratorium Tenant Protections. Scroll down for the comments sent to Council and read at this meeting.

Discussion

Council chose not to discuss the moratorium per se given continuing uncertainties about Omicron. So much of today’s discussion focused on carrying-forward the rent increase(s) prohibited by the moratorium. As we know, a rent increase was not allowed during the local emergency; however the great unknown is to what extent a landlord could have even raised the rent due to the economic uncertainty around the COVID lockdown.

A few interesting tidbits came from the meeting though:

  • Covid is spreading in the city and should peak in the next two weeks with Mastro’s Stakehouse alone reporting 77 COVID-infected staff;
  • $15 million in state Covid relief funds has been paid to Beverly Hills landlords for rent arrears incurred by 624 households with the average relief award of $23k;
  • $730,000 remains in the Beverly Hills COVID rent subsidy coffers and that could be made available to qualified households.

Councilmember Les Friedman kicked off the discussion and indicated his inclination to carry forward delayed rent increases (though offered no specifics):

My issue is Omicron…I’m not sure that we should be addressing this in January…I’m anticipating peak Omicron in a week or two. Maybe mid-February. [On delayed rent increases:] There needs to be some consideration to housing providers for increases they were not able to get for 2 or 3 periods….There needs to be some increase – some consideration — and not just erase it. — Les Friedman

Councilmember Julian Gold wants to sunset the moratorium’s tenant protections on March 31, 2022 and he’s in favor of allowing landlords to recoup delayed rent increases:

We are back to some form of normal or whatever is the new normal and that’s not going to change in a month or two. I think it’s time — we talked in the fall about ending [the moratorium] and I’m still there on it; let’s stick with the date we chose. On the rent increase, let’s not be in a position where it is due and payable immediately. But if we draw out the time that the [delayed] increase is payable to 3 years or longer, I’d be in favor of allowing a larger rent increase. To extent that it comes due more quickly, say in two years, I’d reduce the allowable increase as [landlords] get their money sooner. At the end of the day, I’m fine with 1% additional per year for three years…or a different scheme. — Julian Gold

Councilmember John Mirisch is not inclined to commit to an end to the moratorium yet but indicated an interest to balance tenant and landlord concerns when talking about delayed rent increases…. albeit without specifics:

We should be talking about Omicron. I’m not prepared to end it now. If omicron ends soon, then we should look at the issues and separate good from bad on both sides. Do means testing [of tenants] and distinguish between larger landlords and mom-and-pop landlords….In some cases landlords are hurting but in other cases landlords are taking advantage. Let’s find a differentiated approach to protect the vulnerable on both sides. We’re talking about ending pandemic protections but [Omicron] is raging now….Our job is protecting the good actors – people who are genuinely vulnerable and impacted on both sides. — John Mirisch

Vice-Mayor Lili Bosse started off by asking, “What protections do we have for families in the schools?” then drilled down for data on COVID relief fund disbursement and available city assistance. She recalled how landlords opposed the 3% cap on the rent increase back in 2017 (perhaps a shot across the bow for landlords now) and she did not directly address carrying-forward rent increases prohibited during the moratorium.

I agree with my colleagues that it makes more sense to bring it back next month, hopefully after the surge, with data to inform us….We’re in the middle of a surge right now, and we’re talking about March 31st so I don’t see the urgency to decide today — March 31st or we push it back. In any case both landlords and tenants know that May 31, 2023 is the definite [back rent] repayment date. — Lili Bosse

Mayor Bob Wunderlich is content to wait for data next month before committing to ending the moratorium. On carrying-forward the delayed rent increases, he favors “phasing it in” starting with the increase missed in first year of the local emergency and working forward year by year, using the annual percentage increases that would have been allowed but for the pandemic. (Refer to the table of percentage increases that was included in the staff report.)

Let’s go back to the beginning. The first [post-pandemic] rent increase could correspond to the one first missed which for 2019-2020 was 3.1%. Start smaller to mitigate the impact [of inflation]. The second year, 2020-2021, instead of 3% [allowed that year] it could be [CPI] 1.2%. But then to back-fill we can start to pick up a component of what would have been allowed one for 2022-22, which was 3.9%. So we could pick up 3% [the portion of 3.9%] of the 2022 and that could be the second one. Third year, we would still have .9% left of the 2021-22 allowed increase. Here we will see the great increase in CPI, so when it comes time to include that [.9%] we would have to think about whether we want to have a different cap on the total allowed increase. Maybe a fraction of the CPI for that time period. That could be mean a significant increase in rents because CPI is going up now for special reasons not contemplated. I can see this as an option to phase in the additional increases.– Bob Wunderlich

From the mayor’s remarks on the meeting video it seems like he was proposing this rent-increase schedule:

Post-moratorium
rent increase
Percentage
increase
First year 3.1%
Second year 1.2%+3%=4.2%
Third year .9% + CPI (possibly subject to cap)

The key point is that the mayor would carry-forward the rent increases to some extent; and if the total allowed percentage increase is too high after adding the carried-forward percentage to CPI, then maybe a cap on would be necessary. (These figures are for Chapter 6 tenants which represent about 97% of all rent-stabilized households.)

Our Take

Tenant are on hold for a decision about when to finally sunset the moratorium but it seems clear it won’t be before March 31, 2022 with all rent that was delayed under the Beverly Hills moratorium due by May 31, 2023 — more than a year later. Councilmembers clearly aren’t decided on whether or how to recover delayed rent increases but councilmember positions seemed to reflect their usual positions: Gold most deferential to landlord interests, Wunderlich in the middle, and Bosse and Mirisch most inclined toward tenants. Friedman tends to be right of center on rent stabilization issues but today he was less committal.

The question is why this question came to City Council at all now. Omicron is in full swing and that is the focus of councilmembers’ attention. Also there seems no urgency to reconsider the Rent Stabilization Commission’s recommendation because it has been superseded by events anyway: the commission majority (with a tenant commissioner in dissent) recommended ending the moratorium September 30th and that date has come and gone. Council already sidestepped the recommendation once before and in any case already tentatively agreed to sunset it at the end of March.

From our perspective there are more important questions:

  1. Whether to even end the moratorium on no-fault eviction without providing a means to protect households from eviction during the pandemic — not least because asking rents are much higher in today’s rental market; and,
  2. How to cushion renting households from bearing the double burden of carried-forward delayed rent increases (3.1%, 3.0% and 3.9% in 2020, 2021 and 2022 respectively) on top of a much higher percentage come July which may reach as high as 6%.

We addressed those two questions in comments submitted to City Council for today’s meeting (appended below). We thank the tenants who called and emailed City Council today. Every voice counts!


Dear Mayor Wunderlich and members of City Council:

Thank you very much for the time and effort each of you devotes to city business. That is much appreciated.

I want to make a suggestion concerning tenant protections which is not directly related to the residential moratorium but implicated by it.

The aspect of the moratorium that most concerns me personally is the prohibition on no-fault evictions. As we know there are about a half-dozen reasons for lawful termination. I believe the most likely reason in the coming years will be termination for redevelopment pursuant to the Ellis Act. I expect some ramping-up of evictions new construction particularly because we have some projects in the pipeline or about to enter it.

Ellis allows the landlord to exit the rental business. It mandates 120 days notice to tenants and one year notice to tenants who are seniors. Such notices were tolled by the moratorium; other tenants may not have been noticed yet.

I want to propose that our city consider adding a provision in our rent stabilization ordinance to cushion the impact of future tenant displacement under Ellis due to redevelopment. The Act allows localities to impose additional conditions, and our neighbors have. I suggest that all tenants in Beverly Hills be provided one year’s notice prior to eviction. There may well be other opportunities too.

If the city’s objective is to keep tenants housed in a difficult rental market, then one strategy should be to moderate the pace of displacement.

Historic preservation will help too. But we’re still waiting on a survey of historic multifamily resources so that the city can properly reach out to owners about Mills Act advantages. I hope it comes soon.

Thank you very much for your consideration,

Mark Elliot


Dear Mayor Wunderlich and members of City Council:

The staff report makes a valiant effort to try to impose a rational framework on what really is a host of uncertainties. Please let me offer some observations and a suggestion.

First, we cannot know the extent to which landlords were deprived of a rent increase. Some landlords raised the rent like clockwork every 12 months but some didn’t. Sometimes two or three years would elapse between increases. We can’t say all landlords were denied two increases.

Second, we can’t say that landlords lost a first-year 3.1% increase due to the moratorium. I refer to the table of percentages on page four: for the period between July of 2019 and June of 2020, only one-quarter of landlords, at most, were denied the 3.1% increase. Up to three-quarters probably did raise the rent in that fiscal year before the moratorium.

Second and more important, we know from industry studies that the rental market dipped during the pandemic. Rents dropped. Prospective tenants stopped shopping. Would that market have allowed a landlord a 3% or 3.1% rent increase? I don’t think so. If city carries-forward that magnitude of increase then the landlord could recapture a percentage increase greater than they could have gained — and they would be demanding it in a hot post-pandemic market.

Third and as important, landlords costs were very low for most of the pandemic. the table on page 4 shows that CPI for the 2021 fiscal year was only 1.2%. That is much lower than the allowed percentage increase the landlord claims to have lost. Moreover, looked at the year-over-year change in CPI across the duration of pandemic and found that CPI averaged only 1.3% through December.

Finally there is coming sticker shock. I expect the percentage increase this July to be about 6%. How much more would council like to add to carry forward prior delayed increases?

Given longtime low inflation, I don’t believe a carry-over is necessary. But if permitted I suggest a one-time carry over of up to 1.3%. There is too much uncertainty to justify any of the proposed carry-forward schemes.

Thank you for your time and effort,

Mark Elliot