City Council Establishes 3.1% as the Rent Increase Starting July 1st [updated]

Beverly Hills City Council has affirmed an earlier decision to end the moratorium on rent increases and eviction. As expected Council also established the post-moratorium maximum allowable annual rent increase for rent-stabilized units at 3.1% for most tenants. That percentage will be available to landlords starting July 1st and will remain in effect until the next percentage is established July 1, 2023. What is unknown as yet is how much the rent can rise in subsequent years given high inflation and Council’s stated commitment to allow landlords to recapture missed rent increases.

Update City Council on Tuesday April 26th agreed to allow landlords to carry forward the rent increase at 3.1% which is available starting July 1st. That will be the allowed percentage increase for many Chapter 6 tenants through June 2023. Council also agreed that this should be the only rent increase paid by tenants during that period. But the devil is in the details: the percentage allowed, and even if an increase is allowed at all, depends on whether a tenant received an increase in the months before the moratorium. Please See our full recap on the issue in our post: Council Establishes 3.1% as the Next Rent Increase But Not for All. The following information does not reflect the latest Council action at the April 26th meeting. This post has however been updated to reflect that July 1, 2022 is the earliest date the rent can be raised, and we thank Helen Morales, deputy director of the rent stabilization division, for bringing that to our attention.

What Council Decided

City Council at its April 12, 2022 meeting established at 3.1% the post-moratorium rent increase for Beverly Hills rent-stabilized households. This represents the first missed rent increase that was denied to some landlords when the city’s moratorium was enacted in March 2020. This is the maximum allowable annual rent increase and it will be available as soon as June 30th if the landlord provides the required 30-day notice. The next rent increase will not come until July 1, 2023.

Councilmembers also agreed to revive the rent subsidy program.

Now re-christened the “housing subsidy program,” the program is expected to provide $700,000+ in the form of monthly subsidies, paid to landlords, to blunt the impact of expected higher rent increases after this year. Beneficiaries would be means-tested and include COVID-affected households, seniors, families with children in city schools, and perhaps low-income households that don’t fall into any of those groups. Council will revisit the program details on April 26th.

Left undecided are these key questions which will likely be addressed in June.

  • Whether to carry forward the subsequent missed rent increases and if so how much of them;
  • How to ‘phase-in’ the missed rent increases given the likelihood of continued high inflation; and,
  • What to do about the roughly 8.5% rent increase this year that presumably is deferred to some time in the future.

Watch the City Council video of the April 12, 2022 meeting for the full discussion.

More About the 3.1% Increase

In February then-Mayor Bob Wunderlich proposed to allow landlords to recapture missed rent increases starting with the first missed rent increase. The percentage in place when the moratorium was enacted was 3.1%. Wunderlich proposed landlords to raise the rent by that percentage after the moratorium sunsets on May 31st.

The proposal is somewhat complex. The 3.1% missed increase would not stack on top of the regular annual increase, set each July, but instead would replace it; and the regular rent increase this year that would have been very high (due to inflation) is deferred to some future year. Under this scheme, the 2023 rent increase percentage would be determined by some combination of the second- and third-year missed rent increases with the regular 2023 percentage increase also deferred to some future year.

Post-moratorium table of proposed rent increases
The proposal to carry forward missed rent increases to this and future years was a bit of a stumper…so we charted it!

We don’t believe that City Council really understood the scheme but instead responded to the practical benefit of a relatively-low 3.1% rent increase when inflation is surpassing 8.5%. In fact we needed to write an explainer about it just to understand it! Read more: Beverly Hills Rents Will Now Rise — But by How Much?

After the 3.1% increase is paid after the moratorium sunsets, on June 1st or thereafter, then next rent increase would not be available to landlords until July 1, 2023. (Counting the months there are 13 months between June 1, 2022 and July 1, 2023 instead of the usual 12-months city cycle.)

A Compromise

Councilmembers at the April 12th meeting characterized their twin decisions to both sunset the moratorium and to allow a rent increase (3.1%) as a “reasonable balance” of landlord and tenant interests.

The city is ending moratorium tenant protections and that benefits landlords. Going away as of May 31st are the prohibition on eviction for nonpayment and the prohibition on no-fault eviction. And of course the rent can rise again on June 1st. This is a relatively generous giveaway to landlords. Tenants materially affected by COVID no longer have a state or county moratorium to fall back on. In comparison, some neighboring cities continue to protect tenants from eviction and even freeze the rent.

More importantly for some landlords with redevelopment plans, sunsetting the moratorium allows eviction processes to proceed again. If the clock has stopped on an eviction in-progress, then it starts to tick again on June 1st. If the landlord has a plan in mind then he can notify his tenants of eviction as soon as June 1st. (This applies as long as there is a lawful reason to terminate a tenancy such as for condo conversion, remodeling, landlord use or redevelopment.)

Benefiting tenants is a relatively low 3.1% increase. That is much lower than the percentage that would otherwise be allowed by the rent stabilization ordinance. For example, inflation is running about 8.5% now so the percentage increase that would have been allowed to landlords absent the Council’s action would be 8.5% or more. Ouch!

Also some tenants will also benefit from the proposed revived rent relief program. And with the 3.1% locked-in, tenants also have an opportunity to contest the carry-over of the other missed rent increases. As we discussed in our analysis there is good reason not to carry over any increase at all. Tenants will have another bite at this apple when City Council discusses the issue again in June — which is our opportunity to head-off a future missed-increase giveaway to landlords.

That this was a compromise was reflected in the comments at the meeting from tenants and landlords. Tenants didn’t specifically oppose the proposal but aired a host of other grievances from affordability to habitability. It was clear that much remains unsettled where it comes to rent stabilization in Beverly Hills.

Landlords turned out to bemoan the low percentage increase in a time of high inflation. There were predictable hardship stories. However it’s worth remembering — and we did remind councilmembers — that the rent stabilization ordinance provides landlords with a ‘rent adjustment’ remedy (§4–6–11) if they can demonstrate that they cannot earn their ‘fair return’ due to city policies like this one. Any landlord that provides support for the claim can ask for a higher percentage. (No landlord has used that provision since it was added in 2017.)

Unfinished Business

One of the discussion points raised by then-Mayor Bob Wunderlich was whether the city’s maximum allowable annual rent increase should be indexed to the change in consumer prices (CPI) at the rate of 100% of CPI as it is today. By way of a reminder, an annual rent increase at 100% of CPI was established for Chapter 5 tenants in 1978 and extended to Chapter 6 tenants in 2017 (reducing the 10% cap). For comparison, West Hollywood and Santa Monica use 75% of CPI to calculate the allowable rent increase.

Reducing the percentage of CPI would make a much bigger difference to tenants over the long term than any policy decision concerning missed rent increases.

Take for example the current moment of high inflation. If CPI runs 8.5%, as the most recent data show, then the city’s Chapter 6 rent increase would be 8.5%. That’s because 100% of 8.5% is 8.5%. But if Beverly Hills amended the rent stabilization ordinance to index our rent increase to CPI at 75% instead of 100% then the maximum allowable annual rent increase would be 6.4% and not 8.5%. (Multiply CPI of 8.5% by .75 produces 6.375% which is rounded up to 6.4% as the annual rent increase.)

Using a smaller percentage of CPI would effectively moderate the rent-increase curve over time. Rent increases would have a smaller impact. The compounding effect of rent increases would be marginally less. Indeed in our view, at least, this is unfinished business from 2017. Council back then never really did discuss the appropriate percentage of CPI much less the landlord’s ‘fair return’ to which rent increases contribute.

Our Take

Wunderlich’s proposal to carry forward the first missed rent increase at 3.1% had obvious appeal to fellow councilmembers in an election year with three incumbents running for reelection: the percentage is far less than the percentage that would otherwise be established by the rent stabilization ordinance come July. None of the candidates needed an 8.5% annual rent increase tied to them like a ball and chain.

But politics is only part of the context. Council has been arguably more supportive of tenants during the pandemic than most other localities. Beverly Hills is one of the few localities in the state that still has a moratorium in place, for example, and Council’s interest to revive the city’s rent relief program will function as a pressure-relief valve (at least for some tenants) if Council does agree to higher future rent increases. Indeed it looks like City Council really threaded the needle with this scheme.

From a tenant’s perspective it is the bird in the hand: we will have some certainty about the housing budget over the next year. The tougher decisions delayed to later. But that also gives us an opportunity to argue against carrying forward additional missed rent increases and even call for a rent increase formula that recognizes that 100% of CPI might be too generous. Those are the birds in the bush. Mark your calendars for April 26th and June 14th!

Watch the video for the whole discussion….