City Council: No Change to Limited 3.1% Rent Increase…For Now

City Council at last night’s meeting made no change in the current arrangement that allows landlords of rent-stabilized units to demand up to 3.1% more rent starting in July. But the rent hike only affects about one-quarter of renting households — those that did not pay a rent increase during the 2019–20 fiscal year. Most households wouldn’t see a rent increase at all until next July. Some hidden hand in City Hall was behind the RSO office’s effort to expand that rent increase to all renting households, but after an extended discussion to nearly 2 am Council didn’t go along. Here’s the story.

What Was This Discussion About?

You will be forgiven for not understanding what was before City Council at the June 21st meeting. The agenda item was titled, Report on consumer price index (CPI) data and the rent stabilization ordinance (RSO) annual rent increase, and that hardly described the issue that was subject to discussion. Most councilmembers didn’t seem to clearly understand what it was about either.

In brief, staff was notifying City Council that the annual change in consumer prices (CPI) for our region was 8% (between May 2021 and May 2022) and pursuant to the rent stabilization ordinance that would ordinarily be the maximum allowable annual rent increase. That is a point of information. However there was an action item that was also put before Council:

Should the city extend the recently-announced 3.1% rent increase (which is in effect for the coming 12 months) to all rent-stabilized households — or only the approximately 25% of renting households that will pay it as Council recently agreed?

If City Council would agree then over 5,000 additional renting households would get a 3.1% rent increase (rather than just one-quarter of the households) and it would amend again the COVID urgency ordinance which Council amended as recently as May to limit the allowed rent increase only to households that didn’t pay 3.1% when it was available to landlords during the 2019–2020 fiscal year. The proposed revision would extend the rent increase to four times as many households.

Yes it is complicated! Read more about the 3.1% increase in our post: Rent Can Rise Up to 3.1% for the 2019–20 Missed Rent Increase.

After an hour and ten minutes of discussion City Council took no action. So the 3.1% rent increase as agreed by Council in May, and which is codified in an ordinance that sunset the moratorium, will apply only to rent-stabilized households that did not see the rent rise between July 1, 2019 and June 30, 2022. For examples of how that applies please refer to the city’s rent stabilization update.

The Hidden Hand

There was a reason discussion item F2 came up at this time: this was the final City Council meeting of the fiscal year and the last opportunity to lock-in the allowed 3.1% rent increase for all rent-stabilized households. That would have given time for landlords to notice it for August 1st. How it came to the agenda is the mystery. Was it landlord pressure on City Hall? Did a landlord-sympathetic councilmember request it be added? Was it Community Development Department leadership that saw an opportunity to reduce an administration headache? Inquiring minds want to know.

That it came up for discussion at all highlights three problems. First, the mailed notice to tenants didn’t accurately describe what was to be discussed — and neither did the agenda. Second, the ensuing discussion revealed the tenuous grasp that most councilmembers have on the details of the ordinance they were discussing and suggested councilmembers were not overly acquainted with the concerns of renting housings. And third, the issue came up for discussion well after midnight and stretched to nearly 2 a.m. — an hour when most public speakers has long left Council chambers.

1. The Notice

The mailed notice said only, ‘Notice of City Council Meeting Regarding CPI Index and Means Tested Housing Assistance Program.’ There was no substantive information about what was to be discussed or even a description. That’s why we asked in a recent post, City Council to Discuss ‘CPI Index’ — What the Heck Does that Mean?

The agenda was no better. Besides the item title that was shared with the notice (above), there was no description aside from this misleading bit: “Comment: Staff will present a report to City Council on the May to May CPI index regarding the allowable rent increase for the period from July 1, 2022 through June 30, 2023.”

The problem was that the ‘report’ that was referenced in the agenda was just a brief part of the substance of the CPI Index staff report of June 12, 2022:

May-to-May CPI data was released earlier this month, and without the current rent increase limitations imposed by the most recent ordinance amendments, the rent increases that would otherwise be allowed for the period of July 1, 2022 through June 30, 2023 would be as follows: Chapter 5 Tenants: 6.15%. Chapter 6 Tenants: 8%. — June 21, 2021 staff report p. 2

That’s the report part of the item: simply a heads-up to City Council about the CPI percentages for this fiscal year for the purpose of establishing the rent increase pursuant to the rent stabilization ordinance. The key aspect of the item before City Council was not a report but something more like an action item:

As noted earlier in this report, a subset of RSO units are currently allowed a 3.1% increase. This [proposed] 3.1% increase could be applied uniformly to all RSO units (both Chapter 5 and Chapter 6)….

That ‘applied uniformly’ language if agreed by Council would mean the difference between the limited reach of the 3.1% rent increase today and a much broader rent increase as teed-up by staff. The impact would be an 5,700 additional renting households that would be subject to this rent increase if Council agreed.

For good measure there was some loaded language included in the staff report which seems clearly intended to tilt City Council toward staff’s proposal:

Given that the previously approved 3.1% increase only applies to certain RSO units…and a significant number of RSO units continue to be precluded from any rent increases, staff seeks City Council confirmation [to] uniformly apply a rent increase of 3.1%.” — June 21, 2021 CPI Index staff report p. 3 (emphasis added)

“Confirmation” suggests staff is putting a thumb on the scale for a citywide rent increase.

In the end, though, Council didn’t go along. That is a credit to Councilmember Bob Wunderlich (pictured at the top) who does grasp the policy details and stood his ground to argue that Council already decided this issue. The rent increase should be limited to only those 24% of renting households.

2. Confusion Across the Dais

The discussion proceeded for an hour and ten minutes as councilmembers tried to grasp the difference between the rent increase already approved (which will affect 26% of renting households) and the city staff-proposed change (which would extend the rent increase to the other 74% of renting households).

Some of Council’s confusion owes to the omission of a good description of what staff was asking. It wasn’t in the notice mailed to tenants and landlords, or the agenda item, or even the staff report. These materials didn’t say, for example, “Staff is asking City Council to amend the ordinance language adopted in May in order to extend the announced 3.1% rent increase to all rent-stabilized households — approximately three times as many as today.”

That would have caught our attention! Instead we had to drill down into the staff which wasn’t even referenced in the notice.

By the time we got to the meeting after midnight, even this plainly-stated description in the PowerPoint didn’t really grab councilmembers’ attention.

PowerPoint slide 3.1% background

PowerPoint slide 3.1% proposed change
PowerPoint slides from the rent stabilization office presentation.

Lastly there was one moment of humor…at least if you’re a tenant-advocate kind of guy. Remember we have been talking about how to carry-forward rent increases missed due to the moratorium. City Council has committed to carry them forward into future years to make landlords whole. Turns out that landlords don’t even care about those missed rent increases. Community Development Director Ryan Golich, who was called up to the mic to steady the ship, said landlords prefer to get back to the percentage established in the rent stabilization ordinance and forget about the missed increases.

So we’ve been on the wrong track all along! That’s what we thought; indeed that’s what we said in an opinion post back in February: Our Take — Extend the Moratorium and Scratch the Lost Rent Increases.

3. Late-Night Discussion

Helen Morales and boss Ryan Gohlich
Helen Morales and boss Ryan Gohlich struggle to explain it.

Councilmember Les Friedman had this right about the issue: the wee hours of the morning is not the best time to make this policy decision. The mystery is why City Council persisted until nearly 2 a.m. City Attorney Larry Wiener already had advised them, “You don’t have to make [this decision] by July 1st.” Yet Council persisted.

The discussion reflected the late hour: it was convoluted and confused at times as staff struggled to clarify the key issue. The video is worth an hour of your time. Grab some popcorn and try to follow the plot!

Lastly refer back to the title of this post. City Council: No Change to Limited 3.1% Rent Increase…For Now. “For now” because we expect staff will come back with this same proposal sometime after the turn of the fiscal year (in July). Why take another bite at the apple? The Council will have a new member, Sharona Nazarian, and Councilmember Bob Wunderlich will retire courtesy of the voters. Will the odds be better for landlords? The second time may be the charm!