City Council OKs Biggest Chapter 5 Rent Increase in Decades

City Council has approved the highest annual rent increase for Chapter 5 rent-stabilized tenants in decades. At 5.9% this year’s increase is nearly twice the rate of inflation for our region. It falls hardest on long-term rent control households that are headed almost exclusively by seniors who live on a fixed-income. Meanwhile Chapter 6 tenants get a relative break with a 3.2% rent increase. Yet there is no sign on the horizon of the often-mentioned rent subsidy which was left for dead by a City Council committee a full year ago. Let’s look at what councilmembers decided.

Proposed Rent Increases Would Fall Hardest on the Most Vulnerable

By way of background, the vast majority of multifamily tenancies in Beverly Hills are regulated by Chapter 6 of the rent stabilization ordinance which indexes the allowed rent increase to inflation. This year inflation has moderated: the annual change in consumer prices for our region is down to 3.2% which would indicate a Chapter 6 rent increase of 3.2%. The Rent Stabilization Division recommended that increase. (Read the staff report.)

While City Council was fine with allowing a 3.2% increase for Chapter 6 tenants, our councilmembers hiccuped at the proposed 5.9% rent increase for Chapter 5 tenants.

Chapter 5 of the rent stabilization ordinance regulates the city’s longest-term rent-stabilized tenants. In the past councilmembers have expressed support for ensuring their stability. For decades a relatively low cap on the Chapter 5 rent increase served that purpose.

The problem is that the arcane, rolling-average formula for Chapter 5 rent increases has produced a big percentage increase this year because two recent years of high inflation are dragging-up the rolling average. Meanwhile inflation overall has moderated. In the broader context, the number of Chapter 5 households in the city has declined to about 150 — down from 250 just two years earlier.

Looking ahead to the June 27th meeting, we recommended that councilmembers recognize the inequity of 2% of our renting households, many on fixed-incomes, paying a 5.9% increase while 98% of the households pay only 3.2%. We suggested City Council should depart from that arcane formula this year. We also offered that suggestion in a written comment to be read at the meeting:

“Dear Mayor Gold and members of the City Council,” our comment began.

Please limit the Chapter 5 tenant rent increase to the percentage which may apply to Chapter 6. The latter tenants would see a maximum 3.2% increase. [As staff recommended] Chapter 5 tenants would see a 5.9% rent increase. There is no good reason for the few remaining Chapter 5 tenants to suffer that inequitable outcome…. Please consider an urgency ordinance if necessary.

Unfortunately that comment was not read in its entirety. Mayor Julian Gold sharply limited public comment at the June 27th meeting.

City Council Unanimously Supports 5.9% for Chapter 5

The landlord’s Apartment Association of Greater Los Angeles invoked the proverbial ‘mom-and-pop’ landlord in a comment to city council to press for both a higher rent increase than what was recommended; and the recovery for landlords of missed rent increases due to the moratorium. “Independent, ‘mom-and-pop’ rental housing providers have been forced to endure multiple years of lost income due to the rent increase freeze and unpaid rent,” wrote the Apartment Association. “Some mom-and-pops are struggling to hold onto their rental properties and need the City Council’s help to put them back on a financially firm footing…”

A half-dozen self-presented mom-and-pop landlords also spoke to City Council. These were “ordinary taxpayers” hammered by inflation with rising costs that make it impossible to continue in business. “The rent increase is not enough to pay gardeners to keep the properties looking nice for the city,” said one landlord. (What about the lingering effects of decades of deferred maintenance?) Another echoed the Apartment Association’s talking points: without a bigger rent increase landlords would sell. “Keep them out of the hands of developers who will rebuild them as luxury condominiums.” Watch their comments on the video.

Councilmember Sharona Nazarian June 27, 2023
Sharona Nazarian: “It is import to demonstrate balance.”

Councilmember Sharona Nazarian picked up on the Association’s mom-and-pop talking point. “Obviously this is a tough issue and we want to protect our tenants,” she said. “But many of our landlords are small business owners or mom-and-pop property owners and we need to get back to normal. I support the recommendations.”

Other councilmembers stuck to their own talking points. Lili Bosse asked about the monthly dollar rent increase for the average Chapter 5 household ($61) and the percentage increase in neighboring cities (a range of 3% to 8%) to suggest that the 5.9% recommended rent increase for was not out-of-line.

Then Bosse pivoted to the rent subsidy: Wasn’t there money already set aside for another rent relief program? Bosse was apparently suggesting that a rent subsidy could offset the 5.9% rent increase for certain households. Assistant City Manager Ryan Gohlich said about $600,000. Bosse responded, “Is the Rent Stabilization Commission working on the guidelines?” Gohlich reminded councilmembers that they had formed an ad-hoc committee last year to create a program.

That committee met once and came to no program definition. Since then it has been crickets from city hall: no word about a rent subsidy. Perhaps this whopping increase will put fuel to the embers?

“What’s the time frame?” Bosse asked. “Very shortly” said the new deputy director for Rent Stabilization Nestor Otazu. But the uncertain tone of Otazu’s response was not reassuring. A better question was why the subsidy program wasn’t already in place to cushion the impact of a 5.9% rent increase.

Mayor Julian Gold was less concerned about a subsidy than what landlords have missed. He asked, “How much rent was not collected from tenants or how many left without paying rent?” Assistant city manager Gohlich said there was no “hard data” about it. The city had surveyed landlords about the money owed by tenants, he said, but the survey didn’t get many responses. “We believe they gave up on it or may have been able to recoup a substantial amount of missed rent.”

Gold then asked, “What percentage of rent owed was paid by the state or federal programs?” Gohlich said that more than $10 million was paid to Beverly Hills landlords. Maybe landlord’s weren’t out-of-pocket as much money as they have been claiming?

Councilmember John Mirisch picked up on the theme and questioned staff about the proportion of rent-stabilized units that are renting for market rent or close to it. More than half, Gohlich said, to which Mirisch responded, “The market has outstripped inflation. Landlords are keeping pace with inflation.”

The available data seemed to undermine the case for giving landlords a higher percentage rent increase and for allowing them to recover missed rent increases. Consensus then emerged to follow the staff recommendation and return to rent increases as they are prescribed by the rent stabilization ordinance — including the recommended Chapter 5 rent increase.

Councilmember Lester Friedman at the June 27, 2023 meeting
Vice-Mayor Lester Friedman: ““Is 5.9% a lot? It is.”

“Is 5.9% a lot?” Vice-Mayor Lester Friedman asked rhetorically. “It is. Will it negatively affect people who can least afford it? Yes. But there hasn’t been an increase in the past three years.”

With unanimous agreement City Council adopted a motion to support the staff recommendation including the Chapter 5 rent increase at 5.9% — the largest in three decades. There was no talk about an urgency ordinance to cushion the blow for those households.

Be sure to listen to the phoned-in comment from tenant Victoria Maria who addressed Council about thirty minutes into the discussion. She passionately captured what is at stake when City Council establishes the rent increase.

Note how Mayor Gold unilaterally reduced spoken public comment from the three minutes (as instructed on the agenda) to only two minutes. And witness how the city clerk deprived sixteen tenants and landlords of their voice by not reading our submitted written comments aloud for the benefit of City Council. This was the greatest step backward for local participation in Beverly Hills in a decade.

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