Our Take on the 5.9% Chapter 5 Rent Increase

City Council has approved a maximum allowable annual rent increase for Chapter 5 rent-stabilized tenants that is the highest percentage in three decades. At 5.9% it is nearly twice the rate of inflation for our region and it will fall hardest on our longest-term renting households that are almost exclusively headed by seniors who live on a fixed-income. Meanwhile these households are also exposed to a variety of possible pass-through surcharges (including for seismic retrofit). What are our councilmembers thinking?

In June City Council established the 2023-24 rent increase for Chapter 6 households at 3.2% in line with Bureau of Labor Statistics consumer price data (CPI). Chapter 5 households would see a 5.9% rent increase because the Chapter 5 rent increase is calculated differently, using the same CPI data, but as a rolling average it trails behind the most recent downward trend in inflation. As a result the Chapter 5 increase doesn’t reflect the latest CPI figures.

In fact the Chapter 5 percentage is being kept relatively high by last summer’s record-high inflation. Unlike the Chapter 6 rent increase, the Chapter 5 percentage is not a snapshot-in-time of inflation. So the rolling average means of calculating it is still taking past high inflation into account.

Update:  As inflation trends down it will be reflected in the Chapter 5 rent increase because it the percentage increase is recalculated monthly by the city according to the latest CPI data. With inflation on the decline, the city’s recalculated the Chapter 5 percentage also trends down. Based on the latest published CPI data which was released in mid-July, the current Chapter 5 percentage increase is 5.43 and that is what is posted on the Rent Stabilization website. So a tenant who received a notice of rent increase in late June or early July saw a higher percentage on the notice because that is what was in effect then. Then, sometime around July 11th, the city obtained the latest CPI data and recalculated the new percentage and it was lower. In practical terms, when a Chapter 5 tenant receives a notice of rent increase it is prudent to verify the stated percentage with the figure posted on the website.

City Council could have moderated the Chapter 5 rent increase to reflect the Chapter 6 percentage but choose not to. So here we provide our take on the highest Chapter 5 rent increase in decades.

History Didn’t Inform the Discussion

One has to look back thirty years 1990 to find a period when inflation would have indicated a Chapter 5 rent increase anywhere near 5.9%. Few of us were renting our current apartment then but Chapter 5 tenants were and they will remember how an outsized rent increase affected their household budget.

But no councilmember asked when was the last time that the Chapter 5 rent increase even approached what was recommended for approval in the Consumer Price Index staff report as presented to City Council. We wondered about it. And in the time that it took for a few landlords to cry poverty at the microphone we visited the Bureau of Labor Statistics consumer price data (CPI) and rewound the inflation timeline back to 1990 when inflation was nearing 7% annually.

Table of annual change in consumer prices 1990-91
Bureau of Labor Statistics data for 1990 was just a few clicks away. Shouldn’t City Council have known they were approving the largest Chapter 5 rent increase in thirty years?

Had City Council been presented with that data perhaps a councilmember would have suggested an urgency ordinance to moderate the Chapter 5 increase on par with the 3.2% Chapter 6 rent increase. We urged as much in our written comment. But like all written comments from both landlords and tenants they were not read into the record at the direction of Mayor Julian Gold.

The Concerns of Rent-Burdened Tenants Didn’t Inform The Discussion

The staff report didn’t remind City Council that half of our renting households are ‘rent burdened’ while while one-in-three renting households are called ‘severely rent burdened’ by the federal government because they pay more than half of household income in rent. Those figures come from the census bureau’s American Community Survey.

A substantial proportion of those severely rent-burdened households are seniors who live on fixed income and have been able to age in place due to the long-term effect of the Chapter 5 cap on the rent increase. We hear from these neighbors every time City Council discusses a rent increase because too much of their social security income already goes to rent. They say that a steep rent increase can mean the difference between an independent life where they live or making some other arrangement.

City Council should have discussed the issue of rent burden because in the past our councilmembers expressed interest to keep our Chapter 5 neighbors stably-housed in the city. That priority, however, didn’t make an appearance in this discussion.

It is newly relevant! Two years ago councilmembers were told that Chapter 5 households numbered 250. At this meeting staff was asked again and now there are only 150 Chapter 5 tenancies — a 40% drop. Where did they go? What would a 5.9% rent increase mean for the remaining Chapter 5 households? That was a question not asked nor answered.

Post-pandemic Tenant Hardship Didn’t Inform This Discussion

Beverly Hills has been a pandemic-era leader in one sense: City Council allowed our moratorium to expire before any other jurisdiction did. Likewise the moratorium’s one-year rent repayment period expired even as other cities kept a rent freeze in pace. The deadline for repayment of moratorium rent arrears passed on June 1st and in February City Council declined to extend it.)

We didn’t hear anything about tenant hardship at this meeting. Did City Council not recall that tenants lined-up a the microphone in February to recount their experience with a landlord that was  aggressively pursuing rent debt and even using intimidation to force tenants to pay-up or to move out?

City Council could have inquired about the rate of tenant turnover or how many Chapter 5 households suffered a disproportionate financial hardship during the pandemic. Regardless City Council moved ahead with a 5.9% rent increase.

Do landlords need a big rent increase?

What else didn’t inform this discussion?  Whether the landlord really needs a 5.9% rent increase from Chapter 5 households.

Despite landlord claims of hardship the fact is that landlords have recovered from the pandemic and then some. Asking rents are at a record high. A substantial proportion of rent-stabilized units have turned over and each represents an opportunity for the landlord to remodel and reposition the property.

One of the important data points came in response to a question from Councilmember John Mirisch: most rent-stabilized households pay a market rent or close to it. That undercuts landlord claims to need a higher rent increase or to recoup rent revenue missed due to the moratorium on rent increases.

Then there is the asset appreciation! Today’s market is minting paper money for landlords. And the state legislature in recent years has stoked those property values by limiting local development restrictions. That means a mega payday for landlords.

Looking ahead, today’s ‘mom-and-pop’ landlord is tomorrow’s multifamily developer. Consider that proposed for two sites on Doheny and one site on Tower Drive are 5-story, 10-unit buildings. Before the state legislature unleashed incentives to spur development the city would have allowed on each site a 3-story six unit building. The legislature has been a major boon to multifamily property appreciation. But that too went unmentioned at this meeting. And we never hear from landlords about the generous tax breaks that they enjoy.

So again, is a 5.9% rent increase necessary for Chapter 5 tenants? We wish City Council had asked. In our view that revenue adds nothing at all to a landlord’s bottom line; it is a rounding error relative to the landlord’s overall return on investment. A landlord could waive all of the rent that they collect from a Chapter 5 tenant and still not notice the difference!

The Rent Subsidy Makes a Surprise appearance

Perhaps the most cynical turn in the discussion came when Councilmember Bosse (pictured above) revived, as if from the dead, the concept of a rent subsidy for Beverly Hills tenants (and landlords). The city’s only subsidy came and went in late 2020 but only one-third of the funds were disbursed to tenants.

On one hand, the reappearance of the subsidy shouldn’t be surprising. Talk of a subsidy is invoked from time-to-time as political cover when City Council discussed a rent increase. But the reality is that there has been no apparent action on a subsidy since City Council appointed an ad-hoc committee last summer to discuss it.

The ad-hoc housing assistance committee came to no decision (watch the video) and the subsidy didn’t come back to City Council for any further discussion. We did a postmortem about the subsidy program in a recent post: What Happened to the Beverly Hills Rent Subsidy?

This sounded like more rhetoric. What would be more helpful to Chapter 5 tenants is to have had a new subsidy program already in place when City Council agreed to the 5.9% rent increase.

What City Council Could Have Done

Councilmembers took the trouble to vote on a resolution to affirm staff’s recommendation for the 5.9% rent increase when no resolution was necessary. It was pure formality. But if councilmembers took the trouble then why not adopt a resolution that actually protects Chapter 5 households from the 5.9% increase?

Here is how we would word that resolution:

Whereas a goal of the rent stabilization program is to promote the stability of renter populations and Chapter 5 tenants represent a vanishingly small and decreasing number of rent-stabilized households;
Whereas a goal of the rent stabilization program is to protect occupants from unreasonable rent increases and Chapter 5 households are predominantly comprised of seniors on fixed-incomes; and,
Whereas it is in the interest of public health, safety and welfare to support age and income diversity among our residents who rent housing;
Now therefore be it resolved that the maximum allowable annual rent increase for all rent-stabilized tenants effective July 1, 2023 is 3.2%.

A simple urgency ordinance could have enacted the cut to 3.2% immediately. Instead Chapter 5 tenants will see the highest rent increase in thirty years. No wonder the city didn’t trumpet these rent increases in a press release or even reach out to tenants to explain it. Again from City Hall it is radio silence. Tenants are the last to know.

Additional Reading

Watch the meeting video