Expect a 3.9% Rent Increase When the Moratorium is Lifted

Bureau of Labor Statistics in June released the latest year-over-year change in consumer prices (CPI) and to nobody’s surprise the cost of living is on the rise! From May of last year to May of 2021 the cost of the ‘all items’ basket of goods and services as measured by CPI in our region is up 3.9%. Once the pandemic ends the rent will rise too — and very likely by 3.9% for rent-stabilized households in Beverly Hills. That would be the highest allowed annual rent increase in three years and it will come right on the heels of the pandemic.

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Brace Yourself: Higher Inflation Means a Larger Rent Increase

Listen to the news lately and you can’t miss the chatter about higher inflation. “Continuing supply chain disruptions, low inventories, and increasing labor costs have contributed to upward pricing pressures in recent weeks,” said the Federal Reserve Bank of San Francisco last week. Indeed consumer prices for the Los Angeles-Long Beach were up 3.6% in April over a year earlier, according to the Bureau of Labor Statistics. When the fed releases the May-to-May figures next month we will all know how large a rent increase Beverly Hills tenants will pay this year.

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Why a Rent Increase Pegged to 100% of CPI Favors Landlords

Since 2017 Beverly Hills has amended the rent stabilization ordinance to extended protections to Chapter 6 tenants. That includes an end to no-just-cause eviction and a relocation fee for no-fault tenancy terminations. The city also linked the maximum allowed annual rent increase to the annual change in consumer prices (CPI). Let’s look at that important change in more detail.

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Good News & Bad News on the Rent Increase

City Council recently discussed the maximum allowed annual rent increase and the good news is that we are keeping it indexed to consumer prices (CPI). A real win for tenants: inflation dictates the increase. The not-so-good news is that Council may agree to a 3.5% floor on the increase. That would give landlords an extra half-percent above the 3% floor today in low-inflation years. Why does Beverly Hills need a floor on the allowed increase at all?

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The Allowed Annual Rent Increase in Perspective

To a tenant accustomed to the 3% cap on annual allowed rent increases, the city’s announcement that the allowance has risen to 4.1% was a surprise both that the 3% changed and for the magnitude of the jump. As I explained in a recent post, the bump-up was somewhat predictable given higher inflation but the size of the jump was larger than most of us expected. The culprit? Rising consumer costs driven in part by rising rents!

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