LA takes up rent control reforms that could lower annual hikes. What you need to know

The formula that determines how much landlords can increase rents in most Los Angeles apartments hasn’t been updated in 40 years. After long delays, City Council members began discussions this week to change those rules.

The new effort at reform has the potential to significantly lower the yearly increases paid by most tenants in a city where housing affordability has long been a top concern.

Currently, the city’s rules allow annual increases of up to 10%, depending on inflation and whether a landlord covers a renter’s gas and electricity bills. Rent hikes can be even higher in cases where tenants add new occupants to their households.

A proposal from the L.A. Housing Department would instead cap increases at 5%. Meanwhile, tenant advocates continue pushing city leaders to pass an even lower limit of 3%.

In Wednesday’s meeting of the City Council’s Housing and Homelessness Committee, chair Nithya Raman said changes are “sorely needed.” She said under state law, increases of more than 10% are considered rent gouging — but the city’s rules technically allow much higher increases in certain situations.

“You could get an 8% rent increase, a 2% charge for utilities, and if you happen to have a second kid, your rent would go up by another 10% over that,” Raman said, arguing such provisions don’t maintain fairness between landlord and tenants. “Our structure right now is not designed to do what it was supposed to do.”

But Raman said the rules must be carefully crafted not to harm smaller landlords or their long-term tenants.

“We do not want to have unintended consequences here that incentivize landlords to kick out the oldest, most vulnerable, most income-insecure tenants in our entire ecosystem,” Raman said. “The policy choices we have ahead of us are incredibly important and complex.”

LA rent control lore

Created during a period of very high inflation, the city’s rent control formula first took effect in 1979 and was last updated in 1985.

The limits generally apply to rental units constructed before October 1978. Because the city’s housing stock consists largely of older buildings, rent control applies to around three-quarters of L.A. apartments. About 42% of all city residents are covered by the annual rent caps.

Previous efforts to overhaul the rules, such as the City Council’s last reform attempt in 2009, have faltered. The current push for reform dates back to the waning days of the COVID-19 pandemic, when City Council members passed new eviction protections and asked for an independent economic analysis of the city’s rent control formula.

The committee did not vote on any new formula on Wednesday. They instead watched presentations by representatives from the city’s Housing Department and from the Economic Roundtable, which was contracted by the city to study the existing rules.

Searing debate comes to City Hall

Despite the lack of any firm decisions, tenants packed the council chambers to give public comment on what they see as an urgent need for lower allowable rent hikes.

Elizabeth Hernández, a tenant in South L.A., said she favored the lower 3% cap proposed by a group of tenant advocacy groups called Keep L.A. Housed.

“Our money is just going to rent,” Hernández said. “We work daily, and half of our money goes to rent. Having the cap at 3% could help.”

The Economic Roundtable study, which was first published by LAist after we obtained it from the city through a public records request, found that most renters are paying more than 30% of their income on rent, qualifying them as “rent burdened” by federal standards.

The city’s poorest renters are spending far more, with more than half of those falling below the federal poverty line spending 90% of their income or more on rent, according to the report.

“This is a city of renters who are struggling,” Christina Boyar, an attorney with Public Counsel, told LAist. Public Counsel is a member of the Keep L.A. Housed coalition.

“We are seeing evictions as high as they were before the pandemic, there are federal social safety nets being cut left and right, there are seniors on fixed income,” Boyar said. “While a small change in the percentage — three to five percent — may seem small, perhaps trivial, that translates into real dollars that tenants cannot afford.”

Keep L.A. Housed is asking for rent hikes to be based on 60% of the Consumer Price Index, a measure of inflation, with allowable increases falling within a range of 0% in times of very low or no inflation to 3% in times of higher inflation. The Housing Department’s recommendation would include a floor of 2% and a ceiling of 5%.

But many economists think rent control has proven to be an ineffective tool for tackling these issues. The firm Beacon Economics prepared a report critiquing the Economic Roundtable analysis and disagreeing with many of its recommendations.

Chris Thornberg, Beacon’s founding partner, said rent control policies tend to help some tenants while harming others. For example, he said, when cities lower annual increases for existing tenants, landlords will raise rents on vacant units, passing higher costs on to new tenants.

“The city is spending a lot of time and a lot of effort and a lot of political capital to do something that doesn't really change the broader situation,” Thornberg said. “It simply creates some winners and losers, and in the end, on net, very little has changed.”

Thornberg thinks the council should instead focus on creating more housing, which would give tenants more bargaining power in the market to seek lower rents.

LA differs from other rent control cities

Among California cities with rent control, L.A. stands out for having high allowable increases (the city-commissioned report found that caps of 3% to 5% are far more common) and for letting landlords who cover gas and electricity costs increase rents an additional 1% for each utility per year.

Dan Flaming, the Economic Roundtable's president emeritus and co-author of the report, told the Housing and Homelessness Committee during his presentation that the utility bump over time results in tenants paying more than what the utility costs landlords to provide.

“Rents over a five-year period could be $150 to $240 higher for each service,” Flaming said.

Since the COVID-19 pandemic, the cost of operating rental housing has grown substantially. Expenses such as building maintenance, insurance premiums and repair costs have grown faster than overall inflation, according to the Economic Roundtable.

These costs have risen during a period when the L.A. City Council gave tenants eviction protections for deferred rent payments and imposed a nearly four-year freeze on rent hikes in rent-controlled buildings.

Landlords see a pivotal moment

Landlords who own a small number of units have said further restrictions could push them to exit the city’s rental housing market altogether. Some have already sold their buildings.

Jan Mills sold a rent-controlled four-unit property in Echo Park last year.

“Having real estate felt concrete, something we can rely on,” she said. “But you can't rely on it in the city of Los Angeles.”

Mills said she evicted one of her tenants who continued not to pay rent after the city lifted COVID-19 eviction protections. She said it took about 10 months and tens of thousands of dollars of legal fees and lost rent before she could finally get the tenant locked out.

She said she believes now is the wrong time to pass further restrictions on annual rent increases.

“I would just feel like it was one more nail in the coffin of being a landlord,” Mills said. “I think it's important to have programs for people who are living on the edge. But the landlords, unlike the city of Los Angeles, don't have the resources to be that program.”

Moving forward, many unanswered questions

During Wednesday’s committee meeting, some council members sounded unsure of how to proceed with rules that would offer relief to struggling tenants without causing more frustration to small landlords.

Committee members raised other thorny questions, such as whether the Consumer Price Index released by the federal government will still provide a reliable basis for rent increases, given President Donald Trump’s politicized firings within the U.S. Bureau of Labor Statistics.

When economists told Councilmember Heather Hutt that good alternatives to that measure don’t exist, she said: “That’s not promising.”

Councilmembers also raised the question of which specific index to use.

The Economic Roundtable report recommended using a measure of inflation that includes all consumer goods except housing. The authors said this would prevent already high housing costs from allowing even higher rent increases.

The Beacon Economics report dissented, saying that housing-related policies such as rent control should be based on an index that captures what’s going on in the housing market.

“This whole issue is about how do we keep it even-steven?” Councilmember Bob Blumenfield said.