(The Center Square) – With the city of Los Angeles’ COVID-19 rent freeze ordinance expiring in 2024, the city council passed a rent ordinance limiting most increases to 4%, instead of 7%. Housing experts say this will cause many smaller housing providers to have to sell their buildings to larger corporations either at discounts or foreclosure, and will drive reductions in the future supply of rental housing.
“Housing providers have for nearly 4 years suffered financially under moratoriums that restricted both the ability to collect rent and eliminated all rent increases while inflation has roared out of control for all types of goods and services, and while the City itself passed through unprecedented cost increases onto owners for various fees, utilities, and taxes,” said Apartment Association of Greater Los Angeles executive director Daniel Yukelson to The Center Square. “As a result, many particularly smaller, independent owners have been forced to sell their properties either at discounts or in foreclosure.”
Los Angeles adopted a rent stabilization ordinance in 1979, which tied maximum allowable rent increases to inflation. Landlords can raise rents by up to 3% when inflation is below 3%, or up to 8%, if inflation hits 8% or above. This ordinance was temporarily suspended at the start of the COVID-19 pandemic but has since been extended to nearly four years.
Earlier in November, councilmember Hugo Soto-Martinez attempted to extend the rent freeze until August of 2024 instead of expiring on January 31, 2024, but that measure failed in committee.
“According to guidance from the Los Angeles Housing Department, the annual allowable rent increase under the RSO from February 1,2024 through June 30, 2024 will be 7%, with an additional 1% for gas and 1% for electric service if the landlord provides the service to the tenant,” said Soto-Martinez, who earns $218,000 per year as a city council member and lives in a rent-stabilized unit, in his proposal. “Simply put, such an increase would devastate renters in Los Angeles, and lead to substantial displacement driving countless Angelenos out of their communities and into homelessness.”
In a compromise that Soto-Martinez ultimately voted for, rents for most apartments in the city can go up by 4% per year until the end of June, by which point either the 4% cap can be extended, cut, or increased.
Yukelson warns that ongoing changes in California’s insurance market and rising interest rates will make housing an unattractive investment in California, and that these headwinds, combined with the inability to raise rents to reflect these increased costs will result in lower housing supply.
“Today, we face a crisis in California’s insurance market making policies difficult to renew even at 50% or more increases in premiums (if one is fortunate enough to even obtain insurance), and a more than doubling of interest rates,” said Yukelson. “Housing providers who will be required to refinance their properties in the short-term horizon after losing tens of thousands of dollars in uncollected rent, experiencing ever increasing operational and maintenance costs, and not being allowed to increase pricing, will surely not survive in this rental housing business, and with that, the City will lose badly needed, naturally occurring rental housing.”
Los Angeles has more people per room than any city in the United States, and is estimated to have a 500,000 unit housing shortage, making the city the site of the nation’s largest housing crisis.
