Rent Stabilization Commission Recommends 8% Rent Increase Cap
The meeting represented the city’s ongoing efforts to equitably address the rising cost of living while allowing property owners to realize a profit on their investments.
On July 6, the Beverly Hills Rent Stabilization Commission grappled with whether to recommend changes to the maximum allowable rent increase allowed under the city’s Rent Stabilization Ordinance. Citing the historic levels of inflation, commissioners agreed to recommend that the City Council place an 8% cap on rent increases. The meeting represented the city’s ongoing efforts to equitably address the rising cost of living while allowing property owners to realize a profit on their investments.
“We are in different times in 2022,” said Commissioner Lou Milkowski. “The CPI, the inflation is not where they’ve been two, three, four, five, six years ago. As a result, the economics of living have changed. And my concern is these economics may be at this inflated rate for two, three or four years.”
Beverly Hills, like many other cities with similar protections, uses the Consumer Price Index (CPI) to determine the allowable rent increase for rent stabilized units. The CPI is a measure of costs for standard goods and services calculated by the U.S. Bureau of Labor Statistics. It has seen a sharp increase over the last year, in part owing to dramatic inflation.
The trend has also raised the stakes for the city as it reexamines the Rent Stabilization Ordinance. A rising cost of living with high inflation places greater economic strain on tenants while also allowing landlords to raise rents by larger amounts. Property owners, meanwhile, also experience greater economic burdens from inflation on the heels of a nearly two-year hiatus on rent increases.
The Rent Stabilization Ordinance categorizes renters as either Chapter 5 or Chapter 6. The latter includes tenants whose original rent was $600 or less per month and live in a unit completed before September 20, 1978; the former includes tenants whose original rent exceeds $600 per month and live in a structure with a certificate of occupancy issued on or before February 1, 1995.
Property owners of Chapter 5 tenants can raise rents once a year based on the CPI, with a cap of 8%. Landlords for Chapter 6 tenants can also only raise rents once annually by either 3% or the percent increase in the CPI, depending on which is higher. While the city does not cap the possible rent increase for Chapter 6 tenants, 2020 state law limits landlords to 10%.
When applying the annual rent increase, landlords can petition the city to raise beyond the allowable increase for that year “to ensure that housing providers are receiving a fair, just and reasonable rate of return…and are not subject of an undue hardship,” according to a report compiled by city staff.
As it is, though, Chapter 6 tenants are looking at rent increases as high as 8% for the year from May 2021 to May 2022, a figure that Director of Community Development Ryan Gohlich described as “a shock to a lot of people.”
Gohlich pointed out that in years where CPI is lower than 3%, tenants nonetheless pay more than the CPI. “The flip side of that is, when CPI is really high, should the increase be a little bit less than that?” he posed rhetorically.
Much like Beverly Hills, cities like Los Angeles, West Hollywood, and Culver City have similar ordinances that tie rent increases to the CPI. Los Angeles imposes a floor of 3% and a ceiling of 8%. Culver City goes further, with a cap of 5% and a minimum of 2%.
The Planning Commission cannot take action itself in making changes to the Rent Stabilization Ordinance. Rather, it serves in an advisory capacity to the City Council, deliberating and making recommendations that the Council can use in their own decision.
Staff charted out a number of possible paths the commission could recommend to the City Council.
The commission could recommend no change to the ordinance. In this scenario, Chapter 5 tenants would be subject to increases of either the change in CPI or 8%, depending on which is lower. Chapter 6 tenants would face increases of either the CPI or 3%, depending on which is higher.
The commission could also recommend a maximum dollar amount for annual rent increases, could set a ceiling and eliminate the floor for Chapter 6 tenants, or eliminate floors and ceilings altogether.
In 2018, the city held facilitated sessions with landlords and tenants on possible amendments to the ordinance. The majority property owners supported either no change to the current policy or imposing a cap on rent hikes for Chapter 6 tenants. Most property owners suggested a maximum increase of 6% to 7% for Chapter 6 tenants, according to a staff report.
Tenants who provided comments supported an end to minimum and maximum rent increases in favor of tying raises entirely to some percentage of the CPI. An analysis conducted on behalf of the city found that 7 out of 12 peer cities surveyed allowed rent increases as a percent of the CPI, including West Hollywood, Santa Monica, and San Francisco.
“It’s just been what they’ve determined is appropriate,” said Deputy Director Rent Stabilization Helen Morales.
Commissioners weighed whether to set a cap of 8% for Chapter 6 tenants or do nothing and keep increases limited to 10% under state law.
“Do I feel a need to compromise to the 8%? I don’t, I really don’t,” said Commissioner Neal Baseman, who said he felt a cap would be unfair to property owners.
Ultimately, a majority of commissioners disagreed and felt it appropriate to recommend the more robust protections. The commission will memorialize the recommendation at its next meeting on Aug. 3 before the recommendations go before the City Council at an undetermined date.