If you own rent-stabilized housing in Los Angeles, it’s going to be like Groundhog Day through next year. Other than increases for inflation, it’s illegal for those owning these units to raise the rent, thanks to a recent change by the city.
We’re starting COVID-19 year three, and landlords still can’t increase rents and won’t be able to for another year. This comes after the expiration of the emergency order signed by Mayor Eric Garcetti nearly two years ago when the policy went into effect.
It impacts more than 650,000 units, or about three-quarters of the city’s apartment stock, reports the Los Angeles Times. Landlords usually are allowed to raise rents on existing tenants from 3% to 8% annually, depending on inflation. These rules generally apply to apartments built before October 1978.
LA is one of the few major cities where rent-freezes will continue. Unless LA County’s supervisors act, increases will return in rent-stabilized apartments at the end of January. Washington DC’s rent increase ban will end at the same time. Rent freezes in San Francisco will soon expire, and New York’s will stop as soon as April.
Wins and Losses
Any time your costs are controlled it’s a good thing. Just ask tenants. They have stability, knowing there’ll be no rent increase for the foreseeable future. They may enjoy spaces bigger and nicer than others living in unaffected, more expensive apartments nearby. This financial breathing room may enable some tenants to save money for a rainy day or a home’s down payment.
It’s a bad thing when your costs aren’t controlled, but your revenues are. Just ask landlords. They have taxes, trash hauling, mortgages, utilities, maintenance, and repairs to cover. Whether landlords have their own workforce or contract work out, they pay for sharply increasing labor and materials costs.
While staying longer in a more affordable home makes sense for tenants, over time, if the market slows and the natural tenant turnover grinds down, fewer upwardly mobile tenants will leave, leaving fewer lower-cost units vacant that others can fill.
Good and Bad for Landlords
Landlords suffer costs and enjoy benefits when the rent’s controlled, according to an article in Avail. The upsides are:
- Less tenant turnover: With less churn, more apartments are full, there are fewer income gaps while apartments are vacant, and you can enjoy a good tenant longer
- Rent’s more likely to be in full and on time: Rent can be a massive part of a tenant’s income. If it’s more manageable and the tenant’s income improves, paying rent is easier. Landlords spend less time and energy chasing after tenants behind in payments
- Less competition: If rent is frozen or controlled, renting housing becomes less attractive and profitable. Fewer companies join the competition, and existing ones may not expand
Freezing or controlling rent costs landlords too:
- Profits are capped because what you can charge is controlled
- Both good and bad tenants are likely to stay longer if rent is controlled
- Rent control doesn’t account for increased costs: Property taxes, maintenance, repair, and insurance costs can go up. Given the inflation rate, in real dollars, rent revenues will decline over time unless they can at least match it
Landlords exist in our economic, public health, and legal environment. This will be a continuing test for area property owners. If you need help, let us know.
We’re Here to Help
If you’re a residential rental property owner and want advice on how to run your business in our pandemic-affected real estate world, Anthony Burton can help. We can talk about your options and take steps to address your situation. Call us at (949) 244-4207 or fill out our online contact form.
