The Status of Rent Increases in California
Landlords and property owners who had a difficult time navigating through the pandemic and the rent moratoriums imposed upon them for the past two years may finally be getting some relief as rent increases are now allowed to proceed once again under multiple state and local laws of California.
That increase may be as high as 10% beginning this Fall, the maximum allowed by law. That number can vary from one city to the next as the cap is set at 5% plus an additional percentage based upon the current rate of inflation. Since the country is seeing a marked rise in inflation, rent increases across California have been impacted. For some areas, that rate has maxed out the cap at 10%.
However, these increases don’t apply equally across the state. Some cities have certain provisions, requirements, and yes even some restrictions still in place that may make it difficult to take full advantage of the increases permitted by law. Rent control rules still apply for those with properties in these jurisdictions, so you can expect somewhat smaller increases in these areas.
To illustrate the various challenges that exist for landlords in California, let’s examine the average prices and rent increases that are allowed in the cities of Santa Monica, Beverly Hills, and Los Angeles.
In my view, this comparison provides a useful cross-section of the present situation, the opportunities that landlords have, and the barriers that continue to make it difficult to succeed in the face of rising costs and legal restrictions.
According to Zumper.com, the average cost of rent for a one-bedroom unit in Santa Monica is roughly $2,800 which represents an approximate 14% increase from 2021. Santa Monica is one of the locations that follows rent control rules and all increases or adjustments to the price of rent must be in compliance with current Rent Control Board laws. The city enacted rent control laws in 1979 to keep housing affordable for all tenants.
The Board has approved a rent increase of 6% for the year 2022. But it’s important to remember some of the criteria in place that property owners must abide. That 6% increase comes with a maximum monthly cap of $140 on rent costs of $2,325 or higher. In addition, the tenant must have moved prior to September 1 of last year and all registration fees and penalties, if any, on the unit in question have been paid in full.
As per regulation, the owner must inform the tenant in writing of the increase and when it is set to take effect. My advice is to be sure you always have a clear and concise paper trail that proves you have informed the tenant in writing in the event you need this documentation in a court of law.
What’s the Difference Between Rent Control and Rent Stabilization?
“Rent Control” and “Rent Stabilization” are two different things, though many often confuse the two or assume they mean the same thing.
Rent Control refers to a freeze on the monthly cost of rent. That means it can not be increased by the property owner once the lease expires. Buildings that were constructed prior to 1947 qualify for rent control, but don’t necessarily get automatic status. The unit must also remain in the occupancy of family members. So if that unit has remained occupied by the same family, it qualifies under the law. However, if another family member fails to take over the lease when the current occupant passes away, under the specifications of rent control law, the unit no longer qualifies for rent control and it can be rented at current fair market value.
Rent Stabilization refers to a cap on the annual increase of rent for an apartment from one year to the next. Stabilizing the cost of rent to prevent wildly expensive increases helps to keep units affordable and avoid pricing out large groups of the community.
According to Zumper.com, the average cost of rent for a one-bedroom unit in Beverly Hills is also hovering around $2,800 which represents an approximate 11% increase from 2021. Beverly Hills has two forms of rent stabilization in place. The city of Beverly Hills has ended their rent moratoriums and tenant protections from eviction for nonpayment. Landlords who planned on raising the rent and evicting tenants from their properties can resume these actions in Beverly Hills.
Beverly Hills passed rent control laws in 1978 for the purpose of making housing affordable by applying rent control to certain units and homes at rent amounts of $600 or less at that time.
Landlords can increase the rent on their units up to the maximum allowed under the Beverly Hills Rent Stabilization Ordinance, which has been approved at 3.1%. This can begin in September. My advice is simple, do it as quickly as you can. Whether that means increasing the rent, evicting a tenant, any actions you deem necessary to help your business recuperate after these rough couple of years, do it. Do not wait, start as soon as possible because, if COVID taught us anything, you never know what tomorrow might bring.
According to Zumper.com, the average cost of rent for a one-bedroom unit in Los Angeles is roughly $2,500 which represents an approximate 17% increase from 2021. Almost 75% of the apartments in Los Angeles qualify for rent control since those buildings were constructed prior to 1979 under the most recent statewide laws applied to California.
As a result, those property owners are restricted from raising the rent and this restriction will remain in effect for a full year from when the city decides to end the “emergency period” that is still in place due to the pandemic. That puts the end to the restriction in 2023.
That applies to the 75% of rental units in L.A. What about the remaining 25% that do not fall under the rent control ordinance? The city has permitted rent increases to move forward and the current legislators have allowed for inflation to set the pace. With rates higher than ever, tenants could see a rent increase of as much as 8% or more, depending upon whether or not the property owners cover utility costs.
Landlords planning on implementing an increase should prepare all the paperwork and letters now so they are ready to send those notices on day one. I would also suggest to start planning on any repairs that are needed on units in the event tenants decide to move out should the rent increase price them out of your properties.
Let Me Leave You With This…
This is some much needed relief for property owners who have been struggling. While there is still a long way to go in helping landlords who have had to face the challenge of inflation and rising prices, the easing of rent moratoriums and lifting restrictions on rent increases is a step in the right direction.
Ariel Chazanas has been involved in real estate throughout his entire life and has been exposed to every facet of the multifamily investment and development business starting at the age of 6. His family has always owned, developed and managed apartment buildings and from an early age Ari would visit these properties with his father and observe his interactions with tenants, construction workers and brokers. As he grew older he became more involved in the business.
You can read more about Ari here: https://lotusproperties.com/ariel-chazanas-bio/