For over 30 years, Los Angeles, California has been enforcing a rent stabilization program to ensure safe, decent, and affordable housing for all Angelinos. Adopted in 1979, the city’s Rent Stabilization Ordinance (RSO) caps annual rent increases and provides eviction protection for tenants, while ensuring a “just and reasonable return” for rental property owners. With a high percentage of renter population and inadequate supply of affordable rental housing, the city needs programs such as the RSO to preserve existing rental units. Following the housing market upheaval in 2006, the city commissioned a large-scale review of the RSO to evaluate and identify any changes needed to improve the program. This article takes a brief look at some of the findings and policy recommendations that resulted from the evaluation.
 The Rent Stabilization Ordinance
The RSO applies to all rental housing units built before 1978 that are located within city limits, with the exception of single-family homes (one unit per lot). The ordinance, administered by the Los Angeles Housing Department (LAHD), covers allowable rent increases, registration of rental units, reasons for tenant eviction, and circumstances under which a landlord must provide relocation assistance to an evicted tenant. The annual rent increase permitted under the RSO is based on the Consumer Price Index (CPI) for a particular year, with minimum and maximum allowable increases set at three and eight percent, respectively. However, rent on a unit that has been vacant due to voluntary tenant relocation or eviction as a result of rental agreement violation can be increased to any amount. The ordinance also allows landlords additional rent increases to pay for utility costs, program fees, and rehabilitation expenses.
The RSO Study
In 2007, the city contracted with the Economic Roundtable, a nonprofit public policy research organization, to conduct an economic study of the RSO. In 2009, following a two-year study period, the research organization submitted a detailed assessment of the program, along with several policy recommendations. According to the Economic Roundtable report, 40 percent of all housing units and 66 percent of all rental housing units in Los Angeles are subject to the RSO. Given the large number of housing units covered by the program, the high percentage of rent-burdened city households, and the limited supply of rental housing, the research team views the RSO as an essential policy to keep rentals affordable for the city’s low-income residents. In their study, the researchers also identify some of the limitations of the RSO and provide recommendations to strengthen the program. Some of the key suggestions include:
RSO Information and Communication. Results from a survey conducted by Economic Roundtable show that a majority of low-income renters are unaware of rent increase limits and eviction protection accorded under the RSO. To better inform renters and owners about their rights and responsibilities, the research team recommends that the city mail annual informational letters about the RSO to all participants.
Administrative Burdens. The administrative burdens of complying with the RSO can be debilitating for owners of small rental properties (residential structures of four units or less). Since 24 percent of all rent-stabilized units in the city are operated by small rental property owners, the researchers recommend that the city equip owners with better tools to help them understand the program. They further propose organizing technical assistance workshops for landlords.
Rent Increases. Presently, if owners of RSO units fail to raise rents annually, they lose the ability to claim the allowable rent increase. As a result of this policy, landlords tend to raise rents every year, subjecting RSO tenants to more frequent rent increases in comparison to non-RSO tenants. The authors recommend allowing owners to defer or bank rent increases for the future. However, to protect RSO tenants from excessive rent hikes, the authors suggest capping the total rent increase at 10 percent, creating a rent registry to keep track of increases, and eliminating the current 3 percent floor for allowable annual rent increases. Without the 3 percent floor, the annual rent increase will be tied to the CPI, which the authors say is typically lower during slow housing markets, when owners would want to defer rent increases.
Capital Improvement Costs. The city allows temporary rent increases through the RSO’s Capital Improvement Program to enable owners to pay for 60 percent of major renovation costs. Since a majority of RSO units are older units in need of repair and owners would otherwise be unable to afford renovation costs due to lack of savings, the researchers recommend allowing owners to recapture 75 to 100 percent of rehabilitation costs to encourage investment in the rental properties. Expanding the period of rent increase to 10 years will keep the tenant share of the costs below $25 a month.
Conclusion
Based on the recommendations in the RSO study, the LAHD presented a list of proposed changes to the city council last year. Some of the changes include modifying the allowable rent increase to 2–9 percent and increasing the capital improvement cost recovery for owners to 75 percent. The Housing Department is also hosting free RSO informational workshops for tenants, landlords, and property managers. In a city where nearly half of the renters are paying more than 35 percent of household income toward rent, a rent stabilization program that balances tenant protection and owner rights can be integral to maintaining rental housing affordability.
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