AGENDA REPORT
Meeting Date: June 21, 2022
Item Number:
To: Honorable Mayor & City Council
From: Helen Morales, DPA, Deputy Director of Rent Stabilization Subject: REPORT ON CONSUMER PRICE INDEX (CPI) DATA AND THE
RENT STABILIZATION ORDINANCE (RSO) ANNUAL RENT
INCREASE
Attachments: None
RECOMMENDATION
Staff recommends that the Council receive a report on the most recent CPI data and its relationship to the RSO annual rent increase, and provide direction on any future action regarding allowable rent increases.
INTRODUCTION
On March 15, 2022, the City Council commenced their discussion on amendments to the urgency ordinance and the maximum allowable rent increase at the end of the rent increase moratorium. On May 10, 2022, the City Council adopted amendments to the ordinance.
The ordinance, among other things, ended the rent increase moratorium and established a maximum rent increase of 3.1% for the period of June 1, 2022 through June 30, 2023. The 3.1% rent increase was only authorized for units that would have been eligible for a rent increase during the period of July 1, 2019 through June 30, 2020, but either did not increase the rent at all or imposed an increase of less than
3.1%. At this time the ordinance does not allow any other rent increases, which means that approximately 74% of the RSO units continue to be precluded from issuing any rent increases.
The City Council requested that staff return with a report on the annual rent increase for the period from July 1, 2022 through June 30, 2023 once current CPI data became available.
F-2
Meeting Date: June 21, 2022
DISCUSSION
Maximum Allowable Rent Increases
The general purpose of the RSO is to create a balance between protecting tenants from excessive rent increases while allowing housing providers to receive a fair rate of return on their investment.
Units subject to the maximum allowable rent increases are those with continued occupancy. Once a unit is voluntarily vacated, the unit can be returned to market rate and when the unit is reoccupied, the unit becomes subject to the RSO’s maximum allowable rent increases.
Rent Increases
The municipal code classifies tenants as either a Chapter 5 or Chapter 6 tenant as follows (see Attachments C and D, respectively):
• Chapter 5. Those tenants with original rental contracts of $600 or less per month and living in a structure completed before September 20, 1978; or • Chapter 6. Those tenants with original rent contracts that exceed $600 per month or living in a building that has a certificate of occupancy issued on or before February 1, 1995.
For Chapter 5 tenants the maximum allowable rent increase is calculated monthly, using the lesser of 8% or the change in the CPI, calculated by the difference of the sum of the Los Angeles Area CPI for the 12 months preceding the most recent 12 months, and dividing that difference by the lesser of the two 12 months period sum (BHMC 4-5-303).
For Chapter 6 tenants the maximum allowable rent increase is the greater of 3% or the LA Area CPI increase between May 1 of the then current year and May 1 of the preceding year (BHMC 4- 6-3).
Both Chapter 5 and Chapter 6 tenancies are limited to a maximum of one rent increase every 12 months, except that housing providers may petition for rent increases beyond the allowable percentage amount through a rent increase application process to ensure that housing providers are receiving a fair rate of return (BHMC 4-6-11) and are not subject of an undue hardship (BHMC 4-5-401).
Current CPI Data and Potential Rent Increases
As has been previously discussed by the City Council, the rate of inflation has been running much higher than typical, which results in high CPI numbers that affect the rent increases that may be passed on to both Chapter 5 and Chapter 6 tenants. May-to-May CPI data was released earlier this month, and without the current rent increase limitations imposed by the most recent ordinance amendments, the rent increases that would otherwise be allowed for the period of July 1, 2022 through June 30, 2023 would be as follows:
• Chapter 5 Tenants: 6.15%
• Chapter 6 Tenants: 8%
While the above increases would be in accordance with the CPI as called for in the standard RSO provisions, it is recognized that such an increase would be significantly higher than what has been experienced in years past, particularly in light of the ongoing economic challenges and the recovery from the COVID-19 pandemic. Accordingly, allowing such an increase has the potential to upset the balance of the purpose and intent of the City’s RSO.
Meeting Date: June 21, 2022
Given that the previously approved 3.1% increase only applies to certain RSO units (those that would have been eligible for a 3.1% increase for 2019/2020 but either chose not to increase the rent by 3.1% or were precluded from doing so because of the moratorium), and a significant number of RSO units continue to be precluded from any rent increases, staff seeks City Council confirmation on the following:
Uniformly Apply a Rent Increase of 3.1%. As noted earlier in this report, a subset of RSO units are currently allowed a 3.1% increase. This 3.1% increase could be applied uniformly to all RSO units (both Chapter 5 and Chapter 6), excluding units that previously received the increase in 2019/2020 as already detailed in the ordinance.
Although 3.1% is less than the current CPI increase, it strikes a balance between an unusually high CPI and allowing housing providers to resume annual rent increases in order to offset rising costs. Such an allowance would also create a consistent increase across all RSO units, and as previously discussed by the City Council any forgone increase could potentially be carried forward to future years when the CPI might return to a lower rate as in years past.
FISCAL IMPACT
There is no direct fiscal impact associated with this item.
RECOMMENDATION
Staff recommends that the Council receive a report on the most recent CPI data and its relationship to the RSO annual rent increase, and provide direction on any future action regarding allowable rent increases.
Ryan Gohlich, AICP,
Director of Community Development
Approved By