Ari Chazanas is the founder and CEO of Lotus West Properties, a real estate management and investment firm based in West Los Angeles.
Landlords and property owners who have struggled to navigate the pandemic and the rent moratoriums imposed on them over the past two years can finally get some relief as rent increases are now happening. Allowed to resume under multiple California state and local laws.
For some areasthis increase could rise to 10% from this autumn, which means maximum legally permitted. That number may vary from city to city, as the limit is set at 5% plus an additional percentage based on current inflation.
As mentioned, these increases do not apply equally to the entire state. Some cities still have certain provisions, requirements and even some restrictions that can make it difficult to take full advantage of the legally allowed increases.
To illustrate the different challenges out there for landlords in California, let me examine the average prices and rent increases allowed in the cities of Santa Monica, Beverly Hills, and Los Angeles.
I hope this comparison provides a useful cross-section of the current situation, the opportunities landlords have and the barriers that still make it difficult in the face of rising costs and regulatory constraints.
The difference between rent control and rent stabilization
Before comparing the cities in California, let me distinguish between rent control and rent stabilization, which are often: confused or supposed to mean the same.
Rent control refers to a freeze on monthly rental costs. That means it cannot be increased by the owner of the property once the lease expires. The unit must also remain in the residence of family members. So if that unit has remained inhabited by the same family, it qualifies under the law. Otherwise, the unit is no longer eligible for rent control and can be rented at its current market value.
Rent stabilization refers to a maximum for an apartment’s annual rent increase from one year to the next. Stabilizing rent costs to avoid hugely expensive increases helps keep units affordable and avoids pricing out large segments of the community.
The average rent for a one-bedroom unit in Santa Monica is approximately $2,800representing an increase of approximately 14% from 2021. Santa Monica is one of the locations that follow rent control rules and any increases or adjustments in rent must be in accordance with current rent control council laws.
The board has agreed to a rent increase of 6% for the year 2022. But it is important to remember some of the prevailing criteria that property owners must adhere to. That 6% increase comes with a maximum monthly limit of $140 on rental costs of $2,325 or higher. In addition, the tenant must have moved before September 1 last year and all registration fees and any fines on the relevant unit have been paid in full. According to the regulations, the owner must inform the tenant in writing about the increase and when it will take effect.
My advice is to make sure you always have a clear and concise paper trail that proves that you informed the tenant in writing in case you need this documentation in court.
Like Santa Monica, the average rental cost for a one-bedroom unit in Beverly Hills also fluctuates around $2,800representing an increase of about 17% from 2021. The City of Beverly Hills has ended its rent moratorium and tenant protections against eviction for nonpayment, so landlords here who planned to raise rents and evict tenants from their properties , can continue these actions for so long because they do not contradict rent control laws rent amounts from $600 or less.
Landlords can increase the rent of their units up to the maximum allowed under the Beverly Hills Rent Stabilization Ordinance, which is approved at 3.1%. This is possible in September. My advice is simple: do it as soon as you can, because if Covid has taught us anything, you never know what tomorrow may bring.
The average rent for a one-bedroom unit in Los Angeles is about $2,500which equates to an increase of approximately 17% from 2021. Almost 75% of Los Angeles apartments qualify for rent control since those buildings were built before October 1978, which is the current criteria in the city. As a result, those property owners are not allowed to raise rents, and this restriction will remain in effect for an entire year from when the city decides to end the “emergency period” still in effect due to the pandemic. This means that the restriction will end in 2023.
If this applies to the 75% rental properties in LA, what about the remaining 25% that are not covered by the rent regulation ordinance? For these units, the city has allowed rent increases to move forward, and current lawmakers have allowed inflation to set the pace. With rates higher than ever, renters could see a rent increase of as much as 8% or more, depending on whether or not the property owners cover utility costs.
Landlords planning to make a raise should now prepare all the paperwork and letters so they are ready to send those notices. I would also suggest starting to plan for any repairs needed to units in the event that renters decide to move or are priced out of your properties.
I think this is a much needed relief for real estate owners who are struggling. While there is still a long way to go to help landlords cope with inflation and rising prices, easing rent moratoriums and lifting restrictions on rent increases are a step in the right direction.