Editorial News Alert: L.A. Supervisors Vote 3-2 to Reduce Allowed Increases to 60% of CPI

Industry News,

On Tuesday, June 4th, the Los Angeles County Board of Supervisors voted 3-2 (Supervisors Barger and Hahn in opposition) to destroy the rental housing in the unincorporated areas of the County by instructing staff to return with an amendment for final approval that will drastically lower the allowable rent increase formula to a mere 60% of the Consumer Price Index (CPI) with a 3% maximum cap and no floor. 

What does this motion mean for owners? It means that once the amendment is finally adopted and starting January 1, 2025, owners will only be able to increase rent by just 60% of CPI as an annual increase whatever the CPI turns out to be and we cannot forecast it at this time because it is based on an average of the prior 12 months of CPI ending in September 2024. As an example: if the current CPI were used of 4.275%, then you would only be allowed to increase rent by 2.57%. Also, you would only hit the new maximum of 3% “ceiling” if the CPI was at least 5% (5% x .60 = 3%). In addition, it means that future increases could be as low as ZERO depending on the CPI because there is no longer any floor. For some small owners with fewer than 10 units (see further discussion below), you would be able to take an additional 1% increase with a maximum of 4% and for some luxury owners you would be able to take an additional 2% increase with a maximum of 5%. The current maximum allowable increase of 4% would remain in place through December 31, 2024.

Background and Commentary

Supervisor Holly Mitchell authored the motion that adopts the most radical and severe reduction discussed in a substantially flawed report from HR&A Advisors (who do not have a single economist on staff) with supporting votes from Supervisors Lindsey Horvath and Hilda Solis. In striking contrast Supervisors Kathryn Barger and Janice Hahn had the courage and integrity to hold firm to previous promises made by the full Board of Supervisors to rental housing providers that the original formula would be allowed to take effect on July 1, 2024 when the temporary reduction to a flat 4% allowable increase was due to expire and voted as strong NO votes to this motion.

We had a good turnout of owners with 30 people calling in and 60 people in the room with 90% of speakers being small owners. However, Supervisor Horvath, as chair, cut the speakers down from a standard 3 minutes to only 1 minute. This seems to be the new standard by Supervisor Horvath as an attempt to limit public engagement and avoid receiving much less considering public comments. Our AAGLA President Cheryl Turner also spoke out against the motion both on behalf of the Association and as a small owner herself. AAGLA staff also spoke against the motion too and urged that it at least be delayed until the major and systemic flaws in the underlying report were corrected. Unfortunately, all such pleas fell on deaf ears for Supervisors Mitchell, Solis and Horvath (a/k/a The 3 Horsewomen of the Rental Housing Apocalypse). 

Supervisor Mitchell made the absurd claim that she was trying to “balance” renters’ needs, and rental housing providers’ needs despite her motion supporting the MOST RADICAL and SEVERE Option (Option 4) out of a total of six options contained in the HR&A Advisors report. This motion was also in direct opposition to the Board’s own Department of Consumer and Business Affairs’ (DCBA) recommendation to stay with the original formula (Option 1) as it had never been implemented due to COVID-19 and represented a TRUE compromise that would enable rental housing providers to stay in business and secure the remaining affordable rental housing for the County. No change was also strongly supported by Supervisors Hahn and Barger in keeping the Board’s previous promise to rental housing providers that they would be allowed to return to the original formula starting on July 1, 2024 and being recovering from the substantial losses incurred during COVID-19.

In speaking in support of the motion, Supervisor Horvath made the false claim that this option “aligns with what many jurisdictions have done”. In fact, only ONE city out of all EIGHTY-EIGHT cities in Los Angeles County has such a severely restricted increase, which is Bell Gardens. Does the County really want to become another Bell Gardens? At least Supervisor Solis seems to want that to be the case as she made comments that ANY INCREASES no matter how small would create “havoc” for renters. Even Bell Gardens’ own City Council is reconsidering their existing formula as it is currently driving many local mom-and-pop owners out of business and their properties off the market.

Clearly, Supervisors Mitchell, Solis and Horvath live in a fantasyland where small business can stay in business without increasing prices to cover greatly increased costs. While Supervisor Mitchell provided lip service to certain small owners with 10 or fewer units with a paltry 1% additional increase and a maximum of 4%, this is a slap in the face compared to the 45% increase in costs acknowledged in the HR&A report. Even this cost estimate is DRASTICALLY UNDERESTIMATED as the report FAILS to include a WHOPPING 54% of costs for owners by entirely leaving out mortgage payments, which are THE HIGHEST COST for ANY property owner. However, these 3 Supervisors do seem to hold “special love” in their hearts for LUXURY owners (owners receiving $4,000 or more per month in rent) in giving them DOUBLE the increase (2% with a maximum of 5%) that is given to small, mom-and-pop owners providing much needed naturally occurring affordable rental housing with older buildings requiring much higher repair and maintenance costs.

Further, due to last minute changes by Mitchell to her own motion reducing the number of owners that would qualify as a “small property owner” for a single property down from 50 units to 20 units (done as a supplement) to a mere 10 units (done on the floor), it has created a bizarre penalty for duplex owners. The original motion created two categories, one for owners with a single building and one for owners with multiple small buildings. The maximum number of units for a single building was 50. The maximum number for multiple buildings was 10 units total and a maximum of three buildings. 

Now that the maximum number of units for a single building matches the maximum number of units for multiple buildings, it creates discriminatory treatment for duplex owners in leaving some of them out of the definition. So, an owner with a single building with 10 units qualifies, an owner with 2 quadplexes and 1 duplex qualifies, an owner with 1 quadplex and 3 duplexes qualifies, but an owner with 4 or 5 duplexes does NOT qualify despite meeting the 10 unit maximum. This makes absolutely NO RATIONAL SENSE as it should make absolutely NO DIFFERENCE how an owner meets the 10 unit maximum and is clearly an unforeseen consequence of making changes on the floor. Will this be fixed? That is yet to be seen but AAGLA is already advocating for it to be made.

In refusing to wait for an accurate report from HS&A Advisors, it was clear that Supervisors Mitchell, Solis and Horvath did not want to know the massive destruction that they will be responsible for bringing to affordable rental housing with this motion when they purposefully drive thousands of small owners, many of whom are retired seniors dependent on their property for income, out of business and their properties into the arms of waiting corporations to be replaced with luxury units. They did not want to acknowledge the cold, hard truth that if increases do not keep up with at least 100% of CPI (which was all that was given under the original formula and already limited maximum increases to 8% -- which would rarely ever be reached), they cannot stay in business and as a result, not only are owners hurt, but ENTIRE BUILDINGS OF EXISTING RENTERS WILL BE DISPLACED. The Supervisors want to wrongly package this as an anti-displaced motion, when in fact it will create MASSIVE DISPLACEMENT far beyond the few individual households that could be readily helped with direct rental assistance from the County. 

Supervisor Horvath wrongly attempted to portray this motion as the “least costly” way to help renters stay housed. In fact, it is by far the COSTLIEST in terms of the vast number of renters who will lose their housing when the buildings are sold and to retired seniors as owners who rely on their small buildings as income for daily living expenses. In addition, once these buildings are gone, future generations of renters will also be without affordable rental housing. 

This motion will be like gasoline on a fire in FUELING GENTRIFICATION and displacing thousands of low-income families. Supervisors Mitchell, Solis and Horvath are NOT HEROES as they wish to believe, they are VILLAINS taking the easy way out by supporting radical tenant activists in their delusional fantasies that increasing costs (including the new Rental Housing Habitability Program that DOUBLES the cost for owners to register each unit with the County and was also NOT included in the report) do not have to be covered by rising rents. These 3 Supervisors know better and SHAME ON THEM for failing to take ownership of a problem that THEY CREATED by not producing enough new rental housing for all renters and failing to provide rental assistance to renters in need based on income qualifications. As Supervisor Barger rightly recognized this is once again putting the County’s own responsibilities onto the backs of small rental housing owners and this time their backs WILL BREAK as NO business can stay in business at less than 100% of CPI. 

There is one remaining sliver of hope as this motion will require another vote when the draft amendment is brought back to the Board for final adoption. However, the likelihood of these three Supervisors suddenly waking up to the fact that they will DESTROY naturally occurring affordable rental housing by forcing existing, independent owners out of business based on severely flawed data is remote at best. The time is NOW as an owner for you to speak out against your destruction! Email and call Supervisors Mitchell, Solis and Horvath TODAY and demand that the amendment be held at least until an ACCURATE, ROBUST and TRUE ECONOMIC COST STUDY be conducted by REAL economists to show that this solution is completely UNWORKABLE in the face of the myriad of hugely increasing costs, including mortgage payments!



This article is for informational purposes only. If you have any questions regarding your property or specific tenancies and the requirements of any local law changes described herein, please consult with an attorney.