Where is LA’s Rent Stabilization Ordinance Headed?

Rental units vary depending on the date built and/or if the residential property received any type of governmental funding or is under an unexpired housing covenant. Then, there are the residential buildings constructed after February 1, 1995 that are protected under the Costa Hawkins Act, including those built after October 1978 that are exempt from the City’s rent control mechanisms. 

“Properties that have at least two single-family housing units on the same parcel of land and were built on or before October 1, 1978, as well as units that are replacing demolished RSO rental units may also be covered by the Rent Stabilization Ordinance (RSO),” HCIDLA. (Photo above: RSO houses in Echo Park (above) sold in 2017 for proposed 7-small lot subdivisions) 

In Ben Bergman (9/12/2014), “LA Rent: Has rent control been successful in Los Angeles,” Business & Economy, he cites the LA Housing Community & Investment Department (HCIDLA), “80% of 880,581 multifamily units in the City of LA are covered by rent control.” 

The above statement means that HCIDLA had 704,464 RSO rental units in the market on September 12, 2014. 

Presently, HCIDLA website shows there are approximately 624,000 units in 118,000 properties throughout the City of Los Angeles that fall under the RSO.   

In less than six years, 80,464 RSO rental units have been taken off the rental housing market and most probably have been demolished.

Ellis Act states that for every demolished RSO unit in a lot, there would be an equal number of replacement units that are affordable or ensure that 20% of new units are affordable, whichever is higher. This is if proposal is not a new hotel in a commercial corridor or small lot subdivision. Moving on, a demolished unit could be 1,100 square feet holding a family of seven and the new replacement unit could possibly turn out to be 200 square feet with room for a single person. Though the number of units match (demolished to new), the square footage does not. 

The Ordinance regulates the rent increases and evictions of RSO units. Since the rental increases (usually 3%) are predictable from to year to year, both owners and tenants can plan accordingly on what kind of expenditures to undertake throughout the one-year period. 

The two RSO properties photographed above (5 units altogether with 1 to 3 bedrooms each) rented below far market rate. In 2017, tenants vacated properties when the Ellis Act was applied, shrinking the affordable housing stock. In 2/24/20, the Department of City Planning accepted for review the proposed merging of the two lots and re-subdivision into seven Small Lot Subdivisions, zimas.lacity.org. As for affordability, the Small Lot Subdivision Ordinance does not allow for replacement RSO units. 

RSO units, in residential neighborhoods or commercial corridors are mostly--- but not necessarily, depending on their location---affordable housing per se. RSO units mainly rent far below market rate in comparison to new units, and are generally owned by mom-and-pop landlords (not corporations). RSO landlords, living on the premises or near-by, are accustomed to working things out and coordinating with renters in compliance with city requirements. The continual application of standard accounting practices to keep track of inventory shouldn’t be objectionable. 

A rental agreement between a landlord and a renter is the most important tool of the apartment-housing rental industry. Rental Agreements have been evolving for decades and have become very effective in meeting the ever-increasing challenges of the industry.  

Currently RSO “affordable housing units” are nearly impossible to find. 

RSO mom-and-pop landlords depend on rents to be paid monthly, to maintain the multi-family rental properties through the end of the year when property taxes are due. Especially when the LA County Tax Collector, Mortgage companies and the Department of Water and Power do not have a “Forgiveness Clause” in any of these contracts, owners are fully liable. 

Annually, at the start of the year, landlords of RSO properties pay two fees: The Rent Stabilization Ordinance and the Systematic Code Enforcement Program (SCEP) for putting each unit on the rental market. 

The former fee goes directly to the Rent Stabilization Trust Fund from which small portions of 5-to-6 figure dollar-amounts are automatically released to the Office of the City Attorney, the City Administrator Officer, and the City Controller to supplement, along with other special accounts, the Departments’ General Fund allocations. 

While the latter fee goes directly to the Systematic Code Enforcement Fund where again 5-to-6 figure dollar-amounts are automatically released to City Attorney, CAO, and City Controller. 

In fiscal year 2019-20, the Rent Stabilization Trust Fund and the Systematic Code Enforcement Fund, generated in consecutive order $10.1 million and $31.9 million. 

How did they raise these funds? 

A mom-and-pop 3-unit RSO property payment for this year had a due date of March 2, 2020. Payments after due date, HCIDLA charges landlord(s) the regular fee plus a delinquent fee of 175%. For example, the (combined RSO and SCEP) bill is $246.21, and if landlord were to pay after the due date, landlord owes the Department $680.52. 

The Systematic Code Enforcement (SCE) Fund is derived from program fees, citations, and late payments. This Fund supports the entire SCE Program with a staff of 96 housing authority inspectors that inspect beyond the RSO units including new properties (perhaps not subject rent control). 

However, the top and most stable source of income of the City of Los Angeles comes from Property Taxes. This income goes to the General Fund along with other sources of income that are generated by ALL Angelenos. Then, in general terms (to be brief), portions of the general fund are allocated to the City Departments for city services. 

Hypothetically speaking, if landlords were to accept the “forgiveness clause” idea which some city council members are “pushing for” in their discussions in the media, then the County Tax Collector would need to create a “forgiveness clause” that would end up reducing the revenue to the General Fund. In turn, the City of Los Angeles would allocate funds accordingly. 

How willing will council members be to accept a reduction in their own salaries? Incorporating the “forgiveness clause”, where council members accustomed to receiving a full amount of their annual salaries would be expected to accept an unexpected salary reduction. 

Where is the Los Angeles Housing Rent Stabilization Ordinance heading? Will RSO landlords continue to pay (high delinquent fees) for the inspection of the new residential units under the Costa Hawkins Act?   Will HCIDLA continue to permit the demolition of habitable RSO units under Ellis Act while there’s a surge of un-housed people standing up in the street?

(Connie Acosta is a member of the Neighborhood Council Budget Advocates.)

-cw