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Los Angeles Business Journal

Monday October 11, 2010

Floor at Center of Rent Dispute
Landlords, Tenants Feud Over Rate Hikes

By Natalie Jarvey

Now that the 31-year-old ordinance on rent-controlled apartments is being updated, a battle has broken out between landlords and tenant groups over how the city of Los Angeles should legislate rent increases.

At the forefront of the debate are changes to the Rent Stabilization Ordinance's annual rent adjustment. Tenant groups say a proposal that could lower the amount of rent increases doesn't go far enough to help rent-burdened tenants. But landlords say that lowering rent increases will only make it harder for them to get enough money to cover the cost of maintaining apartments.

"It would make it difficult for owners," said Ryan Minniear, executive director of the California Apartment Association of Los Angeles.

Rent control is an important issue because so many apartments - 630,000, which were built before 1978 - are covered by the ordinance. Currently, landlords at rent-controlled apartments can raise the rent each year between 3 percent and 8 percent, tied to the Consumer Price Index.

That means landlords are still allowed a 3 percent hike even if the CPI falls below 3 percent, and that's become a point of contention. When the ordinance was passed in 1979, inflation as measured by the CPI was high; but the CPI has been below 3 percent for six of the last nine years.

The proposed changes would lower the floor of rent increases to 2 percent and increase the ceiling to 9 percent if the CPI rises to that level or above.

Anna Ortega, director of rent stabilization for L.A.'s Housing Department, said widening the range of the annual rent adjustment is meant to benefit both landlords and tenants.

But landlords aren't happy with it. Because landlords lease most rent-controlled apartments at below market rates, they argue that they already have trouble keeping up with maintenance needs.

But tenant groups are dissatisfied with the notion of a lower floor as well. They want it eliminated.

"When the CPI is below the floor, tenants are still being hit with rent increases." said Larry Gross, executive director of the Coalition for Economic Survival, a non-profit that advocates for low-income tenants. "We're looking at a situation where tenants who are severely rent burdened would be hit with another rent increase."

The notion of eliminating the floor upsets apartment owners. They say that would leave them struggling to make basic repairs to residences.

"There's a cost to maintain a building," said David Eitches, a broker with Charles Dunn who also owns buildings in the Koreatown and Mid-Wilshire areas. "Those costs are increasing. Rents shouldn't be going down when landlords' costs are going up."

Another hot-button change to the ordinance would allow landlords to pass on to tenants any increases in rates for electricity, gas, water, sewer and trash, instead of charging the current flat rate.

Other proposed changes are designed to restructure the programs that give some financial payback to landlords who make capital improvements and structural renovations.

Minniear said it's not enough.

"Owners have felt that for the last 30 years, this program has been tough on them," he said. "The proposal is heading in the right direction, but we didn't see any benchmarks or time lines about how they're going to go about it."

He added that changes to the rent-control ordinance affect not only apartment owners, but jobs for 15,000 people such as maintenance workers, plumbers and electricians who work on apartment buildings. If landlords can't make enough money, they can't plan improvements on their buildings and those contractors won't get as much work.

Moving forward

The proposed changes to the ordinance come as the result of a study released last year by the non-profit Economic Roundtable. The study reported that 58 percent of L.A. renters are "rent burdened," or pay more than 30 percent of their income on rent; the number of renters in that category has increased this year to 59 percent.

As a result, Councilman Richard Alarcon in April proposed a one-year freeze on rent increases to give tenants a respite while the Housing Department prepared options for changes based on the study's findings. But the freeze was shot down by the City Council. Despite that, the department proceeded to prepare proposals for changing the ordinance.

The Housing Department released its proposed changes Sept. 17, and the Housing, Community and Economic Development Committee heard more than two hours of public comment on the proposal two weeks ago. At a committee meeting Oct. 6, the panel took no action and announced it would take up the matter again in November.

Alarcon, one of three council members on the housing panel, said he wants to amend the proposed changes to eliminate the rent adjustment floor to further reduce tenants' rent burden. He also wants to find more ways to help landlords finance renovation projects.

"I really believe the best answer is to provide additional resources to the industry to reduce the stress on both parties," he said.

Despite Alarcon's efforts to satisfy both apartment owners and tenants, changes to the ordinance are expect to spur further debate between the two sides. A number of apartment owners and related employee groups have protested the proposed changes, forming the Los Angeles Housing Council. After the Housing Department released its proposal, the Housing Council ran a series of advertisements publicizing the proposals and its opposition to them.

Minniear said the ads, which read "Stop radical tenant groups," refer to those groups that want to eliminate the floor completely.

"We feel these groups are going to the extreme and harming small business owners," he said. "Eliminating the floor prevents them from increasing rents and making investments on their properties."

Not all apartment owners are concerned with the changes. Eitches said the 1 percent decrease in the floor won't hurt his business.

"These are little micro things that don't really matter in the big picture," he said. "People just like to complain."

But the Coalition for Economic Survival's Gross said the ordinance, even if modified, will split tenants and landlords.

"It's one of those issues where there's no middle ground," he said.

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