A move by Los Angeles to enact some of the most sweeping rent stabilization rules in the United States will limit increases most landlords can impose, a step some property professionals say adds another development headwind to a region trying to build housing.
The first major overhaul of the Rent Stabilization Ordinance in more than 40 years takes effect Feb. 1, trimming the annual cap on the size of rent increases on renewals in regulated units to 4% from 8%; no restrictions apply for increases when units become vacant. The changes affect roughly 650,000 units — about 62% of Los Angeles’ multifamily inventory — mostly in buildings opened before October 1978, according to CoStar data.
“This is a big deal,” Kitty Wallace, a vice chair at Colliers who has brokered more than 800 multifamily property deals across the nation's second-biggest city, told CoStar News. "This discourages investment and development in Los Angeles, which is already one of the hardest places to build. We’re short about 800,000 housing units, and policies like this make it worse.”
The change is the latest sign of growing concern nationwide about the cost of living, with New York City's mayor-elect chosen by voters last month with a campaign that focused on a lack of affordability, particularly in rents. In Seattle, voters likewise chose a mayor-elect this fall who also ran as a democratic socialist and made affordability an issue.
Los Angeles’ rent stabilization rules affect a significantly larger portion of the market than in other major cities, including New York City and San Francisco, CoStar data shows. Private landlords and families own about 80% of the value of units built in the city before 1978, a marked contrast to cities dominated by larger institutional landlords, according to CoStar data.
Supporters of the law note it intends to provide renters with "greater affordability and predictability, which will help stabilize occupancy," Sonnet Hui, vice president and managing director at commercial real estate firm Project Management Advisors, told CoStar News.
Slashing rent increase limits
Rent stabilization in the U.S. is mostly limited to a handful of big cities, including New York City, parts of California and the St. Paul area in Minnesota. State laws play a big role too — California, Oregon and Washington set statewide caps, while Texas and Illinois ban rent control altogether.
In San Francisco, officials aggressively expanded rent control laws in the 1990s, but the city later scaled back after seeing thousands of units pulled from the rental market and a sharp drop in new construction. To restore investor confidence, officials aligned with state law, exempting new buildings and allowing rent resets between tenants.
The limit under the new law passed in Los Angeles on owners of older apartments in the city not raising rent more than 4% each year falls well below a statewide cap of 10%.
The changes mark a compromise from earlier proposals, which included a floor of no increases and a ceiling of 3%. The final measure was partially shaped by strong turnout from landlords and property managers who appeared at hearings and contacted councilmembers, Wallace said.
"In the past, we’ve been less proactive — sending emails or doing the minimum. This time, we finally got organized," she said. "The California Apartment Association helped mobilize legitimate landlords, property managers and even residents who understand that fair rent increases are necessary to maintain buildings."
The California Apartment Association, which urged members to attend the City Council’s final vote, said the changes would disproportionately affect small housing providers and worsen the city’s housing shortage.
“Officials cannot claim to support housing while advancing regulations that undermine providers,” said Fred Sutton, the association’s senior vice president of local legal affairs, during public comments. He called on the council to reject the proposal and avoid “magic numbers that will deepen the housing crisis.”
Only a fraction of the value of units built before 1978 is tied to institutional owners, making Los Angeles stand out from cities like New York, where bigger landlords dominate the landscape.
“Ownership here is very fragmented,” Wallace said, adding that many small landlords "are still struggling" from the COVID-19 pandemic, when rents were frozen for four years.
The city's apartment market is already facing challenges. Asking rents for these older buildings are about 44% lower than for those built after 1978, vacancy remains tight, and move-outs have declined in a market that historically depends on supply turnover in order for landlords to boost rents, according to CoStar data.
Vacancy for these pre-1978 buildings stands at 4.8%, below the metropolitan area average of 5.6%, according to CoStar.
Six submarkets — Greater Inglewood, Southeast Los Angeles, South Los Angeles, West Hollywood, East Hollywood and Santa Monica — account for 31% of all rent-controlled units in the city. In some of these submarkets, 85% to 93% of total inventory predates 1978.
Reshaping investments
Over time, apartment owners and brokers say, the ordinance is likely to reshape investment patterns, slow capital improvements in older buildings and potentially reduce interest in new multifamily projects in the city.
In the near term, the ordinance will likely reinforce tenant protections and affordability, but the long-term impact on investment appetite and property upkeep remains a key concern for the city, Hui said.
Wallace argues that tenants may see a negative effect from the rent cap.
"If owners can’t keep up with costs, properties deteriorate, and residents suffer," she said.
Still, officials and tenant advocates say the policy helps maintain affordability in one of the most expensive rental markets, where rents are more than 30% above the nation's average.
On one point, both sides agree: Los Angeles is likely to revisit the issue.
"My hope is continued education — helping City Council understand that we need policies encouraging housing development and fair rent adjustments," Wallace said. "Otherwise, we risk becoming like San Francisco, which became nearly uninvestable before reversing course."