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Does inflation spell the beginning of the end for rent control?
REAL ESTATE NEWS (Los Angeles, CA) — Many renters have no idea of what happens to rent control during inflation. Severe inflation obstructs or ends rent stabilization one way or another, because landlords must raise rents enough to account for inflation. In general, 7% inflation means that rents can go up about 7% per year. When inflation rises to 10%, 20% or more, that’s how much rents must eventually go up. If the city does not allow landlords to promptly raise the rent to cover inflation, then maintenance and enjoyment of the property suffers, as landlords must find other ways to make up for the shortfall. Whenever cities attempt to prevent landlords from recouping rising costs, property values drop, then neighborhoods suffer from increasing crime, budget deficits, deterioration and blight.
Rents can be increased up all the way to the market rate when a tenant: voluntarily moves out; does not pay rent and is evicted; violated the lease agreement and is evicted; is evicted for failure to comply with a Tenant Habitability Plan; is evicted per a City Attorney order or if the tenant accepts a Tenant Buyout Agreement.
Landlords may also raise rents when they hear that an additional tenant is moving in. Tenants may be charged by the landlord an expanding number of surcharges and fees to help pay for the growing rent control bureaucracy. Landlords may also charge the tenant for some improvements made to the unit, renovations to the building, hazardous material removal and seismic retrofit. Landlords may charge for unexpected increases in expenses that results from many costs, including inflation.
Landlords may also raise the rent to full market price by evicting the tenant if one of the following occur: Failure to pay rent; Failure to fix or address a violation of the rental agreement; Creating a nuisance or causing damage to the rental unit; Using the rental unit for an illegal purpose; Failure to renew a similar rental agreement; Failure to provide the landlord reasonable access to the rental unit; or if the person at the end of the lease term is a subtenant not approved by the landlord.
Additional reasons to evict the tenant and fully raise the rent include: The owner, or immediate family member will move into the rental unit; A resident manager will move into the rental unit; Demolition and permanent removal from the rental market; Government order; or Conversion to affordable housing. If the eviction is of no fault by the tenant, then the property owners may be required to provide some relocation assistance compensation.
Many property owners benefits from a plethora of exemptions from rent control, especially in Downtown Los Angeles. These include: luxury properties; properties that are privately owned by individuals; properties that are very old, very new etc. Most DTLA lofts have plenty of exemptions.
Big cities in California, such as Los Angeles, have a sprawling, growing bureaucracy that tries to help renters to keep rents somewhat stable. 64% of Los Angeles residents are renters, and many don’t understand that rent control and rent stabilization can only do so much to help temporarily. Eventually, the economic laws of supply and demand overrule any temporary government measures. Additionally, bureaucratic laws create additional costs, more administration fees and more legal costs, which eventually get passed on to renters. In the mean time, the supply of housing gets more constricted and limited if property owners are not allowed to charge market rates. That bureaucracy increases rents in the long run, as it causes artificial housing shortages. When the economy stagnates, homes are eventually vacated, run down and torn down, like we’ve seen in many neighborhoods of the rust belt over the last 30 years.
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