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Santa Monica Rent Hikes Cap in Rent Controlled Units

Tenants residing in rent-controlled apartments will witness a maximum rent hike of either 2.8 percent or $67, whichever amount is lower, during this year. The Board has the flexibility to establish a specific cap on the yearly general adjustment (GA) amount, but it is not mandatory.

Rent Hikes Cap for 2023

Rent hikes in rent-controlled units are calculated using a formula tied to the Consumer Price Index (CPI), which sets a ceiling on rents at 75 percent of the CPI. For the upcoming year, given a CPI of 3.7 percent, rent increases will be limited to a maximum of 2.8 percent. However, the Rent Control Board has the choice to implement a dollar limit on increases. In this case, for units already paying $2,375 or above, the maximum monthly increment would be set at $67.

Rent Hikes Cap in 2022

In the previous year, the significant surge in inflation rates reaching approximately 8.5 percent resulted in a substantial rent escalation of 6 percent, which was the maximum allowable increase at that time. This considerable hike ignited a wave of discontent among renters, leading local officials to respond with an initiative called Measure RC. This proposed charter amendment sought to address the situation by reducing the maximum allowable rental increase to a fixed rate of 3 percent per year, irrespective of the CPI fluctuations. Furthermore, Measure RC aimed to retroactively reverse the 2022 general adjustment, bringing it down to an average of 3 percent. This measure was introduced as a response to the renter rebellion, with the intention of establishing greater stability and affordability within the rental market.

How Rent Increase Rollbacks were Implemented

In order to implement the rollback, landlords who had previously raised rents by 6 percent were required to adjust their rents to reflect a mere 0.8 percent increase for the remainder of the year. To illustrate this, let’s consider an example: If the initial rent stood at $1,000, it would have initially increased to $1,060 during the early part of the year. However, following the rollback, the rent would have been reduced to $1,008 for the remaining duration of the year. This adjustment aimed to bring the rent levels in line with the revised regulations and mitigate the impact of the previous significant increase, thus providing relief to tenants in terms of their housing expenses.

Consequently, the average annual increase settled at three percent following the adjustments. In the given scenario, this year’s adjustment will be calculated based on that rate, which means the 2.8 percent increase would be applied to an annual rent of $1,030, resulting in a new rent amount of $1,059 for the current year.

Rent Increased Cap Based on Percentage or Dollar Amount?

In addition to the percentage-based adjustment, the dollar cap amount is determined by a predefined formula that correlates with the eighty-fifth percentile of the maximum allowable rents (MAR). For this year, the application of the formula yielded a dollar cap of $67. Consequently, tenants residing in rent-controlled units will observe their monthly rents rise by either 2.8 percent or $67, depending on which amount is lower, ensuring a level of affordability and protection within the rental market.

According to the staff report, the implementation of a maximum increase of $67 would be applicable to all units with MARs of $2,375 and above. It is important to note that the $67 ceiling would only come into effect when it results in a lower rent increase compared to the application of the 2.8 percent general adjustment. Consequently, this ceiling is specifically targeted towards higher rents.

This approach ensures that the impact of the ceiling is proportionally smaller for market-level tenancies compared to many long-term controlled tenancies. To provide an example, a tenant currently paying $1,500 per month would experience a 2.8 percent increase. On the other hand, a tenant paying $3,000 per month, due to the presence of the $67 ceiling, would see their increase limited to 2.23 percent. This distinction takes into account the varying rental amounts and aims to balance the impact of the adjustments across different segments of the rental market.