CITY HALL — This fall, Santa Monica tenants could see one of the smallest rent increases in recent history.
The Rent Control Board is currently considering a staff recommendation to allow landlords to raise rents by no more than 1 percent effective Sept. 1, setting a floor of $8 and a ceiling of $16. A public hearing is scheduled for the board’s June 11 meeting at City Hall.
The proposal, the lowest since 1999 when the board adopted a 1 percent rent increase, came as disappointing news to landlords who have been battling their own set of challenges in the current economy, including more vacancies.
“I’m concerned the 1 percent is too low of a number to adequately cover the ongoing expenses of operating the properties as I haven’t seen any reduction in expenses and property taxes go up every year and insurance premiums go up every year,” Bill Dawson, the vice president of Sullivan-Dituri, a property management company, said.
City Hall calculates the annual general adjustments based on a formula that takes several expense components into consideration, including property taxes, refuse, common area utilities, fire inspections, water and sewer costs, maintenance, insurance, and cash-flow and management costs, accounting for increases in those areas. Some components, such as fire inspection, and water and sewer are based on actual increases, while the cost change for others, such as maintenance and insurance, are determined through the consumer price index (CPI) for the Los Angeles area.
Tracy Condon, the administrator for the Rent Control Board, said that no adjustments were made for components based on the CPI because the index reflects a negative 2.7 percent change.
“Instead of reducing those by the amount of the negative consumer price index, we left the dollar amount for that the same,” she said.
The recommendation also includes adjusting the components for water and sewer to reflect the full 11 percent and 18 percent increases — respectively — in rates authorized by City Council last year.
“We felt that this is a fair approach to a general adjustment,” Condon said. “It’s a fair balance in a very difficult economic climate for everyone.”
Several people have in the past suggested that City Hall base its general adjustment on the CPI like other cities in the state and not on the current formula. Doing so would have resulted in a negative number this year.
“It’s more transparent when there are increases in specific areas that aren’t reflected in the CPI,” Joel Koury, the chairman of the Rent Control Board, said. “What the department is doing is recognizing that last fall, there were increases in water and sewer and electricity.”
He notes that the slumping economy is affecting all parties, including renters on fixed-income who most likely won’t see substantial increase in public assistance and property owners who have ongoing expenses while dealing with rent levels that are lower than what they were just a year ago.
“It is a tough time,” he said. “When we say 1 percent or $8 a month, for some that may not mean much, for some people it’s significant.”
Koury said he has not decided how he will vote on the recommendation and does not know where the board will end up.
Wes Wellman, the president of the Action Apartment Association and owner of Wellman Property Management Inc., called the adjustment an “outgrowth of a system, which is more of a political than an economic construct.”
He said the CPI would be the fairest way to base the general adjustment, adding that a CPI increase really isn’t an increase at all.
“It’s adjusting the purchasing power of the dollar you receive to reflect the increase of cost in the marketplace and so while it’s technically called an increase, in reality all you’re doing is adjusting the purchasing power of the dollar,” he said. “Anything less than a CPI increase is economically a decrease.”
Dawson, who also serves as president of the Apartment Association of Greater Los Angeles, said he would also like to see the board reconsider a policy that does not allow landlords to increase rents for existing tenants who bring on a roommate. He said that the city of Los Angeles allows a 10 percent increase if a landlord allows a tenant to add a roommate.
“Under the current economic time, many people are consolidating households,” he said. “This would be a good way to help people in need.”