In 2022 more rent controlled units were returned to the rental market (32) than were withdrawn (29) and while more units were also returned in 2021, the phenomenon is relatively rare occurring just six times since the city established rent control (1992, 1995, 2010, 2013, 2021 and 2022)
Santa Monica established rent control more than 40 years ago and the Rent Control Board (RCB) receives an annual report on the status of evictions and trends in the rent control market. Other takeaways from the 2022 report include a rebounding of rents from a pandemic era low and an expectation that broader economic trends will continue to buffer the local rental market.
While annual increases are controlled by the RCB, rent controlled units reset to market rate upon vacancy and the price of those new leases declined during the pandemic. However, median rents spiked by 15 percent for a studio to $2,020, 8.7 percent for one bedroom to $2,500 and 13 percent for two-bedroom units to $3,400 last year. Those were record highs for those units and while larger units also increased by 9 percent to $4,372, those rents are still below pre-pandemic highs.
According to City Hall, at the median rent set for new tenancies in 2022, an annual income of about $115,000 would be required to afford a studio-size apartment if a household spent no more than 30 percent of its income on rent. To afford a 2-bedroom unit, a household would need an annual income of more than $150,000.
Evictions remained low due in part to continued eviction protections that only recently expired. The report said 22 individuals were evicted under the Ellis Act, a state law that allows owners to exit the rental housing business by evicting tenants and withdrawing units from the rental market.
Ellis withdrawal activity for the past three years has been relatively low as compared to the years immediately preceding the global pandemic. In the five years preceding 2020, an average of 98 units were withdrawn per year. From March 2020 through 2022, tenants facing Ellis evictions were protected under the City’s emergency orders and eviction moratorium. During the moratorium, owners could file Ellis withdrawals, but tenants could not be evicted until 60 days after the moratorium expired.
In the 37 years since the Act was enacted, 684 properties containing 3,317 units have been withdrawn from Santa Monica’s rental housing market. Thirty percent of the withdrawn units (992 units on 183 properties) were eventually returned to residential rental use and are again subject to the rent control law. In total, since 1986, there has been a net loss of 2,067 units on 486 properties.
Boardmember Lonnie Guinn asked, given the data available, if there was any indication that there might be a dramatic change in 2023 and the Ellis Act might become a “big deal” again this year, to which information coordinator Rose Patel replied, “As far as we can tell, it’s the same trend as for the last two years. It may pick up, but that remains to be seen so far.”
Few tenants remain with rents below market rate. According to the report, almost half of the 27,600 rent controlled units are occupied by tenants who moved in between 2016 and 2022. Less than a quarter of the units remain occupied by tenants who moved in before 1999 when vacancy decontrol/recontrol began.
2022 was also marked by an unprecedented increase in rents due to skyrocketing inflation.
Tied to the Los Angeles area Consumer Price Index (CPI) that reached 8.5 percent in March the general adjustment reached the maximum increase of six percent under the Rent Control Law.
Even with a maximum dollar increase set by the Board pursuant to a formula in the law, tenants paying higher rents faced increases as high as $140 per month. Compared to general adjustments averaging 1.5 percent for the prior ten years, and for tenants still recovering from the pandemic, the report called the increase “staggering.”
The increase sparked a ballot measure (Measure RC) that amended rent control law and reduced the increase to an average of three percent with a $70 monthly maximum.