Landlord Alert: Major Revisions to the LA Rent Increase Formula You Can’t Ignore

News Flash! The Los Angeles City Council approved one of the most consequential updates to the Rent Stabilization Ordinance in decades, and the results hit housing providers hard. The City has officially adopted a new rent increase formula that significantly reduces how much landlords can adjust rents even as operating expenses continue to rise at historic levels.

Key Takeaways

• LA City approved significant changes to the Rent Stabilization Ordinance (RSO), reducing rent increase caps and eliminating several long-standing landlord allowances.
• The rent increase formula now uses 90% of CPI with a hard 4% ceiling and 1% minimum, drastically limiting a property owner’s ability to keep up with rising operating expenses.
• Landlords no longer receive +1% gas, +1% electric, or +1% water allowances, regardless of who pays the utility bills.
• The 10% additional occupant allowance is gone, at a time when landlords cannot evict for unauthorized occupants in LA City.
• These changes arrive while property taxes, insurance premiums, utilities, and maintenance costs continue to skyrocket.
• Proactive financial planning, advocacy, and strict compliance with habitability and occupancy rules are now more critical than ever.

Table of Contents

• What Changed Under the New RSO Rent Increase Formula
• Why These Changes Matter for Los Angeles Landlords
• The Financial Reality: What Landlords Are Up Against
• Strategic Steps for Property Owners Moving Forward
• Patti’s Thoughts
• Conclusion

For Los Angeles housing providers, this is more than a policy shift; it’s another blow stacked onto an already unstable market. Before diving into the implications, here’s a breakdown of exactly what changed.

What Changed Under the New RSO Rent Increase Formula

The approved changes significantly modify the components landlords have relied on for decades:

Old Formula vs. New Formula

Measurement	Existing Rule	New Rule
CPI Calculation Base	100% CPI	90% CPI
Maximum Cap	8%	4% Cap
Minimum Floor	3%	1% Floor
Utility Allowances	+1% for gas, +1% for electric, +1% for water	No allowances
Additional Occupant Allowance	+10%	Eliminated

This is a dramatic restructuring. For the first time in nearly 40 years, the City is tightening rent control beyond anything previously seen in Los Angeles.

Why These Changes Matter for Los Angeles Landlords

These changes directly affect your bottom line, and not in a small way. By cutting rent adjustments nearly in half and eliminating essential allowances, the City has effectively constrained your ability to recover even basic operational costs.

Here’s why this matters:

1. Reduced CPI Base Means Permanent Income Suppression

Even when inflation spikes, landlords can only use 90% of CPI, not the full index. That means revenue never truly keeps pace with costs.

2. A 4% Cap Is Devastating for Older RSO Buildings

Many RSO buildings are 60 to 100 years old. Maintenance, plumbing failures, roof replacements, mold remediations; these aren’t luxuries. They’re survival. And they do not operate on 4% annual increases.

3. Cutting Utility Allowances Is Financially Absurd

Landlords covering utilities have watched water, gas, and electric bills surge. Eliminating the +1% adjustments is out of touch with real operating expenses.

4. Removal of the 10% Additional Occupant Allowance Is Dangerous

Unauthorized occupants contribute to:

• Higher wear and tear
• Significantly increased water usage
• Parking congestion
• Safety risks

And LA City still won’t allow owners to evict for unauthorized occupants without a multi-year, extremely costly legal battle.

The Financial Reality: What Landlords Are Up Against

It’s no secret that LA landlords are being squeezed from all sides:

Insurance Crisis

Many insurers have pulled out of California. Those still offering coverage charge astronomical premiums or if they offer them at all.

Property Taxes

Every year property taxes rise like clockwork, even when rental income is frozen or capped.

Repairs & Maintenance

Los Angeles aging rental stock is expensive to maintain:

• Sewer line breakages
• HVAC replacements
• Roof leaks
• Foundation issues
• Mold remediation
• Mandatory city compliance inspections

These are not optional expenses.

Regulation Overload

LA is now one of the most regulated rental markets in the country. Compliance requirements grow each year while financial tools to offset these burdens disappear.

The City may claim these changes protect tenants. But the reality? They push small “mom and pop” owners to the brink which ultimately reduces affordable housing supply.

Strategic Steps for Property Owners Moving Forward

Despite these restrictions, landlords still have options to protect their investments:

1. Reevaluate Your Financial Models

Adjust your long-term projections using the new 1%–4% framework.

2. Conduct Preventative Maintenance Instead of Reactive Repairs

Stay ahead of catastrophic failures wherever possible.

3. Document Occupancy Thoroughly

While eviction for unauthorized occupants is nearly impossible, documenting health & safety violations remains essential.

4. Explore Capital Improvements That Reduce Operating Costs

Examples:

• Low-flow plumbing upgrades
• Solar
• LED retrofits
• Tankless water heaters

5. Participate in Landlord Advocacy Groups

Whether you like politics or not, politics absolutely affects your business. The City Council’s decision is proof.

Patti’s Thoughts

Let me be perfectly clear: the bureaucracy and bullshit struck hard this time. I’m infuriated by these changes, and every time I look at the breakdown, I only see red.

We lost the right to charge the additional 1% for utilities such as gas, electric, and water, even though those bills don’t come close to being covered by 1% in the first place. It’s insulting. Landlords are drowning in skyrocketing property taxes, unaffordable insurance, and rising maintenance costs, yet the City has the audacity to strip away the only tools we had left to stay afloat.

And the one that makes me sick to my stomach? We lost the 10% allowance for additional occupants.

In LA City, we cannot evict for unauthorized occupants. The legal system is broken. You could spend $85,000 over 18 months and get nowhere. Meanwhile, you’re stuck with strangers living in your building, consuming resources you’re paying for.

Yes, we still have California Building & Safety codes limiting occupancy by square footage, but enforcing that is another uphill battle.

And now? We’re stuck charging a percentage of CPI.

It’s obvious what the government is trying to do: run the little guy out of business.

They are turning LA into the Bronx. Owners won’t be able to do essential repairs. They won’t be able to maintain properties. Rent control kills mom-and-pop rental ownership, and we’re watching it happen in real time.

Conclusion

The new RSO rent increase formula marks a major turning point for Los Angeles landlords. Reduced caps, eliminated allowances, and constrained financial recovery place enormous pressure on property owners already struggling to operate under heavy regulation and rising costs.

Understanding these changes and preparing accordingly will be essential for protecting your investments and navigating the next decade of housing policy in Los Angeles.