Alexa Castelvecchi was happy when she and her roommates found their new apartment about a year ago, in a modern Hollywood building with a large, sleek kitchen and oversized windows. It was nothing like the aging, rent-controlled apartment she once sublet in Venice, where she often had to cook with a toaster oven.
But as the end of the lease on her three-bedroom apartment fast approaches, she worries about the already high monthly rent of nearly $4,000 potentially increasing.
Little did she know that she had some of the strongest protection available. Unbeknownst to many city tenants, an obscure city rule requires certain newly constructed rental properties to be subject to the city’s rent stabilization ordinance, commonly known as rent control.
Developers have built more than 10,000 such units since 2007, according to city records, adding a new crop of rent-controlled housing throughout the city.
The buildings offer a counterpoint to the real estate industry’s claims that rent controls limit new construction. But they also raise a question: Do their tenants know they live in rent-controlled housing?
Castelvecchi said she had no idea she was living in a building with rent caps until a Times reporter told her recently.
“No one said anything,” she said.
In general, the city’s rent control law only applies to buildings constructed on or before Oct. 1, 1978 — a deadline that many landlords and at least some tenants are well aware of. Under the rules, landlords can set rent each time a unit becomes vacant, but face limits on how much rent individual tenants can increase annually, typically between 3% and 8%, depending on the location. ‘inflation.
Newer buildings generally don’t have these protections, but they may depending on what was there before. Under a 2007 city ordinance, newly constructed apartments, townhouses and condos must be subject to rent control if an older rent-controlled property has been demolished on site.
Data shows that city developers frequently pursue these projects even though their buildings are subject to rent caps at the time the lease is signed.
The building at 5800 Harold Way in Los Angeles, California is under rent control.
(Myung J. Chun / Los Angeles Times)
Leeor Maciborski, owner of ROM Residential, which currently owns the Castelvecchi building, purchased the building after another investor built it. However, he said he developed five or six other properties in Los Angeles, knowing they would fall under the city’s rent stabilization ordinance.
The plans made financial sense because he could set the initial rent at market rate and was entitled to an increase of at least 3 percent each year, he said.
“If I could build something…and I could count on an annual increase of 3 to 4 percent, I would be happy,” the developer said.
Tenant advocates, meanwhile, say that even if new rent-controlled apartments are built, replacing old rent-controlled units with new ones is devastating. Not only are people being evicted, but new construction requires a premium when the property is initially rented.
“The only people willing to accept this compromise are developers and landlords, who are raking in more and more profits and revenue on the backs of the people they have displaced,” said Larry Gross, executive director of the tenant advocacy group Coalition. for economic survival.
Since mid-2007, landlords have taken more than 13,000 older, rent-controlled units off the market, raising concerns that demolition could worsen the city’s affordability and homelessness crisis.
During the same period, Housing Department data shows 10,252 new housing units were placed under the city’s rent stabilization ordinance.
New buildings may be exempt from the rules if they are open for rental more than five years after the old property has been taken off the market, or if the developer dedicates a certain number of new units as affordable housing subject to conditions of income – although units will return to rent control once these income restrictions expire in coming decades, according to the Department of Housing.
Around 3,000 additional homes fall into the latter category, which is temporarily exempt, although some are already subject to income restrictions.
In theory, new rent-controlled properties could increase the city’s total number of capped apartments, since developers often demolish a small building to build more units. So far, this has not happened.
The real estate industry – as well as many housing economists – have long argued that far fewer developers would build if they were subject to rent caps, leading to even higher rents as supply shortages are getting worse. As a result, rent control ordinances across the country generally exempt new construction.
Until recently, California state law prohibited rent capping on properties built after February 1, 1995, and even before in some cities like Los Angeles, with an exemption for newly constructed properties that replaced existing old rent-controlled units.
Then, in 2020, a new law took effect that imposes statewide rent restrictions on buildings older than 15 years, although these caps are less strict than in places like Los Angeles, where the rules remain in force.
The author of the state bill, then-Assemblyman David Chiu (D-San Francisco), had proposed a 10-year delay, but that deadline was extended an additional five years to dampen opposition. At the time, the California Apartment Assn. took credit for the change, saying it would “mitigate the bill’s impact on future rental housing development.”
Fred Sutton, senior vice president of the California Apartment Assn., said that just because some developers are building under Los Angeles rules doesn’t mean housing construction wouldn’t decline if rent caps were imposed on all new buildings. As restrictions are added, fewer projects can be expected to generate reasonable profits — although some move forward, he said.
“Can people still find a way to do it? » said Sutton. “Yes, but you’re not going to attract as many people as you need.”
Two developers told the Times they didn’t know the rules before building. One said he would do it again, while another wouldn’t because rent control gives him less flexibility to make a profit.
Maciborski said he would take a different approach. He would be willing to build another rent-controlled building, but only if the project expected a greater return on investment than before, to protect it from potential actions by the Los Angeles City Council that could reduce its revenue streams.
The pandemic pushed the municipality to freeze rents for controlled buildings for almost four years. Only a few months ago, authorities allowed landlords to raise rents.
“I would think about it,” Maciborski said of building another rent-controlled property. “But now, knowing the potential tools that the city council has … it’s definitely a little scarier.”
Tenants who live in rent-controlled buildings – old or new – should know this. The Los Angeles Department of Housing requires the landlord to alert tenants by posting a notice on the property. But several residents who spoke to the Times in the newer buildings said they had no idea.
After learning the condition of her building, Castelvecchi checked her lease and noticed that rent control was mentioned in a section she had previously overlooked. And she found a sign in the building describing the rules, something she hadn’t noticed before.
It would have been better, she said, if the rules had simply been explained to her verbally when she rented the apartment.
“It’s extremely disturbing that this hasn’t been communicated by anyone I’ve met,” she said. “When you have to read the fine print, it’s hard to trust. »
Maciborski said if a tenant asks, a leasing agent will tell them if a building is under rent control, but when dealing with legal matters, her company relies on putting it in writing.
“It’s verifiable,” he said, adding that written reviews can also provide more detailed information than a rental agent may have on hand.
Gross, the tenant advocate, said it’s a constant struggle to inform tenants of their rights, with many residents of older properties not understanding they have rent control protections . He believes the problem is even worse in newer buildings because even though people understand that rent control exists, they often believe that all new properties are exempt.
“There’s not enough education and awareness,” Gross said.
Monique Mendoza, who pays $3,800 a month to live in a townhouse in Boyle Heights, said she also didn’t know that her new place also fell under city rent control. It would have given her some relief to know, she said. She constantly worries about the cost of rent and probably couldn’t afford a big increase.
Even without a rent increase, she said, “for us as a family, it’s not affordable.”
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