The city of Los Angeles is requiring residential landlords to pay relocation fees if they impose double-digit rent hikes, an increase that's unusually large for the market.

The Los Angeles city council passed an ordinance this week making landlords pay a tenant three times the fair market rent for relocation help, plus $1,411 in moving costs, if a multifamily owner raises the rent by more than 10% or the Consumer Price Index plus 5%.

L.A.'s city council has passed a string of new restrictions on landlords, including prohibiting landlords from evicting tenants without "just cause" and stopping landlords from evicting tenants who fall behind on rent for no more than one month.

The rules come after Los Angeles County extended its residential eviction moratorium through the end of March. Los Angeles Councilmember Nithya Raman said this week the new rules will protect residential renters and be "transformative" for the city.

These are "rental protections that are going to be covering more than 400,000 new households that were left out of our safety net before in a city that has been grappling with intensive displacement, gentrification pressures and a homelessness crisis that's led to headlines all over the world," Raman said.

One landlord says limiting rent increases to less than 10% won't be a problem in Los Angeles. Jordan Kaplan, president and CEO of Santa Monica-based apartment owner Douglas Emmett, said on an earnings call this week he doesn't like some of the recent rules that the city passed, but he's not sure it'll affect his apartment business. For example, Kaplan said he's not factoring in 10% rent growth in any multifamily acquisitions his company makes.

Among Highest US Rents

"Raising rent on someone in their unit more than 10%? I mean, certainly anybody who's institutional or who has been in the apartment business for a long time is smart enough not to do that anyway," Kaplan said.

Chris Tourtellotte, managing director of Los Angeles-based apartment developer LaTerra Development, said his firm also doesn't assume 10% rent growth when buying multifamily properties. Historically, Tourtellotte said that L.A. apartment rents grow at a steady 3.7% annually during both good and not-so-good economic cycles. That's largely due to supply constraints on new construction in L.A. and the city's diverse jobs base which can weather recessions better.

"For in-place tenants, you just don't see that level of rent increase," Tourtellotte said.

Los Angeles apartment rents are among the highest in the nation, but double-digit rent growth is uncommon. Average apartment rent growth hasn't increased more than 6.5% annually in greater Los Angeles since 2001, the furthest back CoStar Group tracks that data. During that time, there were three years of negative rent growth, in 2009, 2010 and 2020.

That said, double-digit rent growth does happen in other parts of the U.S., particularly in the Sun Belt during the early months of the pandemic. In Orlando, Florida, average apartment rents skyrocketed 22.6% in 2021, according to CoStar data. However, rent growth cooled the next year to 6.1%.

Only 10 U.S. markets reported more than 10% annual average rent growth over the past year, including Jacksonville, North Carolina, Odessa, Texas, and Kokomo, Indiana. The latter market has a mere 3,900 units and has an average monthly rent of $846 a month.

Los Angeles County is the last major county in America with an apartment eviction moratorium, which was enacted in various cities and counties across the U.S. in the early months of the pandemic.

However, eviction moratoriums have been phased out across the nation as COVID-19's negative effect on the economy has waned.

By Jack Witthaus
CoStar News