Understanding LA’s New RSO Rent-Increase Rule: What It Means for Owners & Investors

The City Council in Los Angeles recently approved a significant update to the city’s rent-control regime. Under the new rule, for the roughly 650,000 units governed by the Rent Stabilization Ordinance (those built on or before October 1, 1978), annual increases will now be limited to a floor of 1 % and a ceiling of 4 %, tied to 90 % of the Consumer Price Index (CPI).

Here’s a breakdown of what the change involves, and how it impacts property owners, investors and the market at large.

Key Elements of the Change

• The allowable annual rent increase formula has been replaced to reflect inflation more directly: the increase will be linked to 90 % of CPI, within the range of 1 % to 4 %.
• The former utility-add-ons (1-2 % increases for landlords covering gas/electric) have been eliminated.
• The previous broader range (up to 8 % in some cases) is now narrowed — for many units this will mean smaller allowable increases than in past years.

For multi-family owners of RSO‐regulated buildings:

• You’ll need to plan for smaller annual increases—4% at most, and potentially as low as 1% depending on inflation.
• Because the rule is tied to CPI (90 %), during low-inflation years the increase may fall closer to the floor.
• You’ll want to review cost structures and budgets accordingly, as your revenue growth under RSO units is now more constrained.
• For value-add or repositioning plays (for example, where rent increases were part of the upside), the narrower increase range changes the dynamics of your business case.

For investors considering RSO properties:

• Expect tighter revenue growth assumptions under the new regime.
• The cap may affect underwriting, especially when calculating future income, exit strategies and potential repositioning.
• For properties currently well-below market rents, the upside is still there—but the speed and magnitude of rent growth will now be slower and more predictable.
• Consider the regulatory environment as one material factor in valuation, alongside interest rates, operating costs and physical condition.

For savvy investors and owners who anticipate the change, plan accordingly, and execute strategically, the landscape remains open for well-positioned multi-family assets. At The James Group we’re here to guide you through these changes and help you succeed in the evolving LA market.

If you have a specific property, strategy or interest in the Los Angeles multi-family space, feel free to reach out. We’d love to discuss your goals and how recent regulatory changes are affecting mult-family investments.

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