The LA rent control CPI cap at 90% represents a significant change for apartment owners under the RSO. This guide explains how the new formula affects your rental income and property value.
Major Changes to LA’s Rent Stabilization Ordinance
In November 2025, the LA rent control CPI cap became reality when the Los Angeles City Council approved significant changes to the Rent Stabilization Ordinance (RSO) that will affect approximately 650,000 rent-stabilized units across the city. These changes represent the most substantial reform to LA’s rent control system in years.
Here’s what property owners need to know.
The New Formula: 90% of CPI
How It Works
Under the new rules, annual allowable rent increases will be calculated as:
- 90% of the Consumer Price Index (CPI) for the LA area
- Maximum cap: 4% (even if 90% of CPI would be higher)
- Minimum floor: 1% (even if 90% of CPI would be lower)
This replaces the previous formula that allowed up to 100% of CPI with increases that could reach 8% in high-inflation years.
Effective Date
The new formula takes effect February 1, 2026. Rent increases noticed before this date may still use the current formula.
What’s Being Eliminated
The new ordinance also eliminates several additional charges that landlords could previously pass through:
Utility Surcharges Gone
- No more 1% increase for landlords who pay for gas
- No more 1% increase for landlords who pay for electricity
- Previously, these could add up to 2% on top of the base increase
Dependent Surcharge Gone
- No more 10% increase when additional occupants move in
- This was previously allowed when tenants added family members
Impact Analysis: What This Means Financially
Example Scenarios
Scenario 1: High Inflation Year (CPI = 6%)
- Old formula: 6% + 2% utilities = 8% possible increase
- New formula: 4% maximum (capped)
- Difference: 4% less rent growth
Scenario 2: Moderate Inflation (CPI = 4%)
- Old formula: 4% + 2% utilities = 6% possible increase
- New formula: 3.6% (90% × 4%)
- Difference: 2.4% less rent growth
Scenario 3: Low Inflation (CPI = 2%)
- Old formula: 2% + 2% utilities = 4% possible increase
- New formula: 1.8% (90% × 2%)
- Difference: 2.2% less rent growth
Long-Term Compounding Effect
Over a 10-year hold, these differences compound significantly:
- A unit at $2,000/month with 2% less annual growth
- After 10 years: ~$400/month less rent than under old rules
- That’s $4,800/year less income per unit
- At a 5% cap rate, that’s ~$96,000 less property value per unit
Strategies for Property Owners
1. Maximize Legal Increases
- Don’t leave money on the table—implement allowable increases annually
- Ensure proper notice timing and documentation
- Track CPI announcements to plan increases
2. Focus on Turnover
Vacancy decontrol remains in place. When units turn over:
- You can reset to market rent
- This is now even more valuable given limited annual increases
- Invest in improvements that justify higher rents on turnover
3. Reduce Operating Costs
If income growth is limited, focus on the expense side:
- Energy efficiency improvements
- Water conservation
- Preventive maintenance to avoid costly repairs
- Shop insurance and service contracts annually
4. Consider Capital Improvements
The RSO still allows pass-throughs for certain capital improvements:
- Seismic retrofits
- Major system replacements
- Required code compliance work
- Consult with a housing attorney on eligibility
5. Evaluate Your Portfolio
These changes may affect your hold/sell calculus:
- Buildings with significant below-market rents have more runway
- Buildings already at market may see compressed returns
- Consider whether a 1031 exchange into different markets makes sense
What Buyers Should Consider
If you’re buying RSO buildings in LA:
- Underwrite conservatively: Use the new 4% cap in your projections
- Value turnover potential: Below-market units are more valuable than ever
- Factor in the changes: Don’t use historical rent growth assumptions
- Consider non-RSO: Buildings built after 1978 aren’t subject to these limits (yet)
The Broader Context
LA County has also made changes to its rent stabilization program, reducing allowable increases to 60% of CPI with a 3% maximum for unincorporated areas. The trend across California is toward stricter rent control.
What Hasn’t Changed
Some key provisions remain:
- Vacancy decontrol: Still allowed when units turn over
- Just cause eviction: Requirements remain in place
- Capital improvement pass-throughs: Still available with approval
- Ellis Act: Still an option for exiting the rental business
Quick FAQs
Q: When does this take effect?
A: February 1, 2026. Increases noticed before then may use current rules.
Q: Does this affect non-RSO buildings?
A: No—buildings built after October 1, 1978 are not subject to RSO (though state-level rent caps under AB 1482 may apply).
Q: Can I still raise rent to market when a tenant moves out?
A: Yes. Vacancy decontrol remains in place.
Q: Should I sell my RSO building?
A: It depends on your specific situation, current rents vs. market, and investment goals. Request a valuation to discuss.
Have questions about how these changes affect your property? Contact me for a confidential discussion.
Understanding the LA rent control CPI cap is essential for projecting future income. Let’s discuss how these changes impact your building’s value and your investment strategy.