Los Angeles Passes Major Rent-Control Reform: What Buildings Are Affected, What Landlords Must Know, and How It Will Reshape the Real Estate Market

Los Angeles just approved the most significant rent-control reform in decades — and the impact will reach far beyond residential landlords. The City Council voted to limit annual rent increases on rent-stabilized units to 1%–4%, tightening the previous range of 3%–8% and altering how more than three-quarters of the city’s rental stock will operate going forward.

Although this reform applies directly to residential rent-stabilized housing, it also influences investor behavior, redevelopment decisions, and long-term asset valuations — including the commercial segments I work in (office, retail, industrial, and mixed-use).

Below is a deeper, more detailed breakdown so owners, buyers, and investors understand exactly what changed, which buildings are affected, and how it reshapes the broader real estate landscape.

Which Buildings Are Actually Affected?

This law applies to rent-stabilized housing units in the City of Los Angeles. Not all rental units in LA are rent-stabilized. To qualify under the Rent Stabilization Ordinance (RSO), a property generally must meet all of the following:

1. Multifamily properties built before October 1, 1978

These buildings make up the majority of LA’s RSO housing stock. Examples include:

• garden-style apartments from the 1950s–1970s

• older courtyard buildings

• many pre-war multifamily structures

• mixed-use buildings with residential upstairs units built before 1978

  
  

2. Buildings with two or more rental units

Single-family homes and condos are not covered by rent control in most situations.

3. Units that are not exempt under Costa-Hawkins

Meaning:

• new construction (properties built after 1978) is exempt;

• single-family homes and condos remain exempt;

• vacancy decontrol still applies when a tenant leaves (landlords can reset rent to market, then the new cap applies).

  
  

4. ADUs / additions may or may not qualify depending on permit date

ADUs permitted after January 1, 2020 are exempt from rent control for 15 years. Older ADUs follow RSO rules depending on the underlying building.

5. Mixed-use buildings

If the building has:

• a retail storefront downstairs and

• rent-stabilized residential units above,

only the residential portion is governed by rent control, but the change can still affect the overall building’s valuation.

In simple terms:

If the property is a multifamily building built before 1978 and located in the City of Los Angeles, this new reform almost definitely applies to it.

What Exactly Did the City Council Change?

The changes passed this week include:

1. Annual rent increases are now capped between 1% and 4%.

The previous formula allowed increases between 3% and 8%, depending on CPI and utilities.

2. The city will now use 90% of the local Consumer Price Index (CPI)

This formula prevents landlords from raising rents at or above inflation. Even if inflation spikes to 6%, allowable increases will be significantly lower.

3. The “utilities pass-through” rent increase is eliminated.

Previously, if a landlord paid for tenant utilities (e.g., gas or electricity), they could raise the rent an additional percentage beyond the annual increase cap. Now, all increases must fall within the new 1%–4% band.

4. Additional increases for capital improvements remain limited

Owners can still apply for a temporary rent increase for approved improvements (plumbing, electrical upgrades, seismic retrofits), but the bar will be higher, and the rent-control cap still restricts total increases.

When Will the New Rules Take Effect?

The measure was approved in November 2025. The city will publish an official implementation date shortly, but based on past rent-control changes in LA:

• The new formula will likely apply to next year’s allowable rent increase cycle

• Landlords should plan for 1%–4% caps for the 2026 increase window

• Any pending petitions or scheduled increases will likely be evaluated under the new rules

If you’re a landlord, expect the transition to be fast.

What Landlords and Owners Should Prepare For

1. Lower projected rent growth for the next decade

NOI growth on older, rent-stabilized buildings will be smaller than previously forecasted. Valuations for certain buildings may soften accordingly.

2. Cost pressures on older buildings

Owners carrying high operating expenses — including insurance, utilities, and maintenance — will feel the impact more sharply.

3. Greater focus on tenant turnover strategy

Vacancy decontrol still exists. When a tenant moves out, landlords can reset to market rent, then the cap applies to the new rent. Operators will rely more heavily on:

• natural turnover

• improving retention of quality tenants

• repositioning individual units when possible

4. More owners will consider selling

Some owners of older multifamily assets may choose to exit the market because:

• annual increases are smaller

• maintenance costs continue rising

• values might plateau

This creates opportunities for buyers with long-term views.

How This Impacts Los Angeles Commercial Real Estate

Even though the reform directly targets residential multifamily housing, the ripple effects cross into the commercial space.

1. Mixed-use owners need to re-evaluate valuations

If a retail building has rent-stabilized apartments above, the residential portion's NOI growth will slow. This changes:

• the building’s blended cap rate

• long-term valuation

• refinance timing

• redevelopment feasibility

  
  

2. More multifamily owners may pivot to redevelopment

Lower rent growth often pushes owners toward projects like:

• small-lot subdivisions

• mixed-use construction

• adaptive reuse (if zoning allows)

• merging small lots for redevelopment

• selling to developers focused on TOD (Transit-Oriented Development) sites

3. Capital may rotate toward retail and industrial

Industrial in LA remains extremely stable, with vacancy around 4.8% (Q3 2025). Retail, too, has held around 6% vacancy and continues to benefit from neighborhood demand.

Tightening residential margins often push investors to sectors with stronger durability.

4. Developers may increase interest in underperforming residential sites

Particularly those with:

• deferred maintenance

• chronic turnover issues

• parking lots with extra FAR potential

• outdated systems

• poorly utilized ground-floor layouts

Regulatory pressure accelerates repositioning decisions.

What I’m Advising Clients Right Now

Here’s the guidance I’m giving to clients who own or are considering commercial or mixed-use assets in Los Angeles:

✔ Review your building’s classification immediately

If your mixed-use property contains pre-1978 units, factor the new rent-growth limits into your underwriting.

✔ Expect adjustment opportunities

Some owners will panic and try to sell quickly — especially smaller landlords.

✔ Watch for cap rate shifts

As residential valuations adjust, expect commercial mixed-use pricing to change in select submarkets.

✔ Look for redevelopment parcels

Properties in Koreatown, Hollywood, Downtown LA, Mid-City, and parts of the Valley may see increased redevelopment interest.

✔ Don’t assume this is the last policy change

This reform signals a broader trend in LA housing policy. More updates are possible in 2026 and beyond.

The new rent-control reform is more than a rule change — it’s a structural shift in how older multifamily properties will operate in Los Angeles. For commercial real estate investors, this kind of policy movement can influence pricing, strategy, and opportunity across multiple asset classes.

Whether you're analyzing a mixed-use acquisition, preparing for a sale, or exploring redevelopment potential, understanding the impact of this reform is essential.