Many people have seen their finances upended since the start of the COVID-19 pandemic. And while the economy is, thankfully, in a much better place now than it was earlier on in the health crisis, a lot of people have yet to recover. That includes tenants and landlords alike.
For much of the pandemic, there was a federal eviction ban in place that prohibited landlords from removing tenants on the basis of nonpayment. And while that eviction ban expired in mid-2021, many cities and states opted to extend their own protections, especially in the wake of the horrendously slow rollout of rental assistance funds.
Meanwhile, some cities are taking additional steps to protect tenants at a time when rent prices are soaring on a national level. But those protections could end up hurting landlords substantially.
No rent hikes in L.A. this year
Landlords in Los Angeles are barred from raising the cost of rent for more than 650,000 rent-stabilized units across the city until 2023. That number represents almost 75% of the city's apartment rental inventory.
Clearly, this rule is a good one for tenants. Some tenants are still in catch-up mode after not having paid rent during the pandemic, and for them, a near-term rent hike could be catastrophic.
But unfortunately, L.A.'s ruling puts the city's landlords in a very tough spot. Many landlords had to go months on end without collecting rent during the pandemic. Meanwhile, they're grappling with their own rising costs.
Just as inflation is hitting the wallets of everyday consumers, so too is it making rental properties more expensive to maintain. That's because utility costs have risen, as have labor costs, which means landlords who outsource maintenance may be paying more than usual for upkeep.
Compounding the problem is that many states have not expedited the rollout of rental assistance funds. While that money is meant to bail out delinquent tenants, it's landlords who ultimately benefit from it. But that only works if those funds are actually coming through.
Will more cities implement rent freezes?
The percentage of struggling renters in need of aid has varied from city to city. And so whether more cities implement rent freezes will largely depend on the number of tenants who remain delinquent and the extent to which tenants risk homelessness -- something no city wants to see an uptick in.
But a number of cities did opt to implement rent increase limits in recent months. In nearby Santa Ana, California, for example, most buildings can't raise rents by more than 3% a year. We could see similar rules come down the pike as the ongoing saga plays out.
An important takeaway for budding landlords
Being a landlord is a great way to generate ongoing income as a real estate investor. But it's certainly not without risk.
Owning a rental unit could mean grappling with issues like tenant damage, vacancies, and rising costs that can't be offset with higher rent prices. And the pandemic has taught a lot of landlords the hard way that sometimes, landlords get the short end of the stick during periods of economic turbulence.
Los Angeles officials who are in support of the rent hike ban argue that putting it in place through 2023 will give tenants more stability so they can focus on staying safe and securing their finances. It's a decent idea in theory. But it also overlooks the fact that many landlords aren't large property management companies but rather mom-and-pop investors who took a chance on owning income properties. And it's those landlords who might continue to struggle for at least another year.