Only in California can a city look at a full-blown housing shortage, skyrocketing construction and insurance costs, mass landlord exits, and plunging development pipelines — and declare:
“We know how to fix this! More red tape!!”
Welcome to Los Angeles, where the City Council just voted 12-2 to restrict rent increases for 650,000 apartments to a politically convenient below the inflation rate 1%–4% a year. Not based on economics. Not based on maintaining buildings, replacing roofs, plumbing, electrical systems, or complying with the city’s endless mandates.
Just 1%–4%, no matter what the actual costs of running an apartment building are doing.
But costs aren’t rising 1–4%. Costs are rising like California’s cost of living — double digits, endlessly, with the cheerful assistance of government policy.
A Brilliant New Formula to Make Housing Less Affordable
LA’s new rent rules remove:
- the 3% floor and the 8% ceiling
- the utility surcharges (because apparently water and electricity now magically cost $0 to provide)
- the extra rent for additional tenants (because adding five people to a unit clearly has zero impact on usage or wear and tear)
Now, rent increases will be pegged at 90% of CPI, with a hard cap at 4%.
Try telling your insurance carrier, “Sorry, guys, LA capped my ability to pay you. I’ll be paying 90% of CPI this year. Hope that works for your underwriting department.”
Try telling LADWP, “Utility surcharges are outlawed now. I’ll need you to freeze my bill at pre-2024 levels.”
Try telling your roofer, “Can you do a full replacement for $1,200? It’s what the new rent formula allows.”
Good luck.
Small Landlords Already on Life Support
The people hurt most aren’t Wall Street landlords. It’s the mom-and-pop owners — the ones with 3 units, 5 units, 10 units. You know, the people who actually took a risk to supply housing to the city. LA’s message to them is crystal clear:
“We’d like you to complete seismic retrofits, sustainability upgrades, replace aging infrastructure, comply with new city mandates, AND charge tenants 1% more per year. Thanks for your service.”
It shouldn’t surprise anyone that many small landlords are selling, leaving the business, letting the building deteriorate, and not starting new builds.
But don’t worry — the city promises “increased funding” from Measure ULA and county programs to help small landlords maintain their buildings. In other words, the city breaks the market-driven business model, then offers to subsidize the fallout with government money it took from someone else.
California economics at its finest.
Developers Are Saying: “Nope.”
The policy applies mostly to pre-1978 buildings, but here’s the kicker: If you tear down a rent-controlled building and replace it with new housing, guess what? Your shiny new building often gets dragged under the same rent rules.
In other words: “Please redevelop LA… but just know that your brand-new $50M project may be treated like a 1974 building with rent caps so tight you can’t maintain the landscaping.”
So, not surprisingly, LA developers are canceling projects. This isn’t “discouraging investment.”
It’s a flashing neon sign that says: “Developers, go build literally anywhere else.”
The Great California Housing Paradox
California keeps insisting we don’t have enough housing. And then — every single time — the state and its cities pass laws that reduce landlord participation, private investment, development feasibility, new housing supply, long-term capital improvement
And what increases? New regulations, building department red tape, building deterioration, landlord bankruptcies, investor flight to other states, homelessness, and more policies to fix the policies that broke the market.
It’s a self-reinforcing cycle of red tape and political stupidity, a game of political slogans and populist campaigns that make no economic sense. Buy hey, when the majority of politicians never ran their own businesses and only have a degree in “political science” to back up their economic policies, you get what you voted for – an economic suicide.
LA Says It Wants Affordability — But It Creates Scarcity
Scarcity → higher prices.
Higher prices → political outrage.
Political outrage → more regulation.
More regulation → less supply.
Less supply → more scarcity.
Repeat forever.
No economist is confused by this. No builder is confused by this. No investor is confused by this.
Only California continues to look in the mirror, sees the results of its own failed policies staring back, and concludes:
“Obviously, the private sector failed again.”
You cannot cap rents below the cost of operating housing and expect anyone — small landlords, large owners, or developers — to continue supplying housing.
If LA wants to turn the entire rental market into a city-owned, publicly subsidized housing program, then just say so. Be honest. Invite Mamdani to run a webinar for LA leaders on “How to run a Communist city successfully.”
But what LA has created instead is the worst of both worlds:
- Restrictions like a socialist housing system
- Costs like a capitalist housing system
- Outcomes like neither system would accept
And then politicians step back and call it “reform.”
The Crisis Isn’t Accidental — It’s Manufactured
California doesn’t have a natural housing shortage. It has a policy-made shortage. And this latest LA City Council decision is yet another reminder why California keeps shooting itself in the foot — then acting shocked that it can’t run.
This crisis isn’t going away. Not because the market can’t fix it. But because we won’t let the market even try.
Alex Lisnevsky