On November 12, 2025, the Los Angeles City Council approved a sweeping update to the city’s Rent Stabilization Ordinance (RSO), one of the most significant rent policy shifts in decades. The proposal, which affects roughly 650,000 rent-stabilized units citywide, introduces new limits on annual rent increases and eliminates certain surcharges historically passed through to tenants.

Key Policy Changes

• New Rent Cap Formula: Annual rent increases will now be tied to 90% of the Consumer Price Index (CPI), replacing the prior 60% baseline.
• Floor and Ceiling Limits: Rent hikes must stay within a 1% minimum and a 4% maximum per year, regardless of CPI fluctuation.
• Elimination of Utility Surcharges: Landlords will no longer be able to add separate 1–2% surcharges for electricity or gas costs.

These changes aim to provide greater rent stability for tenants amid Los Angeles’ ongoing affordability crisis, where more than half of renters are considered “rent-burdened”, paying over 30% of income toward housing.

Investor and Ownership Implications

For investors, this amendment tightens the income growth potential of RSO-regulated assets. A 4% ceiling effectively caps revenue increases even as operating expenses, insurance, utilities, and maintenance, continue to climb. This dynamic may further compress margins, particularly for smaller owners without scale efficiencies.

However, the City Council also highlighted support for “mom-and-pop” landlords, including planned funding for property rehabilitation through Measure ULA and the Los Angeles County Affordable Housing Solutions Agency. These resources could help offset some cost burdens and encourage upkeep of aging rent-stabilized housing stock.

What to Watch Next

The City Attorney has been directed to draft the formal amendment language, meaning the final implementation details and effective dates are still pending. The city has also commissioned a study on how the policy might affect new housing production, particularly whether tighter rent caps discourage reinvestment or development in regulated submarkets.

Bottom Line

Los Angeles’ updated rent cap signals a clear policy direction: favoring affordability and tenant stability over market flexibility. For investors, the takeaway is to model RSO assets with conservative rent growth assumptions and increased sensitivity to expense inflation. As the city moves to codify these changes, underwriting discipline and regulatory awareness will remain critical to performance in 2025 and beyond.