Los Angeles has approved a revised rent increase framework under the Rent Stabilization Ordinance that materially tightens how annual increases are calculated for RSO-covered properties.

Beginning in 2026, allowable rent increases will be based on 90% of the Consumer Price Index, with a 1% minimum floor and 4% annual ceiling. The prior framework allowed increases up to 8% and used 100% of CPI as its benchmark.

For owners of pre-October 1978 multifamily buildings, the Los Angeles RSO rent increase 2026 update is not a minor adjustment. It narrows the range of allowable revenue growth and removes certain adjustments that previously provided additional flexibility.

According to the Los Angeles Housing Department, the revised formula takes effect in early 2026, and the 3% annual increase currently in place remains applicable through the present rent cycle. Owners should confirm specific notice timing requirements directly with LAHD guidance before serving increases.

What Has Changed Under the New RSO Formula

Under the revised structure:

• Annual increases will be calculated at 90% of CPI, rather than 100%.
  
• The maximum allowable increase is capped at 4% per year.
  
• The minimum allowable increase is 1% per year.
  
• The prior utility adders for master-metered properties have been eliminated.
  
• The prior 10% adjustment for additional dependent occupants has been eliminated.

Mechanically, the formula is more compressed. The ceiling is lower, the floor is lower, and the ability to apply supplemental increases tied to utilities or occupancy has been removed. None of these changes eliminate rent increases. They reduce flexibility.

Why the 90% CPI Basis Matters

In multifamily underwriting, allowable rent growth is typically modeled based on published RSO limits. A narrower 1%–4% range tied to 90% of CPI means:

• Less upside during higher inflation periods.
  
• More predictability around maximum annual growth.
  
• Greater importance placed on expense management.

Operating costs such as insurance, property taxes, payroll, and materials do not always track neatly with CPI. When allowable increases are capped below expense growth, margin compression can occur over longer hold periods.

Utility Adders and Dependent Increases

For master-metered buildings, the removal of the additional utility-based increase eliminates a mechanism that previously helped offset rising gas and electric costs.

Similarly, the removal of the dependent occupant adjustment reduces incremental rent flexibility when household composition changes.

Individually, these provisions may not transform a property’s performance. Collectively, they narrow growth capacity and reduce optionality in specific operating scenarios.