LA's RSO Rent Cap Is Now Live at 3% — What It Does to Your Hold-or-Sell Math

Updated July 6, 2026. For owners of rent-stabilized property in the City of Los Angeles, the reduced Rent Stabilization Ordinance formula is no longer a future date. It is in effect, and the Los Angeles Housing Department has published the first rate under it. Here is what that does to your hold-or-sell math.

What Is Now In Effect

The new RSO formula ties the annual allowable increase to 90% of local CPI, capped inside a hard band of 1% at the floor and 4% at the ceiling. That replaces the old structure, which ran on 100% of CPI with a 3%-to-8% band. The 8% ceiling is gone, and the change is permanent.

For the current period, July 1, 2026 through June 30, 2027, LAHD published the allowable increase at 3%. That is the number covered owners must use right now. Not 4%, which is the ceiling; 3%, which is what the formula produced this year. Underwrite off the 4% cap and you overstate your own income growth.

Check Your Notices

Effective February 2, 2026, the formula also eliminated the adders owners long relied on: the 1% for landlords paying gas or electricity, and the 10% increase for an additional dependent occupant. Any RSO rent-increase notice issued on or after February 2, 2026 that still includes a utility or dependent adder may be invalid and generally must be rescinded and reissued; confirm with counsel. A notice issued before that date was valid when sent. If your management issued notices this spring, pull them and check the date.

Two Caps, One Portfolio

Here is the part that trips up mixed portfolios. RSO units sit at 3% through June 2027. But units covered by AB 1482 rather than local RSO, generally post-1995 construction, reset to 8.7% effective August 1, 2026, calculated as 5% plus the 3.7% local CPI change. That is nearly three times the RSO number, in the same city, at the same time. Own both vintages and you are under two ceilings at once, where applying the wrong one costs you either way: lost revenue on one side, a tenant-actionable violation on the other. Most small owners have never mapped their stock unit-by-unit across the two regimes.

Why a Rent Ceiling Is a Value Ceiling

Multifamily value is built on net operating income, and NOI growth is built on rent growth. When the legal ceiling on increases falls from 8% to 4%, and the operative number this year is 3%, the forward rent-growth assumption that underwrites your building's value falls with it. A buyer pricing your asset today models slower NOI growth, and a slower-growing income stream trades at a higher cap rate. Nothing about the building changed. The ceiling on its income did.

This lands hardest on buildings with the widest gap between in-place and market rents, the value-add story behind much of last cycle's LA pricing. A capped increase stretches the time to close that gap, which stretches the time to the returns a value-add buyer underwrote.

The Exit Math Also Moved

Effective July 1, 2026, the Measure ULA transfer-tax thresholds reset with the annual CPI adjustment: the 4% tier now triggers at $5.4 million, and the 5.5% tier at $10.9 million. The cliff effect is unchanged. Cross the threshold and the tax applies to the full sale price. For a mid-size RSO building that pencils just above $5.4 million, that is a full-price 4% tax on the way out. Compressed rents on one side and a repriced exit on the other means a 2026 sale must be re-run against both numbers before you list, not after.

What WCA Is Watching

Across the more than 15,000 multifamily properties Williams Capital Advisors tracks in the City of Los Angeles, the owners most exposed share a profile: rent-stabilized stock, below-market in-place rents, and a plan that depended on burning that gap down quickly. For them the cap is not a line item; it is a change to the exit thesis.

It is not all one direction. Stabilized, at-or-near-market buildings see less change to their growth math, and with new supply contracting sharply across Los Angeles, a capped-but-occupied income stream still carries scarcity value. The new formula compresses the upside case more than the base case.

The decision the cap forces is not panic-selling. It is re-underwriting. Done right, that means four things: rebuild the growth assumption on 3% this year and the 4% ceiling going forward, not the old 8%; audit any notice sent on or after February 2, 2026 for a utility or dependent adder; map the portfolio so you know which units are RSO at 3% and which are AB 1482 at 8.7% before August 1; and re-run any 2026 exit against the new ULA thresholds. The owners who get this right put a real number on what their building is worth under the current formula, and decide against that number, not last cycle's.

Want the Number on Your Building?

Williams Capital Advisors prepares complimentary Broker Opinions of Value for Los Angeles multifamily owners, re-underwritten under the current RSO formula, so your hold-or-sell decision rests on what the building is worth today, not last cycle's assumptions. Sources: City of Los Angeles Housing Department (housing.lacity.gov), the Apartment Association of Greater Los Angeles, and the City of Los Angeles Office of Finance on Measure ULA thresholds; property counts from WCA's proprietary database. General information, not legal, tax, or investment advice.