The District of Columbia Rental Accommodations Commission voted Tuesday night to recommend increased rent ceilings on a sliding scale based on landlords' costs, with a maximum increase of 9.4 percent.
The increases, if allowed by the City Council to stand, will apply to all rental units subject to the city rent control law. Apartments and houses are covered by the legislation if the landlord owns five or more rental units in the city. Rent hikes could not go into effect earlier than May 1, a year after the last increase in the ceilings. In addition, landlords could institute the increases only after completing paperwork required by the Rental Accommodations Office and giving tenants 30 days notice of increases.
Commission members voted 7 to 1 to recommend the increases, with Judy Walton, a tenant member, voting against the hikes. Marie Nahikian, another tenant member, called the vote for higher rents a compromise, and added, "This is really biting the bullet."
The commission is required to report annually to the City Council on rental housing in the city and to recommend whether there should be a change in the rent ceilings. The recommendation will be published in the D.C. Register, a weekly publication that contains official city announcements. The recommended increases will take effect unless the council acts to change them.
The extent of a prospective rent increase is tied to the operating cost ratio (OCR) of a structure. The OCR is a measure of the profitability of rental property. It is computed by dividing the building's operating expenses by its gross income, and it expresses the proportion of each rent dollar that is required to cover the costs of operating the building. In determining the OCR, several variables are considered, including maintenance and operating expenses, utility costs, taxes, insurance, rental income and vacancy losses.
For example, if a building has total operating expenses of$500 and gross income of $1,000, then the OCR is $500 divided by $1000, or.500. An OCR of.500 means that a landlord pays 50 cents on expenses for every dollar of rent collected. If a building has an OCR of.900, the landlord is spending 90 cents of every dollar for operating expenses.
"The 9.4 percent maximum increase will be for a building with a.576 OCR," said Dr. James Burns, director of research for the Rental Accommodations Office. "The lower a building's OCR, the lower the increase will be. Anything with an OCR above.576 will get the maximum."
The commission is required to take landlords' operating costs into account in recommending any increases, but the maximum increase is limited by the Rental Housing Act of 1977 to the amount of increase in the Consumer Price Index for the previous 12 months. That figure now is 9.4 percent. Burns estimates landlords' costs have risen "16.4 percent over the 18-month period" that the present recommended increases are to cover.
Jerome Shuman, chairman of the commission, said the commission will seek an opinion from the Corporation Counsel on whether public comment must be sought on the recommendations before they can be implemented.
The study made by the Rental Accommodations Office on operating cost ratios for the city reports that "the OCR for Wards 1, 4, and 7 are significantly higher than that for the city as a whole..." Ward 1 includes the Mount Pleasant and Adams Morgan areas; Ward 4 covers the upper Northwest along the District border, east of Rock Creek and straddling Georgia Avenue, and Ward 7 is east of the Anacostia River in the far northeastern part of the District. These wards are characterized by older buildings, lower rents than other areas of the city and a large proportion of moderate- and low-income tenants.
The report says, "The variation in the wards is best explained by the differences in the character of the rental housing stock throughout the city and by the different socioeconomic characteristics of the wards."
At a meeting last Saturday morning, Rental Accommodations Commission members discussed several options for implementing rent increases, including tying increases to the OCR. Another option was a recommendation that buildings with higher OCRs be given increases above the 9.4 percent ceiling, an action that would require new legislation.
Other suggestions included one by Raymond Howar, a landlord member of the commission, that the increases be scaled according to the number of units in a building because operating costs generally are higher for buildings with large numbers of apartments, elevators and other equipment. Still another suggestion called for tying the rent increase recommendations to funding for rent supplements provided to funding for rent supplements provided for in the 1977 rent control legislation. Money for the supplements has not yet been appropriated.
The commission action this week came 3 1/2 months after the Nov. 15, 1978, deadline for the report, which is required by the Rental Housing Act of 1977.
On March 2, Fred A. Smith Co. of 1666 K St. NW, a real estate management firm, filed a petition with the D.C. Court of Appeals, asking the court to order the commission and the Rental Accommodations Office to issue the report.
"This report is not purely informational," the petition says. "On the contrary, it is an integral part of the regulatory scheme for establishing and adjusting rent ceilings on housing accommodations within the District of Columbia.... This the commission has failed to do, and as a result, landlords are being deprived of a reasonable rate of return on their investment and by the commission's deliberate or negligent disregard of the mandate of the Act."
Before making is report, the Rental Accommodations Office and Commission gathered data on the quantity and quality of rental housing in the city, the operating cost ratios of rental structures and held two days of public hearings last fall.
Since rent control legislation went into effect, increases have been approved in 1973, 1974, 1976 and 1978.
Instead of taking these automatic rent increases, a landlord can elect to file a hardship petition with the Rental Accommodations Office, seeking an increase above the maximum figure. If a landlord is not making an 8 percent rate of return on his investment he may be granted an increase to bring his return up to 8 percent.