A seven-member majority on the District of Columbia City Council yesterday proposed far-reaching changes in the city's controversial rent control law that could allow annual rent increases higher than those permitted uner the current measure.

But the proposed legislation, written primarily by Councilman David Clarke (D-Ward 1), also incorporates a number of provisions favorable to tenants, including a ban on the conversion or demolition of rental housing for the purpose of hotel expansion.

The bill proposed yesterday is the third introduced dealing with the rent control issue as the council faces a Sept. 30 expiration date of the existing law. In addition to the three bills now pending, Mayor Marion Barry is working on his own, long-promised rent control bill, according to city rent administrator Dorothy Kennison.

Rent control is emerging as one of the most politically volatile issues this election year, in which six of the 13 City Council members face reelection bids. Barry has said that the existing rent control law is ineffective but that to repeal it altogether is not politically possible.

Meanwhile, local rent estate and development interests have complained loudly that the current law is responsible for the city's housing shortage because developers are unwilling to build more apartments that would fall under rent control.

But with 112,000 rent-controlled units in the city -- the majority of the city's housing stock -- and an effective tenants lobby, the council politically cannot allow the existing rent control legislation to expire as scheduled. The Barry administration has already said if prefers that the current law be extended until after this year's elections to perhaps make consideration of a new measure easier.

Although the seven cosponsors of yesterday's proposal constitute a majority of the council, the bill's passage is not necessarily certain. The council's Housing and Economic Development Committee must first hold hearings on the measure and then the entire council has to consider it. No hearing dates have been set for any of the rent control proposals.

In addition to Clarke, the bill introduced yesterday was sponsored by council members John Wilson (D-Ward 2); Polly Shackleton (D-Ward 3); Charlene Drew Jarvis (D-Ward 4); William Spaulding (D-Ward 5); Wilhelmina Rolark (D-Ward 8) and Hilda Mason (Statehood -- At Large). Council Chairman Arrington Dixon, who introduced his own rent control bill April 28, has no cosponsors for his proposals.

Dixon's bill would, in effect, allow annual rent increases based on the average cost of an apartment unit in a specific building. The highest-priced apartments, those costing more than $725 per month, would be subject to the largest rent increase -- as much as 25 percent nth, would be subject to the largest rent increase -- as much as 25 percent -- under the Dixon bill.

Under the bill proposed yesterday and supported by the seven council members, rent increases would be allowed that are equal to the annual increases for residential rents in the Washington area as a whole. That figure is kept monthly by the federal Bureau of Labor Statistics, and would be the standard annual increase allowed any apartment owner.

Currently, the annual allowable increase varies from unit to unit, and is figured on a complicated formula based on an owner's operating costs and a building's income. Clarke said that abolishing the formula, which has led to numerous miscalculations, and replacing it with a standard annual increase would lead to higher rents but would simplify the calculations.

"Under the [new system] the landlord will make out better," Clarke said. But he stressed that the proposed bill was a "compromise" that offers as much for landlords as it does for tenants.

The provisions favorable to apartment owners include raising their allowable rate of return to make it easier for landlords to win approval for hardship rent increases. Currently, an apartment owner with a rate of return on his investment below 8 percent qualifies for a hardship rent increase. Under the proposed bill, the landlord could apply for a hardship rent increase if his rate of return is below 10 percent.

The proposed bill also would abolish the existing part-time nine-member Rental Accommodations Commission and replace it with a full-time, three-member Rental Housing Commission appointed by the mayor. The members could not be either tenants or landlords, according to the proposed bill.

Clarke said one "protenant" provision would make it illegal for a landlord who discontinues use of a rental housing unit ever to use that property again as anything other than a rental housing unit.

That provision, which several council members predicted would be the most controversial part of the entire package, is designed to prevent landlords from circumventing current condominium conversion restrictions by taking an apartment building out of use for a year or more and then coverting it to use as a condominium.