Well Intended Housing Tax Could Wreak Havoc in L.A.

A new transfer tax that intends to fund affordable housing might end up crushing Los Angeles's multifamily market—at exactly the wrong time.

1 minute read

May 8, 2023, 12:00 PM PDT

By Josh Stephens @jrstephens310

Large single-family homes on hillside in Los Angeles, California

Sundry Photography / Homes on Los Angeles hillside

“A great many people voted for [Measure] ULA for this very reason—including seasoned real estate folks, who voiced little, if any, opposition to it. A developer friend of mine voted for ULA mainly because the Howard Jarvis Taxpayers Association opposed it. That's usually a good heuristic if you're pro-development. But the housing crisis has created some strange bedfellows.”

“Contrary to the stereotype of the ‘greedy developer,’ there are probably guys dressed as Spider-Man on Hollywood Boulevard who make more money on a daily basis than many developers do. Their cap rates are thin—in the single-digit percentages--and they often take years to materialize. Even if a developer is willing to tolerate lower margins, fat chance finding a lender who will—especially in what is already a worrying economic climate.”

“Kneecapping the development industry may be fine if (like L.A.'s mayor) you're sick of all the ‘luxury’ residential buildings that have gone up lately. But, if ‘luxury’ buildings are the only projects that pencil out now, then what of working class, ‘missing middle’ housing? That's exactly the type of housing Los Angeles needs.”

“Now, as ever, Los Angeles cannot get out of its own way.”

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