Critics Expect L.A.’s New ‘Mansion Tax’ to Chill Development Market

“Just weeks after Los Angeles voters backed a new measure that puts a one-time transfer tax on property sales above $5 million to generate money for affordable housing and homelessness prevention, the city’s affluent homeowners are exploring potential ways of avoiding the tax,” reports Jack Fleming for the Los Angeles Times. Prop-development advocates in the city are also concerned about the measure’s likely effect on the development market in the nation’s second-most-populous city.

Measure ULA, as the voter-approved measure is called, imposed a 4 percent tax on sales of property valued at more than $5 million, increasing to 5.5 percent on property worth more than $10 million.

Jason Oppenheim of the Oppenheim Group is quoted in the article saying the 4 and 5.5 percent taxes amount to 20 to 30 percent of developer profits. “So those developers will choose to develop in other luxury communities where they won’t have to pay the tax, such as Beverly Hills, West Hollywood or Newport Beach.”

Shane Phillips, Housing Initiative Project Manager for UCLA’s Lewis Center, is also quoted in the article explaining his opinions of the measure’s effect likely effect on the development.

“[G]iven L.A.’s housing shortage, he thinks developers building new, mixed-income multifamily construction should be exempt from the tax, or else they might be discouraged from building such housing. As it stands, developers who buy land for less than $5 million and then construct multifamily housing on it, likely pushing its value above $5 million, would owe the transfer tax whenever they sell the property,” writes Fleming.

Phillips and others from the Lewis Center, have published a pair of reports on the expected effects of Measure ULA in recent months:

• “An Analysis of Measure ULA: A Ballot Measure to Reform Real Estates Transfer Taxes in the City of Los Angeles” (September 2022)
• “How Will the Measure ULA Transfer Tax Initiative Impact Housing Production in Los Angeles?” (October 2022)