A couple of years ago, Los Angeles voters thought that if the city could just tax high-end real estate transactions, it would help the new mayor they were electing reduce homelessness. The only thing to fall, though, has been activity in the real estate market.
Measure ULA, approved by nearly 58% of the voters, initially imposed a 4% “mansion tax” on the sales of any homes or commercial properties valued at more than $5 million. The rate jumped to 5.5% on sales above $10 million. The thresholds increased to $5.15 million and $10.3 million on July 1.
Revenues, anticipated to be from $600 million to as much as $1.1 billion a year, are “to fund affordable housing projects and provide resources to tenants at risk of homelessness.”
Naturally, the measure has not worked as advertised. It’s generated only $375 million since it went into effect April 1 last year. This is in part due to property owners doing the math and deciding it was better to sell sooner rather than later.
“In the month before the tax went into effect on April 1, 126 homes sold for more than $5 million,” Randal O’Toole wrote last year, then during the next month, only two were sold.
Owners were in such “a frenzy to sell” before they were hit with the new tax, they “offered free Bentleys or other luxury cars to anyone who would close the deal before April 1,” O’Toole continued. Then, “as soon as April 1 arrived, property owners yanked houses off the market to avoid paying the tax. Some even reduced their prices to just below $5 million so they wouldn’t have to pay it.”
The measure also adversely affected housing starts. (New housing of any kind increases affordability because it increases the supply – it need not be “affordable.”) In the first half of 2024, only 5,208 residential units were permitted in the city.
“This represents a fall of 18.9%, or 1,216 units in absolute terms, relative to the same time period last year,” says a report from Hilgard Analytics and Zenith Economics.
The report’s authors cited a number of factors that have “made conditions less desirable for development throughout most of the city” in 2024, including Measure ULA.
“I think ULA was a real mistake and is materially impacting the ability of people to build new housing,” Sean Burton, chief executive of Cityview, a Century City-based multifamily investment management and development firm, told the Los Angeles Business Journal.
Burton said he didn’t “think voters understood what they were voting on.” They were sold a promise that ULA would “tax millionaires and billionaires on expensive mansions and take that money and use it to build more housing for the homeless.” While “that’s one aspect of it,” he said, “that’s not at all what it does.”
“It’s a tax on any sort of real estate, including any sort of new housing, which has led to the redlining of Los Angeles with investors and developers.”
It’s not hard to understand why voters were taken in. Promises were made by officials they trusted and credentialed authorities were brought in to make the case.
Related Articles
Nathan Hochman is the champion crime victims need for Los Angeles County District Attorney
Vote No on Proposition 2: Let’s not go deeper in debt for a broken system
Gov. Newsom must reject AB 2527 and end solitary confinement for pregnant women
Tom Umberg: In memory of Alexandra Capelouto, pass Proposition 36
Prop. 47-funded programs are working to break cycles of crime. Prop. 36 will undermine those efforts.
A group made up of the latter produced a white paper in September 2022, weeks before the November vote, for the Lewis Center at UCLA. Their 18-page analysis assured voters than ULA “a well-crafted measure.” They expected it to “benefit the average Angeleno, in particular renters, people who are homeless, seniors and people with disabilities, and low-income households in need of affordable housing.” They maintained that “it promises to raise significant funds in perpetuity to make Los Angeles a more affordable place to live for everyday people, and protect those at-risk tenants who call the city home.”
The outcome was also swayed by the Los Angeles Voter Information Pamphlet, which said the initiative ordinance would give “us a new and powerful opportunity to actually move people off of the streets and into housing,” and promised “ULA will go to work quickly by purchasing existing buildings and cutting red tape to create more affordable housing.”
While a rebuttal argument in the pamphlet from Jon Coupal, president, chairman and CEO of the Howard Jarvis Taxpayers Association, Los Angeles County Supervisor Michael Antonovich and few others made sense, voters chose to trust those they shouldn’t have. Now they’re going to have to live with the consequences, which are going to linger for some time.
Kerry Jackson is the William Clement Fellow in California Reform at the Pacific Research Institute.