Mansion Tax Misses the Mark by A Long Shot
LA’s New Tax On Real Estate Transactions Over $5M Was Projected to Generate $900M In Annual Revenue for the City, It’s Produced Only $142M Since It Was Implemented In April of Last Year
Summary
Measure ULA, commonly referred to as the Los Angeles Mansion Tax, was projected to pull in at least $900M annually, it’s only generated roughly $142M since going into effect
The additional tax penalty has caused a large portion of potential sellers and local developers to hold off on listing their properties and new-built projects; exacerbating the housing inventory shortage
Despite Measure ULA missing the mark thus far, other cities such as Santa Fe, Chicago, and Seattle are following suit with their own versions of the Mansion Tax
Full Story Below
Along with San Francisco, Los Angeles has been the poster child of the United States’ housing affordability crisis. While the national median price of a single family home currently sits below $400K - according to Bankrate the median home price in December of ‘23 was $382,600 - the median sales price in Los Angeles is $950,000.
In an effort to grapple with the uncontrollable home prices and lack of affordable inventory, Los Angeles passed Measure ULA, commonly referred to as The Mansion Tax. Initially introduced in 2022; it was approved by 58% of voters. Measure ULA imposes a new land transfer fee on any real estate transactions over $5 million. The funds generated are intended for affordable housing, tenant protections, and homelessness prevention.
When the proposal was initially introduced, the city and its law makers projected that it’d produce at least $900M in additional annual tax revenue. However, since it went into effect in April of last year, it’s only yielded about $142M.
Aside from the fact that the tax revenue projection may have been a bit overly-optimistic, there are two obvious explanations for why the Mansion Tax hasn’t quite measured up to its expectations:
The moment homeowners became aware of the impending tax, they hurried to list their $5M+ properties prior to the April ‘23 deadline; avoiding the 4% - 5.5% additional transfer tax.
Now that Measure ULA has gone into effect, a large portion of potential sellers have fallen off the fence; deciding not to list their properties in an effort to avoid the penalty. The same lack of motivation has washed over Los Angeles developers. The California Coast is already one of the most difficult and costly geographical locations to build, Measure ULA was just the latest tax that tipped the scale. Many builders have decided to steer clear of the Mansion Tax; postponing the sale of their existing projects, and taking their next development elsewhere.
Despite the lack luster results that have been produced by Measure ULA, a handful of other cities are following suit with their own Mansion Tax. In Santa Fe, 70% of voters approved a tax on real estate sales over $1 million. The proceeds will be allocated towards affordable housing. Chicago residents will be voting on a similar tax this year. And Seattle voters have already approved a property tax increase in hopes to raise $1 billion to help low-income renters.
As the dust settles, Los Angles lawmakers hope that they will eventually see a positive outcome from Measure ULA; similar to New York City and San Francisco which implemented an iteration of the Mansion Tax years prior. In the interim, it’s only made the housing climate worse; serving as a deterrent to sellers, and adding to the list of reasons that West Coast buyers are fleeing from California, and flocking to more inviting markets.
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