In 2022, Los Angeles voters approved Measure ULA, a new tax aimed at funding low-income housing. This measure, often called the "mansion tax," imposes a 4% tax on property sales over $5 million and a 5.5% tax on sales exceeding $10 million. It is one of the highest property transfer taxes in the United States.
The tax is paid by sellers, which has raised concerns among some city officials, including Mayor Karen Bass. After recent wildfires, she suggested suspending the tax. Many homeowners in areas like Pacific Palisades, where property values frequently exceed $5 million, could be hit hard by this tax if they need to sell after losing their homes.
However, the issues with Measure ULA extend beyond its immediate impact. Critics argue that the tax is poorly designed. It applies not just to luxury homes but to any property over $5 million, including apartments, offices, and commercial buildings. This means that sellers could face significant tax bills even if their properties have lost value. For example, an office building sold for $15 million could incur a tax of $825,000, even if the owner had previously bought it for much more.
The tax also features steep thresholds, where even a slight increase in the sale price can lead to a massive tax spike. For instance, a property selling for $5 million pays no tax, but one selling for just one dollar more incurs a $200,000 tax. This creates a strong incentive for owners to avoid selling their properties, contributing to a significant drop in high-value property sales in Los Angeles. Reports indicate that sales in this category have fallen by about 50%, a decline much sharper than in other parts of the county.
As a result, the revenue generated by Measure ULA has not met initial expectations. Projections had estimated collections of between $600 million and $1.1 billion annually, but actual revenues have averaged around $288 million. The reduced sales also mean fewer new market-rate apartments are being built, as developers face higher costs due to the tax.
The impact of Measure ULA goes beyond housing. It has slowed transactions for commercial properties as well, which affects local tax revenues. Large sales, which account for a small percentage of total transactions, are crucial for funding public services like schools and community programs. Fewer of these transactions could lead to less funding for essential services in Los Angeles.
While the ballot measure included limits on how the City Council can amend it, there is still hope for reform. State lawmakers may have the authority to make changes that could alleviate some of the tax’s negative effects while still supporting its goal of funding affordable housing.
Potential reforms could include limiting the tax to single-family homes, adopting a marginal tax rate to eliminate the steep cliffs, or targeting properties that haven’t been sold or improved in many years. Such changes could help balance the need for new revenue with the city’s housing and economic goals.
As Los Angeles continues to recover from recent disasters, finding effective housing and economic policies is crucial. The current structure of Measure ULA complicates this effort, but with thoughtful adjustments, it could better serve the community’s needs.