A new report from UCLA and the Rand Corporation indicates that Los Angeles’ "mansion tax" is having unintended consequences on the city’s housing market. This tax, officially known as Measure ULA, went into effect in spring 2023 and imposes a 4% levy on property sales over $5 million, with a higher rate of 5.5% for sales above $10 million. Designed to fund affordable housing initiatives, the tax has reportedly led to a significant decrease in apartment construction.
According to the study, the implementation of Measure ULA has resulted in a loss of nearly 2,000 apartment units each year. The report suggests that the tax has made it financially challenging for developers to pursue new housing projects, as the added costs deter potential deals. The researchers found that land sales in Los Angeles, where the tax applies, have dropped more sharply than in other areas of the county without such taxes.
The report estimates that at least 168 affordable units are also being lost annually due to the reduced number of new developments. Shane Phillips, one of the study’s authors, emphasized that a decrease in housing supply could worsen the city’s ongoing affordability crisis.
Supporters of Measure ULA argue that rising construction costs and interest rates are also contributing to the decline in housing permits, not just the tax itself. They point out that the revenue generated from the tax—around $633 million in two years—has funded rental assistance for thousands of Angelenos and contributed to the construction of 795 affordable homes.
However, critics, including some economists, warn that the mansion tax extends beyond luxury home sales and impacts a broader range of property transactions. They argue that the tax discourages landowners from selling, thus limiting new housing opportunities. Additionally, developers who typically sell completed projects to investors face the tax again upon resale, adding another financial hurdle.
In response to the findings, the report’s authors suggest that adjustments to Measure ULA could mitigate its negative effects. They recommend exempting multifamily projects built within the last 15 years from the tax, which they claim would only reduce annual tax revenue by a small percentage.
As the debate over Measure ULA continues, it is clear that the city must balance its goals of funding affordable housing while ensuring that new developments can still move forward. The findings of this report highlight the complexities involved in addressing Los Angeles’ housing crisis.