One year ago, Los Angeles' “mansion tax” went into effect. It was either a godsend or an absolute disaster, depending on who you ask.
The transfer tax, formally known as Measure ULA, imposes a 4% fee on all property sales over $5 million, and a 5.5% fee on sales over $10 million, with proceeds funding affordable housing and homelessness initiatives.
When Los Angeles voters approved the measure in November 2022, it quickly became the dominant story in Los Angeles real estate.
Supporters say the tax generates critical funding to address Los Angeles' housing crisis, and they're right. In its first year, Measure ULA raised nearly $215 million, according to the Los Angeles Department of Housing.
The Los Angeles City Council passed a $150 million spending plan for ULA funds in August, and the money is flowing to six programs: short-term emergency rental assistance, eviction defense, tenant outreach and education, and direct cash assistance for low-income seniors. and persons with disabilities, protecting tenants, and producing affordable housing.
Critics, including many Los Angeles real estate professionals, claim the tax has crippled the market — not just luxury home sales, but also multifamily developments and commercial properties, since the tax applies to all property sales worth more than $5 million. .
And they are right too.
When the tax first went into effect on April 1, 2023, it froze Los Angeles' luxury real estate market, with many sellers taking their homes off the market in hopes of paying an extra few hundred thousand in taxes if they sold.
A year later, the market remains just as icy.
The startling slowdown is due in part to chilly buying across Southern California, where rising interest rates are turning many potential buyers away from the home search altogether. But in Los Angeles — the only city affected by the tax — home sales over $5 million have fallen at twice the rate of other wealthy cities, as buyers choose homes in nearby areas that are not subject to the tax.
From April 2022 to March 2023, the year before the ULA measure was implemented, Los Angeles had 366 single-family homes sold worth $5 million or more. In the 12 months that followed, there were just 166, a decline of almost 68%.
Luxury sales in nearby cities have slowed, but not nearly at the same rate, according to data from the Multiple Listing Service.
In Beverly Hills, single-family sales were down 24%.
In Santa Monica, single-family sales were down 29%.
In Malibu, single-family sales were down 28%.
“My clients are leaving L.A.,” said Jason Oppenheim, a luxury real estate agent who stars on the real estate reality show “Selling Sunset.” “We cannot continue to drive the wealthy out of our city.”
Oppenheim and his team spent much of the show's seventh season speaking out against the tax, which they claim pushes potential buyers out of Los Angeles and into other affluent areas.
“This tax has not had the impact they promised, and it is time for everyone to put their ego aside and realize that this was a mistake,” Oppenheim said.
The decline comes from several different factors. Many luxury homeowners moved to sell their properties last spring before the tax took effect, including celebrities like Mark Wahlberg and Brad Pitt.
Others have explored loopholes to avoid paying the tax, such as dividing properties into multiple parts and selling them separately to keep them under $5 million.
As a result, the ULA measurement did not rise nearly as much as originally expected.
Early proponents of the ULA measure estimated that the tax would raise nearly $900 million annually. Last March, a report issued by the city's administrative office reduced this number to $672 million.
At $215 million, the total is well below initial projections, but Greg Good, senior policy and external affairs advisor for the Los Angeles Department of Housing, said he expects it to be much higher in the future.
In the first three months of ULA's action, the tax raised $15 million, or just $5 million per month. But from July 2023 to February 2024, the tax collected nearly $200 million, or $25 million per month. Projections for the city's fiscal year, which begins July 1 and ends June 30, are about $300 million.
“Despite the lawsuits, despite the cold market, despite the wealth advocacy industry designed to help the rich protect their money from taxes, $300 million has been allocated to housing and homelessness initiatives,” Judd said.
So far, the city has spent about $28 million to help struggling renters and landlords, $23 million on eviction protection and tenant outreach, and $56.8 million on loans to accelerate the development of multifamily affordable housing projects.
“None of this would happen without ULA,” Judd said.
The Los Angeles real estate community fought the tax fiercely, campaigning against the measure when it was put on the ballot in November 2022, and trying to find ways to repeal it after it passed.
The latest challenge — a lawsuit claiming the tax was unconstitutional — was closed in October, when a Los Angeles County judge dismissed the case, but plaintiffs are in the process of appealing the decision.
The measure's next hurdle comes in November, when Californians vote on a statewide ballot initiative called the Taxpayer Protection Act. If passed, the law would require special taxes to be approved by a two-thirds majority vote rather than a simple majority, and would apply to all measures adopted after January 1, 2022. Since the ULA measure was adopted in 2023, it has received just 57% approval. It may require another vote or potentially be overturned.
Gov. Gavin Newsom has filed an emergency petition to remove the initiative from the ballot, but the status of the petition is unclear.
“This is a story of David versus Goliath. Financial interests are trying to prevent Angelenos from addressing this existential crisis, but I believe voters will flip the script at the ballot box and overcome it,” Judd said. “We will attack the housing crisis with vigor and zeal for as long as we can.”
