Los Angeles’ housing market has been impacted by Measure ULA, also known as the “mansion tax,” which has led to a decrease in apartment construction, exacerbating the city’s housing crisis. A recent report from UCLA and Rand researchers highlights the effects of this voter-approved law that went into effect in the spring of 2023. The measure imposes a 4% levy on property sales over $5 million and a 5.5% charge on sales over $10 million, affecting a wide range of properties, including apartment buildings.
The real estate industry has raised concerns that the additional costs associated with Measure ULA have made it challenging to turn a profit on new housing developments, leading to a decline in overall construction. The study released by UCLA and Rand on Friday supports these claims, revealing a drop-off in property sales where multifamily homes are typically built. Researchers estimate that the measure is causing a reduction of at least 1,910 units per year, with a corresponding decrease of at least 168 affordable units annually.
Shane Phillips, co-author of the report and housing initiative project manager at UCLA’s Lewis Center for Regional Policy Studies, emphasizes the potential consequences of building less housing, stating that it could make the city even more unaffordable. While Los Angeles is not the only city experiencing a decline in construction, with permits for new housing down nationwide due to rising interest rates and material costs, the impact of Measure ULA appears to be particularly significant.
Challenges Faced by the Real Estate Industry
The report authors attempted to account for the broader economic challenges facing the real estate industry by comparing land sales in the city of Los Angeles to other areas in the county where transfer taxes were not increased. The findings showed a more pronounced drop in land sales in the city, leading to an estimate of lost units directly attributable to Measure ULA. Critics of the measure, including Joe Donlin, director of the United to House LA coalition, have questioned the assumptions made in the report, arguing that it serves the interests of wealthy real estate investors.
While proponents of Measure ULA point to the positive impacts it has had, including raising nearly $633 million within two years and funding various affordable housing initiatives, economists like Jason Ward from Rand suggest that the measure may be limiting housing construction in ways that extend beyond luxury home sales. Ward highlights how the measure discourages landowners from selling, limits opportunities for new construction, and affects developers who sell their projects post-construction.
Recommendations for Mitigating Negative Effects
Ward and Phillips propose changes to Measure ULA that could minimize its adverse effects on housing construction. They recommend exempting multifamily projects built within the last 15 years from the measure, which they estimate would only reduce annual revenue by 8% at most. The researchers argue that such modifications could help stimulate housing development and prevent further declines in market rate and affordable housing units.
The UCLA-Rand analysis underscores the importance of addressing the unintended consequences of Measure ULA to ensure a sustainable housing market in Los Angeles. By implementing targeted adjustments to the measure, policymakers can potentially mitigate the negative impacts on construction and affordability. As the city grapples with ongoing housing challenges, finding a balance between revenue generation and housing development will be crucial in shaping the future of Los Angeles’ real estate landscape.
