Changes to the Los Angeles Mansion Tax and Measure ULA
Los Angeles’ famed “Mansion Tax” was a misnomer from the beginning. The city’s property transfer tax, officially known as the ULA Tax, was introduced as part of Measure ULA to fund more affordable housing programs and provide resources to tenants at risk of homelessness. But what most voters failed to recognize in November 2022, when Measure ULA was billed as a tax on the sale of mansions, is that its provisions apply to residential and commercial properties valued over $5 million. The so-called Mansion Tax wasn’t just about mansions, after all.
One year after taking effect, the ULA Tax has adjusted its thresholds for taxable transactions. As of June 30, 2024, the new thresholds for ULA will be $5,150,000 and $10,300,000. Transactions above $5,150,000 but under $10,300,000 will be assessed a 4% tax, and transactions $10,300,000 and up will be assessed a 5.5% tax. The changes represent a 3% increase from the initial thresholds of $5,000,000 and $10,000,000, respectively.
Starting June 30, 2024, all commercial and residential properties sold above $5,150,000 and at or above $10,300,000 will be assessed a 4% and 5.5% tax, respectively.
One Year Later
While the measure welcomed its first anniversary at the start of Q2 2024, there wasn’t much to celebrate. According to the Los Angeles city controller’s office, Measure ULA brought in just $173.6 million at the end of Q1 2024, about a quarter of the city’s estimates. Voters were initially told the Mansion Tax would generate anywhere from $672 million to almost $1 billion. Such a wide gap begs the question: Was Measure ULA effective in remedying the city’s housing pains?
Because the Mansion Tax is collected on all real estate sales and transfers, it has discouraged new multifamily development, including affordable housing projects. Transactions have also slowed (more than expected) after owners rushed to sell commercial properties during the months between the measure’s passing and taking effect. The Los Angeles residential market also saw a sharp decline: Luxury home sales dropped nearly 70% in the 12 months since the tax took effect.
Opponents of Measure ULA question its constitutionality. In 1978, California voters passed Proposition 17, which prohibited real estate transfer taxes like the Mansion Tax. Later, court rulings eased some of Proposition 17’s protections, stating that property transfer taxes were legal if the revenue was used for general rather than named purposes. However, the ULA Tax is considered a “special tax,” meaning its revenue is funneled to specific programs.
California voters can send Measure ULA back to the ballot on a local level by voting to pass the Taxpayer Protection Act in November 2024. If the Mansion Tax is overturned, sellers whose real estate transactions were taxed can apply for a refund. But here’s the catch: The city has already spent or allocated millions of dollars from Measure ULA revenue.
According to CoStar, at the start of Q2 2024, over a thousand active listings in Los Angeles will be affected by the new changes to Measure ULA:
- $5,000,000-$5,150,000 value: 35 properties
- $10,000,000-$10,300,000 value: 9 properties
- $5,150,000-$10,300,000 value: 622 properties
- $10,300,000+ value: 417 properties
Outlook for the Mansion Tax
In contrast to a year ago, when owners rushed to sell their properties before the Mansion Tax took effect, there may be an inverse effect where owners and buyers wait to trade if the property in question sits within the margin of change. Regardless, investors can expect to see compressed transaction activity and a continued lack of support for all commercial development—including the city’s much-needed affordable housing—as long as the Mansion Tax remains in effect.
