Impact of Measure ULA (Mansion Tax) Passing
The most high-profile of the city’s ballot measures, United to House L.A., also known as the “Mansion Tax” passed by a healthy margin. Its aim is to fund affordable housing programs for tenants at risk of homelessness and slap a tax on high-priced real estate sales (4% to 5.5% tax on property transfers over $5M-$10M). The measure will take effect on January 1, 2023, and will not impact transactions until April 1, 2023, meaning investors contemplating a potential property sale have approximately a four-month window to avoid being subject to the new tax.
What to Expect
During this interval, Los Angeles should see a significant increase in listings volume and property transactions up until April 1st. There are other concerns about Measure ULA depressing new housing production. Developers are worried that the new tax would further inhibit them from building new housing, exacerbating the undersupplied affordable housing the city desperately needs. Investors are beginning to look at markets beyond the LA metro to avoid additional tax burdens imposed by the ballot measure.
- The current city transfer tax on a $5 million asset is $22,500. The new measure will create an additional tax of $200,000.
- For a $10 million asset, the existing transfer tax of $45,000 will be inflated by an astounding $550,000.
How Commercial Properties Will Be Affected
Based on current property assessments, roughly 18,100 citywide buildings could be impacted by Measure ULA . Measure ULA’s tax thresholds are also fully indexed to inflation based on the consumer price index, meaning that if a property is valued at less than $5 million today, its owner will likely not have to pay the tax in the future.
- One analysis shows that about half of the new taxes would come from the sale of commercial properties, and roughly a quarter would come from apartment buildings and other multifamily residences.
Certain exemptions of the tax such as qualified affordable housing and government entities, multifamily projects with a mix of affordable units, and market rates will be able to move forward with their developments (without concerning themselves with the new tax). As of mid-November, over 40 percent of the apartments underway throughout Los Angeles were part of projects about some income restrictions, and this percentage may increase in the future thanks to this tax revenue being allocated toward the funding of income-restricted housing.