The Mansion Tax Affects Los Angeles Business

Los Angeles voters passed Measure ULA (the “ULA”) in 2022 and it took effect on April 1, 2023.  Also called “United to House Los Angeles,” the “Homelessness and Housing Solutions Tax,” or the “Mansion Tax,” it was intended to raise money for housing development and to combat homelessness in Los Angeles through housing programs and rental assistance.  The ULA was promoted as being able to raise roughly $900 million per year as an answer to the worsening homelessness crisis in Los Angeles.  However, a recent University of California, Los Angeles (“UCLA”) study has residents of Los Angeles questioning whether the ULA has caused more harm than good.  

What is Measure ULA?

The ULA imposes an additional 4% tax on all property sales in Los Angeles above $5 million in value and an additional 5.5% tax on property sales worth above $10 million.  The ULA is a transfer tax rather than a property tax, which would have been much less popular, and only applies when a property is sold.  According to the Los Angeles Housing Department (“LAHD”) website, 70% of the funds raised by the ULA are allocated to the Affordable Housing Program and the remaining 30% are designated for the Homelessness Prevention Program.  Recent social media posts by the LAHD indicate that the ULA has raised more than $632 million for local housing in the roughly two (2) years since it came into effect.  However, this is far below the estimated $900 million to $1.1 billion per year that was promised to be brought in with the ULA.  

The Effect of Measure ULA

According to the recent study from the Lewis Center for Regional Policy Studies of UCLA, “The Unintended Consequences of Measure ULA” (the ‘Study”), the ULA has been extremely detrimental to property sales in the City of Los Angeles, especially for commercial properties.  It has resulted in a significant reduction in the number of higher-end property sales occurring per year throughout Los Angeles.  Although most voters assumed the nicknamed “Mansion Tax” would mostly affect the sale of single family “mansions” or luxury properties, the ULA also applies to and has had a greater impact on the sale of commercial properties.  The study indicates that, under the ULA, the sales of non-single-family properties in Los Angeles have fallen 30-50% over the two (2) years since the ULA came into effect.  Many of the commercial properties affected consist of apartments needed by those affected by the housing crisis and sell for much more than a single-family home.  In addition, the lower number of property sales has led to a drop in property tax revenue, a decrease in the development of more multi-family housing units, and the abandonment of development projects across the city.  Many developers have moved beyond the City of Los Angeles into Pasadena and other neighboring cities without the additional tax on high value property transactions.  The reduction in these property sales directly hinders the goal of the ULA to increase affordable housing production and homelessness prevention in the City of Los Angeles.  

What is Next for the ULA?

The Study proposed amending the ULA to have it apply only to properties which have not been reassessed in the past 20 years.  This would generally cause developers of new multi-family properties to be exempt from the ULA, while the Measure would still apply to the intended target: luxury properties.  However, LAHD and other supporters of the ULA say the ULA is still accomplishing what it was intended to do by bringing in more money than any other housing program and it has held up against legal challenges brought to the courts.  It was also proposed that the ULA be temporarily suspended after the March 19, 2025 meeting of the Los Angeles City Council showed that Los Angeles is facing a budget deficit of roughly $1 billion, and that ULA could slow rebuilding after the recent Palisades and Eaton fires.  However, the suspension has not yet occurred and city officials seem hesitant to move forward with the proposal, suggesting that voter approval may be required.  Meanwhile, the housing crisis continues to affect residents of Los Angeles and new housing developments continue to decline in production.    

Contact our offices for assistance in understanding Measure ULA or other local laws in Los Angeles that could affect your business interests.