LA deputy mayor calls out industry’s “temper tantrum” on Measure ULA

The City of Los Angeles may not have met its revenue projections on Measure ULA — but that’s not the city’s fault, according to Deputy Mayor for Housing Jenna Hornstock. It’s partly on the real estate industry, which threw “a bit of a temper tantrum” when the taxes went into effect.

Speaking on a panel at the Urban Land Institute’s annual conference in Downtown L.A. on Wednesday, Hornstock claimed that the city had successfully raised cash from the transfer taxes — approximately $99 million as of September. 

“Isn’t that much lower than initial projections?” asked Tim Kawahara, founder of the UCLA Ziman Center for Real Estate, who moderated the panel. 

Hornstock conceded the city had not met its initial projections. Proponents of the measure said on the city’s voter information pamphlet that the taxes would generate about $900 million per year, based on real estate sales volume from mid-2021 through mid-2022. 

During the panel about the city’s efforts to boost affordable housing, Hornstock said the real estate industry raced to close deals before the transfer taxes went into effect on April 1, causing a subsequent “chill” in the market. Rising interest rates haven’t helped either, she added.

The mayor’s office did not respond to a request for comment on the deputy mayor’s statements. 

Measure ULA has added a 4 percent transfer tax on all residential and commercial sales over $5 million and a 5.5 percent tax on sales over $10 million. Real estate players have largely denounced the taxes for disincentivizing investment in L.A. 

“It’s probably the dumbest thing we’ve ever seen,” CBRE’s Lew Horne said at a TRD event in September. “It was posed as a mansion tax … the truth is it’s a tax on development, it’s a tax on land, it’s a tax on office, retail and multifamily.”

The ULI panel was designed to address an emergency directive from L.A. Mayor Karen Bass to expedite approval processes for 100 percent affordable housing projects and homeless shelters, put in place earlier this year. 

The rule — known as ED1 — exempts 100-percent affordable housing projects from discretionary reviews, cutting down approval times. 

Hornstock said developers of these projects are seeing an average of 47 days to score entitlements. The city has 8,000 affordable units in the pipeline under ED1 exemptions. 

UCLA professor Stuart Gabriel, Debbie Chen of the Little Tokyo Service Center and John Hrovat with affordable housing developer Community Builders Group also spoke on the panel. 

“L.A. has a severe affordable housing crisis — all the way up to middle-income housing,” Gabriel said, calling current construction levels “grossly inadequate.” 

However, during a question-and-answer session, one audience member asked whether the city was looking at how the transfer taxes cut into profit margins for affordable housing, prompting a discussion about Measure ULA. 

“100 percent affordable housing is exempt,” Hornstock said. 

A person from the audience shouted a correction: “Only if it is a nonprofit buyer.”

According to the city’s finance department, only sales to nonprofits with a history of affordable housing, community land trusts or limited-equity housing cooperatives are exempt from the transfer taxes. 

Hornstock seemed to try and distance the city from Measure ULA.

“This was a citizens’ initiative, not a city initiative,” she added. Measure ULA was approved with a simple majority vote through a local ballot initiative last year. 

The city has committed to spending $150 million from Measure ULA revenues. 

About $80 million will go to “various tenant support” programs, and $30 million will be direct funding for rent arrears, “which, by the way, helps landlords,” Hornstock said. The rest will go toward affordable projects. 

The city was facing two legal challenges to Measure ULA, before an L.A. judge dismissed both cases last week. 

Hornstock said the city expects the plaintiffs, the Howard Jarvis Taxpayers Association and Newcastle Courtyards, to file an appeal soon. 

Another challenge remains — a proposition on the California state ballot next year that could render Measure ULA invalid if passed.