Multifamily Permitting Falls 18 Percent in LA

The voter-approved mansion tax has resulted in fewer apartments built across Los Angeles.

Since Measure ULA was enacted two years ago, permitting for new multifamily projects in the city fell 18 percent in the first year, resulting in 1,910 fewer apartments in projects of 20 or more units, according to CoStar News, citing a report by the UCLA Lewis Center for Regional Policy Studies.

The transfer tax, passed by voters in 2022 and implemented in April 2023, funds affordable housing and homelessness prevention programs by taxing high-value property sales.

The tax charges a 4 percent fee on all residential and commercial property sales above $5.1 million and a 5.5 percent fee on sales above $10.3 million. Before Measure ULA, the city’s transfer tax was 0.45 percent.

What’s commonly known as the mansion tax may have undercut the goals of its backers by slowing development and reducing new affordable housing by an estimated 168 units a year or more, according to the UCLA study.

The findings add to growing concern that Measure ULA is discouraging property transactions that drive new housing and refresh aging real estate, according to CoStar.

“We strongly recommend that elected officials reform Measure ULA, exempting multifamily projects from transfer taxes when sold within 15 years of construction,” wrote Shane Phillips, housing initiative manager at the Lewis Center at UCLA and author of the report, titled “Taxing Tomorrow: Measure ULA’s Impact on Multifamily Housing Production and Potential Reforms.”

“This would increase multifamily permitting and reduce ULA revenues only modestly. It would also increase other revenues, such as sales taxes and property taxes, at a time when the city is facing a nearly $1 billion budget deficit.”

The tax is also discouraging investment when parts of Los Angeles are working to rebuild after the most destructive wildfires in California history, according to billionaire Rick Caruso, a former mayoral candidate and developer of shopping centers across the region

“We are not letting this issue go,” Caruso told a meeting of Pacific Palisades residents. “We are going to chase it down to every corner and find a solution for” the challenges presented by the tax. “Not only should it be suspended for this fire, but for victims of any natural disaster.”

Other real estate professionals argue the measure should be amended further to exempt certain sellers to promote new investment.

“We strongly recommend that elected officials reform Measure ULA, exempting multifamily projects from transfer taxes when sold within 15 years of construction,” Phillips writes. “This would increase multifamily permitting and reduce ULA revenues only modestly.

“It would also increase other revenues, such as sales taxes and property taxes, at a time when the city is facing a nearly $1 billion budget deficit.”

Two years after taking effect, Measure ULA has raised $632 million for housing and homelessness programs, including $320 million in fiscal 2025. That’s a far cry from the up to $1.1 billion a year billed to voters as a way to pay for affordable housing and homelessness prevention.

The UCLA research suggests that revenue has fallen far short of expectations because of a dramatic slowdown in large-scale property deals.

In a separate report this month, UCLA researchers found that sales of apartment buildings, office towers and industrial properties across the city of Los Angeles declined by as much as 50 percent since the tax, but that sales in neighboring cities remained relatively stable.

— Dana Bartholomew