Measure ULA Ballot Proposal Kicked to Committee

Real estate remained upbeat on a proposed ballot measure to amend the so-called mansion tax even as the Los Angeles City Council told one of its most prominent members to slow her rollback.

A fiery debate ensued during Tuesday’s Los Angeles City Council meeting over the fast-tracking of a proposed 15-year carveout of the Measure United to House L.A. tax for new multifamily, commercial and mixed-use developments, in addition to an exemption for property owners impacted by a natural disaster.

Currently, ULA applies a 4 percent property transfer tax on all real estate deals – commercial or single-family – starting at $5.3 million. The tax bumps up to 5.5 percent on deals of $10.6 million or more.

The request to draft a ballot measure for June was made Friday by progressive councilwoman Nithya Raman, a member of the Democratic Socialists of America who became a leader of the progressive wing of the council in part for her role as an early a proponent of Measure ULA’s stated mission of funding homelessness and affordable housing programs.

Raman said the amendments would fix the “unintended consequences” of the two-tier tax, noting that ULA “was sold to voters as a mansion tax” but also applies to other segments of real estate and has cast a pall over dealmaking and development of apartments and commercial projects.

She told her colleagues on the 15-seat council that it has essentially placed “a transfer tax on all properties over $5 million, including apartments and we have to be honest about what has happened as a result.”

The biggest takeaway of Raman’s proposal would be a permanent, 15-year carveout seen as an incentive for new construction of multifamily properties of at least four units. It would also apply to commercial projects, defined as anything that doesn’t have residential. It’s the first major proposal aimed at addressing Measure ULA’s effect on the multifamily and commercial segments.

Sean Burton, CEO and chief investment officer of Cityview, hailed Raman’s motion as a “huge move forward” and the result of several months of negotiations between government officials, the business community, real estate interests and non-profits looking at ways of fixing the tax.

Some of Raman’s peers lashed out at the lack of public debate over the proposal.

That included 7th District representative Monica Rodriguez, who took Raman to task for the “false narrative” used to prompt ULA during a citywide campaign in 2022, accusing her colleague of selling the tax to voters without any studies.

“We knew that these were the implications … when we were having these conversations around ULA and we’ve been calling it out for, oh, well over a year, but it was convenient to ignore it when the money was being doled out to different initiatives that people wanted to support,” Rodriguez told Raman during Tuesday’s meeting.

Raman’s colleagues on Tuesday kicked her proposal for a ballot measure on the proposed carveouts to the Housing and Homelessness Committee rather than holding a vote of the full council.

More recent attempts to amend ULA have largely been spurred by Palisades Fire-impacted property owners. Those concerns are also addressed in Raman’s proposal with a one-time, three-year exemption in cases of natural disasters that would be retroactive to January of last year.

Meanwhile, there are language changes as it relates to existing affordable housing exemptions.

Baby steps

Even with what’s on the table, real estate says there could be more.

“It’s a really good step in the right direction,” Cityview’s Burton said of the proposed changes. “It’s clearly not going as far as many in the city would like and many real estate interests would like.”

Still, the CEO said a full repeal of the tax isn’t practical and Raman’s proposal will “kickstart the building of housing again.”

“You’ve seen construction fall off a cliff for any sort of market rate housing or affordable housing,” Burton said of the market since the tax went into effect. “L.A.’s been redlined by the investment community because of ULA. It makes investing in L.A. non-economic. I think the mayor realizes that and the councilwoman realizes that. I give her credit for having the guts to push this.”

“It’s bad policy to begin with,” Mike Leipart, co-founder and managing principal of real estate sales and advisory firm Redeavor, said of ULA. “But, setting that aside, [the proposal’s] better than nothing. Treating multifamily and commercial with the same thresholds was absurd from the start. Better than nothing, not near enough, is what I would say.”

Christie’s International Real Estate Southern California founder and CEO Aaron Kirman agreed.

“Any policy that encourages development and acknowledges the economic realities facing builders and property owners is a positive step,” Kirman said.

The luxury residential agent hailed the natural disaster exemptions but noted “there is still work to be done to ensure ULA does not continue to discourage investment at a time when Los Angeles needs housing and economic momentum.”

Mott Smith, an adjunct professor of real estate at the University of Southern California Price School and chair of the Council of Infill Builders, offered a blunt assessment of what ULA is and has been for the market.

“The only word I know for this is clusterfuck,” Smith said. “It’s really kind of a mess.”

From Smith’s view, the tax is “failing on all fronts” except for the fact that it is indeed raising money, albeit at a lower rate than what was first estimated to taxpayers.

“What it is not doing effectively is funding affordable housing and this is because ULA is a ballot box version 1.0 that became law and the people that wrote it wrote it with a high degree of specificity and rigidity about how the money gets spent,” he said.

“Rushed” process

Opposition to the proposed amendments say the changes give in to real estate interests and stymie a revenue source that is upholding its promise to voters.

The Measure United to House coalition — a group of nonprofits, labor unions, affordable housing builders, homeless service providers and other supporters of the tax — said ULA revenue has been pumped into 795 affordable homes and provided rental or other assistance to 10,000 people in the city.

The coalition’s director Joe Donlin called the proposed amendments “rushed” and sided with the councilmembers who said it lacks any formal public discussion.

“This is really a conversation about something that’s really working for the city,” Donlin said.

Critics of the tax say otherwise and point to the $1 billion-metric that is touted by supporters. Since April 2023, when the tax went into effect, it has generated a little over $1 billion. The text of the measure that went before voters estimated the tax would generate anywhere from $600 million to $1.1 billion annually.

Donlin also disputed any claims that the real estate market has been hindered by ULA.

“The real estate market in L.A., just like real estate markets all around the country, have been deeply impacted by big, macroeconomic factors like high interest rates and inflating insurance premiums and higher construction costs,” Donlin said. “And, yet, we also have seen at each stage of the development process there are signs that L.A.’s real estate market is trending in an upward direction.”