Contributor: L.A.'s 'mansion tax' needs a remodel. Here's how to fix it

Yahoo

05-04-2025

In 2022, Los Angeles voters approved Measure ULA, a transfer tax on the sale of high-value properties inside the city limits. Nicknamed the mansion tax by its supporters, Measure ULA imposed a 4% tax on sales over $5 million and a 5.5% tax on sales over $10 million — one of the steepest such levies in the nation. Its revenue is earmarked for low-income housing programs.
ULA's tax is paid by sellers, which may explain why Mayor Karen Bass suggested suspending it after the wildfires. The mayor is right to worry. Property values in Pacific Palisades often top $5 million, creating concern that the tax could penalize owners who lost everything and just want to sell and move on. But Measure ULA's problems run deeper. Suspended or not, it needs to be reformed.
Read more: L.A. City Council approves 'mansion tax' spending plan and program guidelines
Despite its nickname, ULA isn't just a tax on mansions. It applies to nearly every property priced over $5 million, including apartment buildings, offices, soundstages, hotels and shopping centers — places Angelenos live, work and shop.
Additionally, ULA is not a tax on profit. It's based on sale price. Thus, the owner of an office building that has plunged 90% in value since the COVID-19 pandemic might sell it for $15 million and incur an $825,000 ULA tax, despite the owner's overall loss. On the other hand, someone who bought a house 10 years ago for $500,000 and sells today for $1.5 million would pay nothing. ULA's design means large losses may be heavily taxed while big gains go scot free.
Measure ULA also has steep 'cliffs' — thresholds where small price increases trigger massive tax increases. A property selling for $5 million incurs no ULA tax, but one selling for a dollar more pays $200,000. Such cliffs create strong incentives for owners to avoid the tax.
Read more: Which L.A. neighborhoods have paid the most 'mansion tax'?
The easiest way to avoid the tax is to not sell, and our research shows that over the first two years since ULA was implemented, high-value property sales in the city fell by about 50% — a far steeper decline than elsewhere in the county during the same period. Higher interest rates and construction costs aren't to blame for the decline — those conditions affected the entire region. And while there was a temporary 'rush to sell' before ULA was implemented, our analysis accounts for that behavior. The 50% drop is an effect of ULA specifically.
Depressed sales mean less revenue generated by ULA. Backers estimated ULA would raise $600 million to $1.1 billion annually. So far, collections have averaged just $288 million per year — less than half the lowest projections.
By reducing large sales, moreover, ULA has slowed the production of market-rate apartments. Most multifamily developments involve buying a suitable site and then selling the finished building. ULA can add significantly to the cost of both of those transactions. And because most market-rate housing developments now include some income-restricted affordable apartments provided by developers in exchange for increased project size, Los Angeles is getting fewer of those, too. Conservatively, we estimate ULA is costing the city more than 1,900 new units a year, of which at least 160 would have been affordable units produced without public funding. Meanwhile, the ULA revenue collected from newer multifamily projects since the tax went into effect is only enough to subsidize, at best, half that number. ULA's poor design needlessly costs the city affordable housing.
The impact doesn't stop at housing. ULA has also slowed large transactions for commercial, industrial and office properties. This effect, combined with the slowdown in residential transactions, is impeding property tax growth. Under California's property tax system, local revenues increase primarily when properties are reassessed at sale. Large transactions contribute disproportionately to that growth. Sales over $5 million are only 4% of all transactions but account for more than 40% of the growth in the city's tax base. Over time, fewer big transactions means less funding for all public agencies and programs that rely on L.A.'s tax base: schools, community colleges and the county and its safety-net programs.
Although the ballot language for Measure ULA included strong limits on the City Council's power to amend it, ULA is fixable. The most effective approach may be state action. State governments almost always have the power to revoke or amend local actions, and transfer taxes are arguably an issue of interest to the state, because they have direct effects on California's housing goals and overall fiscal health.
Read more: 'Why us?': Housing nonprofits are paying millions in 'mansion tax'
Targeted state legislation could reduce ULA's negative effects while preserving its goal of raising funds to help low-income renters. Options include restricting the tax to single-family homes (making it a true mansion fax), adopting marginal rates to eliminate the 'cliffs' (to work similarly to income taxes ), or limiting ULA to properties that haven't been sold or improved in many years; sales of these properties are much more likely to represent a large windfall for sellers and such sales would not tend to undermine housing and job creation.
Los Angeles needs housing and economic policies that work — especially as we recover from the January wildfires. That means balancing the urgent need for new revenue with policies that encourage new housing and jobs. Measure ULA, as currently structured, makes that balance harder to achieve. It could become a better tool — one that fulfills voters' hopes for more affordable housing, strengthens the local economy and protects the social and fiscal foundation of the region.
Michael Manville is a professor of urban planning at UCLA and an affiliated scholar at its Lewis Center for Regional Policy Studies. Shane Philips is housing initiative project manager at the Lewis Center. Jason Ward is co-director of the Rand Center on Housing and Homelessness.
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This story originally appeared in Los Angeles Times.