In these times, double down — on your skills, on your knowledge, on you. Join us Aug. 8-10 at Inman Connect Las Vegas to lean into the shift and learn from the best. Get your ticket now for the best price.
Los Angeles’ new ULA Tax, a tax implemented at the beginning of April on properties priced above $5 million known informally as California’s “Mansion Tax,” was enacted with the intention of bringing in an average of $56 million of tax revenue per month to the city of L.A. during its first year.
But the numbers from the tax’s first month have come in and fallen well short of their expected mark, with it bringing in a mere $3.6 million from five qualifying transactions in April 2023, according to Bisnow.
Also known as the “mansion tax” for its impact on transactions at higher price points, the measure adds a 4 percent tax to real estate transactions above $5 million and a 5.5 percent tax on transactions over $10 million.
Ernie Carswell | Douglas Elliman
When Inman spoke with L.A.-area agents in advance of the tax going into effect, many expressed their displeasure at how it was handled at the ballot and the misconceptions that were allowed to spread around it.
Ernie Carswell of Ernie Carswell & Associates at Douglas Elliman said at the time that he felt the ULA Tax was framed to voters as something that would solely impact sellers of properties over $5 million, but the reality is that many buyers, and potentially even real estate agents, will end up having to foot the bill for the tax.
“Many people that voted for [the ULA Tax] I think had no idea what they were voting for,” Carswell said. “And so I think it was an unfair voting result because I think there was a good percentage of people that had no idea how it would impact the city.”
Initially, proponents of Measure ULA said that the tax would generate about $900 million per year. However, by mid-March 2023, an analysis from the City Administrative Office revised that estimate downwards, stating the tax was instead expected to generate $672 million in revenue during its first year, which would require bringing in $56 million per month, to go towards affordable housing and homeless programs.
The failure for the tax to hit targets during its first month did not come as a surprise, said Executive Director of Move L.A. Eli Lipmen, given that many sellers rushed to offload their over $5 million properties before the tax went into effect, and a subsequent lull was expected. He maintained that the tax’s supporters were “in this for the long haul.”
Members of the L.A. real estate industry, including the Apartment Association of Greater Los Angeles, have launched lawsuits against the city over the tax and introduced a state ballot measure to invalidate it. If that litigation or ballot measure succeeds, any money collected from the tax would have to be given back, which means that the city could be in a bit of a bind if it does use the funds before those challenges are settled.
However, Mayor Karen Bass has proposed using $150 million in federal funds the city expects to receive to offset any necessary reimbursements of the tax.
This year’s L.A. city budget proposed spending $150 million from the ULA Tax on programs to combat housing insecurity, including $62 million to buy and renovate homes, $25 million to help rent-burdened seniors and individuals with disabilities and $25 million for eviction defense services.
Aaron Kirman | AKG | Christie’s International Real Estate
In a recent conversation with Inman, Aaron Kirman of AKG | Christie’s International Real Estate expressed his distaste for what he called an “incredibly ill-written idea” that’s “caused turmoil in the L.A. marketplace,” adding that labeling it a “mansion tax” is also a misnomer because the tax is negatively impacting far more than just mansion owners.
“In a city where you can’t even buy dirt in the urban centers for, theoretically, an apartment building — just the land costs $2.5 million. By the time you’re done, you’re in over the cost of that ‘mansion tax,'” Kirman said. “So people need to stop saying it’s a ‘mansion tax.’ It’s a real estate tax on anything real estate-related over $5 million … I think it’s just ill-advised because, in a city that needs development, in a city that needs housing, it certainly doesn’t incentivize people to do so.”
Update: This story was updated after publication with further details about the initial tax revenue estimates projected by the city of L.A. through the ULA Tax.
Get Inman’s Luxury Lens Newsletter delivered right to your inbox. A weekly deep dive into the biggest news in the world of high-end real estate delivered every Friday. Click here to subscribe.
