Report claims the mansion tax stifles commercial | Real Estate news

Depending on who you ask, Measure ULA has been a godsend or a catastrophe for L.A.’s real estate market. A new report suggests the latter.

A new evaluation from UCLA’s Lewis Center for Regional Policy Studies authored by Michael Manville and Mott Smith claims that the so-called “mansion tax” has slowed down gross sales, particularly for commercial properties.

Measure ULA was handed in 2022 and took impact in April 2023, bringing a 4% charge to all L.A. property gross sales above $5 million and a 5.5% charge to gross sales above $10 million. The proceeds fund reasonably priced housing and homelessness prevention initiatives; roughly two years in, the switch tax has raised more than $632 million.

But the report — printed Tuesday and titled “The Unintended Consequences of Measure ULA” — suggests the tax has chilled a once-robust market in L.A., whereas gross sales above $5 million have remained regular in different markets throughout L.A. County not affected by the tax.

The research analyzed 338,000 property gross sales over the final 5 years and located that the drop is most acute on the commercial aspect. Under ULA, non-single-family transactions fell 7-15% per 30 days in L.A. ZIP Codes, a development that compounded to 30-50% over the course of two years.

“The hardest-hit properties are not luxury homes, but multifamily, commercial and industrial buildings — the very types we need to support housing production and job growth,” Smith mentioned.

A commercial decline hurts the metropolis in two methods, the report argues. First, commercial properties usually promote for considerably more than single-family properties, so even a slight lower in gross sales results in a giant drop in tax income. In addition, commercial gross sales usually result in new multifamily development, which the metropolis desperately wants in the midst of a housing disaster.

Smith mentioned the decline led to a $25-million annual loss in property tax income, and that loss will compound over the subsequent few years. In a decade, the loss in income may exceed the funds introduced in by the tax.

Property taxes are completely different from money introduced in by ULA’s switch tax. Property taxes move into the metropolis’s basic funds, whereas ULA taxes are particularly earmarked for reasonably priced housing and homelessness initiatives.

Smith and Manville urged reforming the tax to solely have an effect on properties that haven’t been reassessed in 20 years, which may exempt multifamily builders whereas nonetheless focusing on luxurious owners whose property values have soared over the years.

Joe Donlin, who serves as director of United to House L.A., the group behind Measure ULA, mentioned the tax is doing what it set out to do.

“On its second anniversary, Measure ULA is already producing hundreds of units of affordable housing, protecting tens of thousands of renters and creating thousands of construction jobs,” Donlin mentioned. “Its initial dip in revenue owes more to developers and the real estate lobby hoping to overturn it in court or at the ballot box — and losing.”

The tax has survived a number of legal challenges in the previous few years from the luxurious real estate group, who sought to declare the measure unconstitutional. In addition, income sputtered in the first yr of the program as property homeowners both bought off properties in the days earlier than the tax took impact or discovered loopholes to keep away from paying it.

Revenue and gross sales have each elevated yr over yr as legal challenges fade. The tax raised roughly $296 million in fiscal yr 2024 and has raised $320 million to date in fiscal yr 2025. But the numbers nonetheless fall properly short of initial projections of $900 million per yr.