Measure ULA: Analyzing Its Impact on L.A.’s Real Estate Market
Measure ULA, implemented in April 2023, has sparked debate regarding its effects on Los Angeles’ real estate landscape. A recent report from UCLA’s Lewis Center for Regional Policy Studies paints a challenging picture for the initiative, often referred to as the “mansion tax.”
Overview of Measure ULA
Passed in 2022, Measure ULA imposes a 4% tax on property sales above $5 million and a 5.5% tax on those exceeding $10 million. The funds generated are earmarked for affordable housing and homelessness prevention efforts, and to date, the measure has contributed more than $632 million to these causes.
Key Findings from the UCLA Report
The analysis led by Michael Manville and Mott Smith claims that the tax has notably cooled the L.A. real estate market, particularly impacting commercial property transactions. After evaluating data from approximately 338,000 property sales over the past five years, they found significant declines in sales activities due to the tax.
Impact on Sales Activity
- Non-single-family property sales in L.A. have experienced a monthly drop of 7-15%.
- This decline compounded over the last two years, resulting in a 30-50% reduction in commercial sales.
Commercial Sector Implications
Smith emphasized that it is not luxury homes but rather multifamily, commercial, and industrial buildings that are most affected by the tax. He pointed out that this downturn in the commercial sector poses dual challenges for the city:
- Reduced revenue from commercial property sales, which generally surpass single-family home transactions.
- A slowdown in the development of new multifamily units, critical to addressing the ongoing housing crisis.
Financial Consequences
The report estimates that L.A.’s tax revenue will face a $25 million annual decline as a result of the commercial sector’s downturn, a trend projected to worsen in the future. In ten years, this loss could overshadow the revenue generated by the mansion tax itself.
It is essential to note that ULA’s revenue streams differ from regular property taxes, as the latter contributes to the city’s general fund, whereas ULA proceeds are specifically directed toward housing and homelessness initiatives.
Proposals for Reform
To mitigate the adverse effects identified in the report, Smith and Manville recommend adjusting the tax to apply only to properties not reassessed in the last 20 years, potentially shielding multifamily developers while still targeting high-value homes benefiting from significant property value increases.
Response from Advocates
Joe Donlin, director of United to House L.A., defended the effectiveness of Measure ULA. He argued that the tax has already facilitated the construction of hundreds of affordable housing units, aided thousands of renters, and generated numerous jobs in construction. He attributed any initial revenue dip to a strategic response from developers rather than a failure of the measure itself.
Current Trends and Future Outlook
Despite earlier legal challenges from the luxury real estate sector attempting to challenge ULA’s constitutionality, the financial outlook has shown recovery. The tax generated approximately $296 million in fiscal year 2024 and is projected to reach $320 million in fiscal year 2025, although these figures are still significantly lower than the initial forecast of $900 million annually.
Conclusion
As the discussions surrounding Measure ULA continue, stakeholders must weigh its intended benefits against the observed declines in the commercial real estate market. The potential need for reform remains a critical topic as the city navigates its path toward solving the housing crisis.