Los Angeles Delays Vote on Controversial Mansion Tax as Calls for Repeal Grow

The Los Angeles City Council delayed a vote Tuesday on a proposal to let voters decide whether to amend the city's controversial "mansion tax," which is facing intensifying repeal efforts.

Officially known as Measure ULA, the transfer tax imposes a 4% levy on property sales of $5.3 million to $10.6 million, and a 5.5% levy on sales over $10.6 million. That is on top of a 0.45% tax the City of Los Angeles already imposed on all real estate transactions. Both taxes are paid by the seller.

The full city council declined to place a recently introduced measure by City Councilmember Nithya Raman on the June ballot to reform the tax, instead referring it to the Housing and Homeless Committee for further analysis and public input.

Although colloquially referred to a "mansion tax," Measure ULA applies to all real estate priced at over $5 million, including apartment buildings, commercial properties, and vacant lots.

Since going into effect in April 2023, the tax has generated over $1 billion and counting for the city, according to the Los Angeles Housing Department's online tracker. The revenue goes toward funding new affordable housing projects, homeownership initiatives, low-income tenant assistance, and eviction defense legal services.

Critics, however, argue that the tax has discouraged investment in new multifamily housing developments and dampened high-end home sales.

What's in the 'mansion tax' reform proposal?

In a bid to quell growing opposition to the tax, Councilmember Raman, who endorsed the tax at its inception, introduced a motion on Friday to add a measure to the June primary ballot that would amend Measure ULA. 

Raman's proposal includes a 15-year exemption from the tax for newly constructed multifamily, commercial, and mixed-use buildings, which should put developers at ease.

In addition, the amendment would grant a three-year exemption after any natural disaster if the property owner can demonstrate that the tax will cause "an undue hardship." The provision would apply retroactively to homeowners affected by last year's devastating Palisades and Eaton wildfires.

Before her measure was put on hold, Raman delivered an impassioned speech to the Council, arguing for the urgent need to reform Measure ULA to address its "unintended consequences," particularly its chilling effect on multifamily home construction.

"It put a transfer tax on all properties over $5 million, including apartments, and we have to be honest about what has happened as a result," said Raman. "Multifamily, mixed use housing, commercial production has slowed in the city of L.A., lenders and investors are backing away from this city entirely."

The councilmember cited studies that showed how the transfer tax has slowed apartment construction in Los Angeles in the middle of a housing crisis.

"The studies estimated that ULA is preventing the construction of at least 2,000 market-rate units a year, as well as hundreds of affordable units, more units than ULA can produce," noted Raman.

Recent reporting by the Los Angeles Times revealed that new apartment construction in L.A. has fallen by 33% since 2023, while San Diego, CA, which does not have a "mansion tax" on the books, saw a 10% increase during the same period.

According to Raman, Los Angeles' own internal data show that permits have declined 27% since the tax took effect, with buildings of more than five units experiencing the steepest drop.

"The structure of ULA now disincentivizes investment in exactly the kind of buildings that we are saying are going to help us meet our housing shortage," said Raman. "We are sabotaging ourselves, a policy that unintentionally stalls housing production undermines the very goal that voters asked us to achieve."

She continued: "The parallel would be if we were trying to address hunger and you did it through a program that increased food shortages, you can't address the housing crisis with a policy that worsens our housing shortage. You just can't."

Realtor.com® senior economist Joel Berner agrees that Measure ULA has been putting developers off investing in much-needed multifamily buildings in L.A. because the transfer tax makes these projects less profitable.

"L.A. is facing a serious housing shortage, and this tax is preventing it from solving the issue," he says. "Exempting apartment buildings from the tax would help, as investors could buy and sell them for redevelopment more easily and builders could resume operation in the city without fear of being unable to sell their building upon completion."

Battle lines are drawn

Proponents of Measure ULA, led by United to House LA—the coalition that championed the initial ballot initiative in November 2022—have pushed back against proposed changes to the tax.

"Measure ULA is keeping people housed, funding affordable homes, and creating good union jobs," the coalition wrote on its Facebook page. "The proposed changes would delay and substantially reduce funding, shifting resources away from permanent housing toward short-term solutions."

United to House LA contends that the ballot proposal has been steered by real estate interests and political maneuvering without meaningful community input.

Joe Donlin, director of United to House LA, previously told Realtor.com® that Measure ULA is working exactly as it should by keeping Angelenos housed.

"It has funded 800 affordable housing units that are already finished or under construction," he said recently. "It's provided $30 million in renter assistance."

It comes a month after a California appeals court rejected a legal challenge from the Howard Jarvis Taxpayers Association, which advocates for lower taxes in California. The group argued that Los Angeles lacked the legal authority to impose the tax, but the court upheld Measure ULA. 

In turn, the Association has made it a statewide issue, gathering signatures to put a measure on California's November ballot that would repeal Measure ULA and similar real estate transfer taxes exceeding 0.11% in some two dozen cities.