On April 1st, Measure ULA, which Los Angeles voters supported in the most recent election, goes into effect. The new ordinance imposes a one-time transfer tax on property sales above $5 million. The goal of measure ULA (United to House LA), also known as the “Mansion Tax” is to generate more funds to create affordable housing as a way to combat homelessness, but it is not without controversy.
The ordinance imposes a 4% tax on property sales above $5 million and a 5.5% tax on property sales above $10 million. These taxes are typically paid by the seller. On a $5 million property, the previous transfer tax in the city of Los Angeles would be $22,500. Effective April 1st, the new tax jumps to a whopping $225,500.
The tax applies to all property sales in the city of LA, including residential single and multi-family homes, as well as commercial real estate. Opponents argue that the new taxes could cut into developers’ profits enough to remove their financial incentive to build. Some think that the tax will discourage investors and builders from creating that much-needed housing at a time when inventory is extremely low and housing costs have increased tremendously. They also speculate the tax will be passed onto tenants in the form of higher rents. Supporters don’t see the tax as a threat to housing construction projects, and they also don’t think the tax will increase rents as they feel landlords are already charging as much as the market will allow.
In theory, a wealthy homeowner can afford the taxes when they sell. But it isn’t always that simple. The new taxes could very well deter single-family homeowners from selling, which will impact inventory in all price ranges. It’s too soon to know how the effects of Measure ULA will impact both new housing and the existing real estate market. I’ll be keeping a close watch and will share new information with you as it becomes available.
Comments