LA approves tax increase on real estate deals over US$5m

LOS ANGELES (LA) voters approved a tax increase on the sale of mansions and other multimillion-dollar real estate transactions, to raise money for affordable housing in the second-largest US city.

The new measure, known as Proposition ULA, will boost the one-time transfer tax to 4 per cent for property deals between US$5 million and US$10 million. It will also raise the tax rate for transactions of US$10 million and above to 5.5 per cent. The current rate on all sales is 0.45 per cent.

The increases will take effect on Apr 1, 2023, and will raise an estimated US$600 million to US$1.1 billion a year.

Certified results released on Monday (Dec 5) by LA County officials showed the ballot measure received support from almost 58 per cent of voters.

Proposition ULA will dedicate 70 per cent of funding for affordable housing projects and the rest to homelessness prevention.

LA faces worsening wealth inequality that several ballot initiatives have failed to quell. While mansions in Beverly Hills and Bel Air sometimes sell for more than US$100 million, roughly 42,000 people sleep on the city’s streets, in cars or temporary shelters each night. This figure has gone up about 2 per cent since the pandemic hit.

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A report by the California Housing Partnership showed that LA County residents needed 120 per cent of the area’s median income to rent a typical two-bedroom apartment. This was the highest rent-to-income ratio of any county in the state.

Creating affordable housing and reducing homelessness are top priorities for mayor-elect Karen Bass, who takes office on Dec 12.

Bass has promised to declare a homelessness emergency on her first day. Despite this, neither her nor her opponent in the mayoral race, billionaire real estate developer Rick Caruso, supported Proposition ULA. 

The tax increase will affect about 4 per cent of real estate deals annually in LA. An analysis by the UCLA Lewis Center for Regional Policy Studies showed that 72 per cent of the revenue generated will come from properties that sell for more than US$10 million.

The measure was backed by trade unions and housing advocates, including advocacy group United to House LA, the Southern California Association of Non-Profit Housing, and the Los Angeles County Federation of Labor. Critics argued that the transfer tax could make housing – including rental units – less affordable due to potentially higher buying costs for landlords.

In 2016, LA city taxpayers approved Measure HHH, a bond measure of US$1.2 billion, to finance more than 10,000 housing units for the homeless. The LA Housing Department said the measure has so far financed 3,420 completed units, with an additional 5,446 homes under construction. BLOOMBERG