The History of Measure ULA: What Is the Mansion Tax?

The LA real estate landscape has undergone significant changes with the introduction of Measure ULA, commonly known as the "Mansion Tax." Passed in 2022 and implemented in April 2023, this tax was promoted as a solution to address the city's mounting housing crisis and homelessness. While initially marketed as a "tax on the rich", its reach extends beyond mansions to include multifamily properties and commercial real estate. Let’s break down the history of the tax, its financial expectations, how much it has collected so far, and where the money is coming from—and going.

How Much Was Measure ULA Expected to Generate?

When Measure ULA was introduced, it was projected to generate a significant amount of revenue, with estimates ranging from $600 million to $1.1 billion annually. This revenue was earmarked for vital city initiatives, particularly the construction of affordable housing units, rental assistance programs, and other efforts to address homelessness. Voters were drawn to the promise of nearly a billion dollars in revenue that could help solve some of the city's most pressing issues.

Reality Check: How Much Has the Mansion Tax Collected?

Despite its lofty goals, the reality of Measure ULA’s financial performance has been far less impressive. As of September 2024, the tax had collected approximately $375 million—well below the initial projections of $600 million to $1.1 billion annually.

1. Slowdown in Property Sales: Many property owners, particularly those with high-value homes, have delayed selling due to the significant tax imposed by Measure ULA. According to the LA times, the luxury single-family home market saw a 68% reduction in transaction volume in the 12 months following the passing of Measure ULA. Some areas like Beverly Hills, Santa Monica, and Malibu saw sales drop by 20%+.

2. Avoidance Strategies: Property owners have used various legal strategies to minimize the impact of the tax. This includes breaking up property sales into multiple smaller transactions or selling just under the $5 million threshold to avoid triggering the tax.

Where Is the Money Coming From?

• Single-Family Homes - 46%: As initially advertised, luxury homes were expected to be the largest source of revenue. However, this sector has not performed as anticipated. While some transactions have gone through, many owners of high-value homes have opted to hold off on selling, reducing the overall volume of sales in this category.

• Multifamily (13%) and Commercial Properties (31%) - 44%: Surprisingly, a significant portion of the collected revenue has come from multifamily buildings and commercial real estate sales. With rising interest rates, the potential of further legislation negatively impacting landlords, and a razor-thin bottom line, a growing number of long-time mom-and-pop investors and investment funds are cashing out of the market and seeking higher returns in out-of-county areas.

• Land (5%) and Mixed-Use (5%) - 10%

Where Is the Money Going?

Despite falling short of the $600 million to $1.1 billion per year initially anticipated, the funds raised are still substantial enough to significantly support a wide array of ambitious initiatives. These include programs long championed by housing and tenant advocates, such as funding for resident-managed housing complexes, legal assistance for tenants facing eviction, financial aid for rent-burdened seniors and disabled individuals, and various measures aimed at protecting renters from harassment. This resource allocation, though lower than projected, remains pivotal in addressing housing instability and tenant protection needs.

A recent report published by researchers from Occidental College, UCLA, and USC offers insights into the effects of Measure ULA. The findings highlight several notable outcomes stemming from the tax's implementation:

• $54.7 million has been allocated to support the construction of 795 affordable housing units, aiming to address the growing housing crisis.

• $24 million has been distributed in rent relief, benefiting 4,652 tenant households, helping to stabilize renters at risk of displacement.

• The StayHousedLA program expanded its reach, providing full legal representation to 1,262 Los Angeles tenants facing eviction, and offering limited legal advice to an additional 3,387 tenants in 2023.

These figures reflect Measure ULA’s significant impact on housing and tenant protections in Los Angeles, although the initiative continues to evolve as funds are dispersed and more programs come into effect.

What's Next for Measure ULA?

Measure ULA has had a significant impact on the Los Angeles real estate market, particularly in the luxury and multifamily sectors. For high-end property owners, the Mansion Tax has made selling far less attractive, reducing the number of available properties on the market. Developers, too, have paused or canceled plans for new projects due to concerns about the financial impact of the tax on their margins. For multifamily investors, the tax has created new challenges. With profit margins already under pressure from rising costs, the added burden of the Mansion Tax has made it harder to generate strong returns. Investors must now factor this tax into their overall investment strategies, carefully evaluating potential sales to ensure they can still meet their financial goals.

While it was initially presented as a powerful tool to fund affordable housing and homelessness prevention, the reality has been more complicated. With slower-than-expected revenue generation and the ripple effects on high-end and multifamily property sales, the long-term impact of this tax remains to be seen. As the city continues to grapple with its housing and homelessness crises, city officials may need to revisit the measure and find ways to boost revenue.