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Property Owners, Developers Brace for Impact of New 'Mansion Tax' in Los Angeles

Money generated by the new tax on properties sold for $5 million or more will be used to assist the city's homeless population

A new tax sparked a property sell-off in Los Angeles as the city looks to fund new initiatives to support the city’s homeless population, including the construction of new affordable housing. 

Under Measure United to House LA, homes that sell for over $10 million will be subject to a 5.5% tax. Houses that sell for $5 million or more are subject to a 4% tax. The revenue generated by the new tax program will cover the costs of new subsidized housing, housing acquisition and rehabilitation programs, rent subsidies as well as other forms of assistance offered to homeless people.  

The tax is applied not just to private homes but also to the sale of apartment complexes, retail buildings, and industrial properties. Advocates for the so-called “mansion tax” estimate the new policy will generate $900 million annually. 

Real estate experts and developers are not sold on the initiative, which they believe will deter growth and new investments in the city. Property owners have started scrambling to off-load expensive homes before the tax went into effect on April 1.

A seller whose home sells for $10 million will be obligated to pay the city $550,000 in addition to other taxes and fees, per ABC 7.

Measure ULA was passed in November with support from 57% of voters. 

In its endorsement of the proposed tax, the Los Angles Times wrote that there is “no greater crisis in Los Angeles than the lack of housing” and that Measure ULA would “give the city a way to improve this situation by creating a robust and steady stream of funding to create and preserve affordable housing through a tax on high-dollar real estate transfers.”

ULA is designed to address the lack of affordable housing, which has fueled the homelessness crisis,” stated the publication. “More broadly, this lack of housing is a driver of poverty that leaves many low-wage workers living on the edge. California has the nation’s highest poverty rate because of the high cost of living, and primarily the high cost of housing.”

The full impact of the tax remains to be seen, although it is widely believed the additional cost will drive development in areas outside the city limits.

According to House Digest:

Something many people don’t realize about Los Angeles is that many of its iconic hotspots, like West Hollywood, Beverly Hills, and Culver City, are not just sought-after places to live. Many of these are actually incorporated cities of their own, with their own police forces, governments and local legislation. With this new tax now in effect, neighborhoods like Beverly Hills, which are not part of the city of L.A., but are part of L.A. county, will be considered even more valuable, as homes here are not affected by this new transfer tax. 

…  Although this law has just taken effect, it is also likely that builders and developers will move some of their luxury homebuilding work away from areas like the Hollywood Hills and Bel Air and prioritize projects in Beverly Hills and West Hollywood.”

There are approximately 42,000 homeless people living in Los Angeles.

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