Mansion Tax Reform Still Appears a Pipe Dream

If the chair of the Los Angeles City Council’s committee on Measure ULA has her way about the future of the so-called mansion tax, the real estate industry should brace itself.

Los Angeles City Council Member Ysabel Jurado, who represents the city’s 14th District and chairs the ad hoc committee on ULA, kicked off the three-member body’s final meeting on Friday with a strong statement.

“After weeks of hearing testimony, reviewing data and listening to stakeholders across the sectors, I just don’t believe the city should move forward with a ballot measure [amending ULA] at this time,” Jurado said, offering a vague notion of adjusting the law with various administrative and technical moves instead.

The full City Council would have final say on any administrative or technical changes to Measure ULA, along with whether or not to create a ballot measure.

Jurado used the final meeting of the ad hoc committee to take a jab at those advocating for the tax’s repeal or strong amendments. Measure ULA is not about “the well-connected [and] the wealthy” but about keeping people housed and addressing affordability, she said.

The measure — which was approved by voters and went into effect in 2023 — puts a 4 percent tax on both residential and commercial real estate deals in the City of Los Angeles starting at $5.3 million. It goes up to 5.5 percent on sales of $10.6 million or more. The price thresholds that trigger the so-called mansion tax will change slightly — to $5.4 million for the 4 percent tax and $10.9 million for the 5.5 percent charge — with the city’s new fiscal year on July 1.

Local developers, investors and some members of the City Council have expressed concerns that the tax is stifling new development, especially in the residential sector. The City Council formed the ad-hoc ULA committee to discuss possible amendments to the tax. Along with Jurado, the committee includes council members, John Lee and Imelda Padilla, who represent the 12th District and 6th District, respectively.

Cityview CEO Sean Burton called the committee’s Friday decision to not recommend a ballot measure adjusting the tax “disappointing but not surprising.”

“We need less talk and more action… ULA is the number one factor why new housing isn’t being built in L.A.,” Burton said. “All Angelenos will continue to pay higher and higher rents until more housing units of all kinds can be built.”

Given this was the final meeting for the group, which began holding sessions in late March, the lack of a clear path forward was surprising. The group could have voted on motions submitted by various council members — which were included in the meeting agenda — with several proposing exemptions to the tax. The committee members voted to “note and file” in most cases.

They did move forward on voting on motions concerning the experience of members of the House LA Citizens Oversight Committee (a separate group that provides insights on ULA) going forward and several requests for additional research and reports from city staff.

One of the motions that called for exemptions came from Lee, who proposed the committee recommend a ballot measure for the Nov. 3 election that would give voters a say on reducing the transfer tax to between 2 percent and 3.5 percent for multifamily and mixed-use properties, among other tweaks.

Jurado added amendments to this motion and the committee voted to note and file.

Council members Traci Park and Padilla proposed that a one-time, five-year exemption from the Measure ULA tax for residential property owners impacted by the Palisades fire be put on the ballot for voters. The committee voted to postpone discussion.

Any further discussion on the Park-Padilla motion would seem bound for the full City Council or another committee, given that the ad hoc committee has ostensibly dissolved.

Even if exemptions or carveouts were to come to fruition, some industry players still see repeal as the only option.

Christopher Bonbright, managing director and principal of Avison Young’s capital markets group in Los Angeles, said suggestions — such as Council Member and mayoral candidate Nithya Raman’s 15-year exemption for new or “substantial rehabilitation” of multifamily, commercial and mixed-use projects — won’t move the needle. He called the proposal “window dressing” and said 15 years is not a long time in the real estate world.

“It needs to be repealed. Period,” Bonbright said. “…It’s a lose-lose. You destroy the market on one hand, and then on the other hand, you’re giving money to the [city] which has proven that they’re just not good at [funding] the housing that they’re trying to create.”

Bonbright pointed to publicly-funded affordable housing projects that cost $800,000 to $900,000 per unit to build.

A separate discussion in the meeting involving property taxes offered a split view on ULA’s impact. Reports from the city’s chief legislative analyst office acknowledged that since ULA’s implementation there had been a decrease in transfer tax revenue per month but said similar declines also were seen in Glendale, Long Beach, Pasadena and Santa Clarita.

“It is not clear to our office that this reduction in documentary transfer tax revenue is actually being caused by Measure ULA,” Henry Flatt, legislative analyst at City of Los Angeles, said.

On the other hand, a report from the L.A. County Assessor showed that since ULA went into effect, property tax revenue growth in the city of Los Angeles has had a “definite decline.”

“Very specifically, we see a huge impact on the commercial and industrial side,” Scott Thornberry, assistant assessor for Los Angeles County, said at the meeting. “… That drop is not happening outside of L.A. city.”

All this back and forth could end up moot if a ballot initiative put forth by the Howard Jarvis Taxpayers Association to cap transfer taxes, among other issues, is successful in November.