One of the biggest reasons middle-class families leave California each year is the unaffordable cost of housing. The Democratic Party, which controls Los Angeles, tried to address this problem by passing a “mansion tax” that would fund “affordable housing” projects. But like everything else Democrats do in California, the plan backfired, causing residential building construction to plummet, thus raising housing prices even further.
Sold to voters as a tax on “mansions,” what the measure really does is impose an extra 4% levy on almost all properties sold between $5 million and $10 million and a 5.5% tax at properties sold for $10 million. These include not just large homes in Bel Air, but also gas stations, commercial real estate, condominiums, and apartment complexes.
Los Angeles real estate brokers say the $5 million threshold means the new ULA tax will hit just about any apartment complex with over 15 housing units. This has discouraged lenders from offering mortgages on, and developers from building, the very multifamily projects the city needs more of to reduce housing costs. Since nearly two-thirds of homes in Los Angeles have asking prices of at least $1 million, working-class families must often rent multifamily homes to live in. CoStar analyst Ryan Patap noted that developers are further discouraged by the city’s “broader political shift in the city that’s more supportive of restrictions on landlords and more supportive of protections for tenants.”
Around the state as a whole, multifamily housing has trended above the national average. Whereas new multifamily housing permit authorization fell nationally by nearly 19% from 2022 to 2023, California’s only decreased by 5%. But in Los Angeles County, authorizations dropped by 19%, and in LA city, they slumped by a staggering 24%. The mansion tax appears to be to blame.
In the short term, the tax has generated just $215 million, less than half the $672 million in revenue the ULA’s proponents projected. High-interest rates are partly to blame for sluggish home sales, but in Los Angeles, sales of single-family homes worth more than $5 million cratered by 68% since the tax went into effect, far more than the 19% they have fallen nationwide.
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Supporters have bragged that the legislation has already funded $23 million on eviction protection and tenant outreach and $28 million on aid to distressed tenants and landlords, but neither of these programs do anything actually to lower rents for working families.
The real protection Angeleno tenants need is from a Democratic Party that is constantly passing new regulations and higher taxes that make new home and apartment construction more expensive. Until Los Angeles voters start electing leaders whose motto is “Build baby build,” they can only expect their existing housing crisis to get worse.
