Rising interest rates have put a chill on real estate sales across the country, but an added factor has put the freeze on the Los Angeles luxury housing market.
Last fall L.A. voters approved a measure known as the “mansion tax” (formally referred to as United for Housing L.A. or ULA) to “fund affordable housing projects and provide resources to tenants at risk of homelessness,” according to the Los Angeles Office of Finance. Ever since it went into effect luxury home sales have stalled out in the city.
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Starting on April 1, the measure instituted a 5.5 percent charge on commercial and residential sales above $10 million and 4 percent on properties over $5 million. Homeowners raced to sell properties before the policy began—slashing prices and luring potential owners with bonuses and even exotic cars to move the houses before March was done, according to the Los Angeles Times.
Once April 1 hit, many luxury properties were yanked off the market and the ones still on the market have skyrocketed in price to account for the transfer tax. In March, 126 homes priced above $5 million sold, but since then that number of has plummeted. The two, in Brentwood and Venice, sold for $5.7 million and $7.5 million, which raised over half of a million dollars for the homelessness prevention program.
Many luxury homeowners are holding on to their properties as the wait out two lawsuits against the city that hope to get ULA thrown out. Other sellers are trying to find loopholes in the measure, including selling a single property as smaller, cheaper properties. While some are taking the broker’s fee out of the sale price so it falls below the threshold.
While this tax originally projected $900 million a year in revenue a year for the city, based on 2021 and 2022 sales data, those estimates have been revised down to $672 million. But for now, Mayor Karen Bass is hedging her bets, putting forward a city budget that only projects $150 million from the program.