LOS ANGELES (KABC) – With the start of Measure ULA on April 1, Los Angeles could soon have hundreds of millions of new dollars available to use for affordable housing and homelessness programs.
But real estate agents and developers say the so-called “villa tax” could actually slow the number of new apartment complexes being built in the city.
Voters approved the citywide tax last November, introducing an additional 4% tax on properties sold for $5 million or more. If the property is sold for $10 million or more, the tax increases to 5.5%.
A $10 million sale would require the seller to pay the city $550,000 in addition to all other taxes and fees associated with the sale of the property.
Proponents of the mansion tax say it will raise about $900 million each year that will be earmarked for subsidized housing, home acquisition and renovation, rent subsidies, and programs related to homelessness.
But the tax applies to any Los Angeles real estate sale that isn’t exempt — including not just mansions, but apartment complexes, retail and industrial buildings, and other structures, prompting some in the real estate industry to warn that developers will look elsewhere build.
“So you add another 5% to the equation – often the margins are very small. If they don’t have the incentive to build, and people aren’t going to build at a loss, we’re going to have less housing,” said David Kramer, president of Hilton & Hyland, a real estate agent that deals with homes that generally need more cost than $10 million.
And he does not refer to villas, but to apartments. Kramer says large complexes that rent homes can easily cost more than $10 million to build. Attaching potentially millions more in taxes will deter developers.
“If you include taxes plus commissions plus other taxes, potential sellers are looking at 11%,” said Aaron Kirman, CEO and founder of AKG/Christie’s International Real Estate. “And that’s a lot of money.”
However, a 2022 UCLA study addressed these concerns, noting that the potential impact of the mansion tax on new construction would be very limited.