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Sunday, Nov 27, 2022

‘Mansion Tax’ Will Be Voted On Nov. 8

Real estate executives are pushing against Measure ULA, a city proposal that if enacted would establish a 4% tax on the sale or transfer of properties in Los Angeles worth $5 million or more and a 5.5% tax on the sale or transfer of properties valued at more than $10 million.

The measure will be voted on in the upcoming Nov. 8 general election and seeks to use the tax proceeds on affordable housing and homeless prevention programs. It is not an ongoing property tax and would be enacted until ended by voters.

“It’s an egregious tax,” Matthew May, president of Sherman Oaks-based May Realty Advisors, said. May’s firm advises investors to acquire, lease and sell assets between the $2 million and $25 million range throughout the United States. He said the Measure ULA tax would decrease profits made from multi-million-dollar transactions.

“Why not tax transactions on the basis of the profit and not the sale price? The sale price has nothing to do with someone’s liquidity after the sale,” he said.

The point made by May is one shared by The Oppenheim Group Real Estate, which said in a statement that the measure would drive activity out of key parts of Los Angeles. 

“The tax is also limited to property located in the city of Los Angeles and thus fails to consider that developers and homebuyers could just leave Los Angeles for Beverly Hills, West Hollywood or any other city without this tax,” The Oppenheim Group said. “Or they might just decide to invest or buy in another state, as so many people are already doing.”

The West Hollywood real estate brokerage is active in the Valley region with a portfolio history in Calabasas. It, like May, is concerned about the measure’s effects on profit.

The Oppenheim Group provided a hypothetical example of a homeowner who earlier bought a property for $5.5 million and later sells it in a declining market for $5 million. “Not only will this homeowner lose $500,000, but they would also have to pay an additional Measure ULA tax of $200,000. Including existing closing costs of 6%, the homeowner would lose approximately $1 million,” the firm said in a statement.

The brokerage added that the measure would be a “veritable death blow” to high-end real estate and put pressure on real estate values at every price point. 

May echoed The Oppenheim Group’s statement, saying that the measure is not limited to the rich and that it may even impact the business of foreclosures, which are typically sales of homes that are auctioned to the highest bidder.

“You’ve got all these other triggers that were unintended that can hurt the property owner,” May said.

Other view

Proponents of the measure, such as Stephanie Klasky-Gamer, see things differently when it comes to who the measure will directly impact. Klasky-Gamer is the president and chief executive of LA Family Housing, a nonprofit focused on homeless and housing services. She sees the measure as one that will significantly reduce homelessness.

“This is a one-time recording fee that is going to affect less than 3% of residential sales in the city and that 3% are only sales of property over $5 million,” Klasky-Gamer said. “So, ordinary Angelenos are not going to be affected by this at all, except to benefit from the increased housing production, and resources to prevent Angelenos from falling into homelessness.”

The measure, referred to by some as the “mansion tax,” exempts certain housing, nonprofit and public entities from its tax and could generate approximately $600 million to $1.1 billion annually. The measure is also expected to provide emergency rental assistance to 5,100 households, income support to 13,000 households with seniors or disabled people, and legal counsel for 23,000 households facing eviction according to a white paper analysis of the measure conducted by the UCLA Lewis Center for Regional Policy Studies.

Klasky-Gamer added that opponents’ claims that the fee would be passed on to renters does not hold. 

“Landlords, whether they’re new or old, are charging rents as high as the market will bear right now. (The measure) is not a driver to increase rents in the market. Not having enough supply of housing, that’s what has driven up our rents,” she said.

In Los Angeles County, the average rent for new leases increased 18% in the last two years according to a report by Apartment List, an online marketplace for apartment listings. A separate report published in September found that rents fell 0.2% month-over-month but rose 7.6% year-over-year nationwide.

The analysis found no evidence that ULA would impact rents for commercial or residential tenants. It also found “very limited evidence” that the tax would impact some for-profit new construction projects.

“Developers are able to adjust their business models to minimize the impact of the transfer tax, and revenues from Measure ULA will fund the construction of a much larger number of deed-restricted affordable homes,” the analysis stated. “Real estate investors who buy to quickly resell — the harmful practice of ‘flipping’ — may be more impacted, which we view as a bonus.”

Measure HHH ‘failure’

Opponents are concerned about the follow through of the measure. Comparisons have been made to former initiatives such as Measure HHH, which was a $1.2 billion bond measure that allowed for the construction of 10,000 units of affordable housing for homeless people and those in danger of becoming homeless. The measure is still in progress.

The Oppenheim Group criticized Measure HHH in a statement, considering it a failure to reduce homelessness and a reason not to trust the city with a far-reaching measurement. 

Klasky-Gamer does not agree and said that the measure has produced more housing than expected, a stance backed by the UCLA analysis paper, which stated that HHH is on pace to exceed its goal before it sunsets in 2026.

“I think ULA has an opportunity to build on the successes and lift up the most innovative components that were (in) triple H,” Klasky-Gamer said. 


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