But real-estate brokers and developers say the so-called "mansion tax" may actually slow the number of new apartment complexes being built in the city.
Voters approved the citywide tax last November, implementing an additional 4% tax on properties that sell for $5 million or more. If the property sells for $10 million or more, the tax goes up to 5.5%.
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On a $10 million sale, the seller would have to pay the city $550,000 on top of all the other taxes and fees involved in selling the property.
Supporters of the mansion tax say it will raise about $900 million each year that will be earmarked for subsidized housing, housing acquisition and rehabilitation, rent assistance and homelessness-related programs.
But the tax applies to every real estate sale within Los Angeles that is not exempt - including not just mansions, but apartment complexes, retail and industrial buildings and other structures, causing some in the real-estate business to warn that developers will look elsewhere to build.
"So you add another 5% onto the equation - a lot of times the margins are very thin. If they don't have the incentive to build, and people aren't going to build for a loss, we're going to have less housing," said David Kramer, president of Hilton & Hyland, a real-estate broker that deals with homes that generally cost more than $10 million.
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And he's not referring to mansions, but to apartments. Kramer says large complexes that lease out homes can easily cost more than $10 million to build. Tacking on potentially millions more in taxes will scare developers away.
"When you include the tax, plus commissions, plus other taxes, potential sellers are looking at 11%," said Aaron Kirman, CEO and Founder, AKG/Christie's International Real Estate. "And that is a lot of money."
But a 2022 UCLA study looked at those concerns and determined the mansion tax's potential impacts to new construction would be very limited.