Los Angeles mansion tax starts Saturday, adding costs to new development

LOS ANGELES (KABC) -- With Measure ULA set to kick in on April 1, Los Angeles may soon have hundreds of millions of new dollars available to use for affordable housing and homelessness programs.

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%.

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.

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.