Editorial: By doubling down on ‘mansion tax,’ Los Angeles earns its fate

For a brief moment, the Los Angeles City Council attempted to do something reasonable about the punitive “mansion tax” that voters overwhelmingly approved in 2022. That measure imposed a 4% transfer tax on the sales of real estate priced between $5 million and $10 million and a whopping 5.5% for properties that sell above that.

There’s been plenty of time to see that Measure ULA has resulted in troubling unintended consequences. It not only has produced far less revenue than expected, but it has quashed apartment construction, as epitomized in a Los Angeles Times headline last year: “Almost no one is building new apartments in Los Angeles.” The tax doesn’t only apply to pricey single-family homes, but to apartments and commercial projects.

Last year’s wildfires have exacerbated the city’s housing shortages, where median rents are pushing $2,200 for a tiny apartment. So Councilmember Nithya Raman last month proposed going back to the ballot with a motion to create a 15-year exemption “for newly constructed multifamily, commercial or mixed-use (i.e., multifamily and commercial combined).”

That made sense from a policy standpoint, but it also could have, as CalMatters reported, taken the wind out of a growing anti-tax ballot effort: “A growing caucus of Democrats and their political allies argue that local opposition to ULA has juiced political support for that more far-reaching anti-tax prop, one they see as a fiscal disaster.” But the council rejected this modest proposal, which leaves Measure ULA’s fate in the hands of that initiative campaign.

The Howard Jarvis Taxpayers Association sued the city over the mansion tax, arguing such steep transfer taxes violate the state constitution and the city’s own charter. A court of appeal rejected its arguments in December, but the group is collecting signatures for the Local Taxpayer Protection Act for the November ballot. It would cap transfer taxes at a modest rate and overturn a court decision that allowed local voter-backed special tax measures to receive a majority rather than supermajority vote for passage. These are needed reforms.

Opponents include the usual big-government suspects that benefit from uncontrolled taxation: public-sector unions, tenants’ rights groups and local government associations that see tax increases as the failsafe for their inability to control salaries, pensions and other spending. Its passage would spare other cities from Los Angeles’ fate. 

An April study from the UCLA Lewis Center for Regional Policy Studies found that the “tax does fall on mansions, but it also impedes the trade in commercial, industrial and multifamily property. In doing so it jeopardizes L.A.’s ability to build new housing, revitalize struggling commercial and industrial properties, and raise property tax revenue.” A review from California YIMBY (Yes In My Back Yard) found that “owners are either strategically pricing to avoid taxes or simply keeping their property, preventing new opportunities for building homes.”

Ironically, the funds are earmarked for homeless programs, but by reducing housing construction and driving up rents, Measure ULA arguably is worsening the city’s homeless situation. The City Council had the chance to alleviate some of the tax’s worst impacts, but instead followed the demands of the special-interest groups that always lobby for higher taxes. So now there’s nothing left to do than get your signature in to the Jarvis campaign by February 25.