The Los Angeles City Council Tuesday referred a proposal to amend the so-called “mansion tax” to two committees for further discussion.
Councilwoman Nithya Raman, chair of the Housing and Homelessness Committee, introduced a proposal Friday to alter Measure United to House ULA via a June ballot initiative that would include exemptions for newly constructed multifamily, commercial and mixed-use buildings from the tax for up to 15 years, and exempt properties impacted by natural disasters like the Palisades Fire from the tax for up to three years.
The proposal would also encourage traditional lenders in funding ULA-funded affordable housing projects by changing financing terms, allow affordable housing groups first rights on buildings being sold, and require the city attorney to complete legal review of Measure ULA-related actions within 90 days of City Council approval.
“Measure ULA is one the most consequential housing policies Los Angeles voters have ever approved,” Raman said.
Voters approved Measure ULA in November 2022. It went into effect in April 2023, placing a 4% tax on property sales above $5 million and a 5.5% tax on sales above $10 million. The tax is not just for mansions but apartments, commercial buildings and other developments at and above $5 million.
Proponents of the measure celebrated the first $1 billion raised by the tax in early January. Money from Measure ULA funds programs supporting affordable housing production and homelessness prevention.
But Raman said Measure ULA has resulted in unintended consequences that hampered the production of housing. Studies, including one from UCLA, have shown that the measure slowed apartment construction. The studies estimated that ULA is preventing the construction of at least 2,000 market-rate units a year, as well as hundreds of affordable units.
“These studies have compared sales and permits in the city of LA with comparable jurisdictions in LA County, and found steeper declines in LA city,” Raman said.
Shane Phillips, housing initiative manager at the UCLA Lewis Center for Regional Policy Studies, told City News Service in an email that sales of properties have fallen much more than in other cities in Los Angeles County — about 50% more.
“Bottom line: Taxing privately funded mixed-income apartments to subsidize publicly funded apartments is lowering the supply of affordable housing in the city, and it’s making housing more unaffordable for everyone by worsening the housing shortage,” Phillips said.
“Measure ULA is known as the `mansion tax,”’ but ironically mansions are the only housing type we’re building significantly more of since 2022 — permits for single-family houses are up roughly 40%. Multifamily permitting is down about 40%.”
Councilwoman Monica Rodriguez criticized Raman for supporting Measure ULA in the first place.
“We knew that these were the implications. For many of us when we were having these conversations around ULA, and we’ve been calling it out for, oh well, over a year. But it was convenient to ignore it when the money was being doled out to different initiatives that people wanted to support,” Rodriguez said.
Rodriguez said her colleagues should show the same urgency to examine the city’s homelessness spending. The councilwoman has introduced a motion to explore the creation of a homelessness department to centralize that work.
“It’s been sitting for 280 days, a report, in your committee that you won’t hear,” Rodriguez said. “So let’s stop playing this false notion of the arsonists showing up as the firefighters.”
Joe Donlin, director of United to House LA, the coalition that campaigned for the passage of Measure ULA, criticized Raman’s proposal, warning that it would weaken a critical tool to help with the homelessness crisis.
He said it was irresponsible to propose changes without an analysis of how much it would cost or to engage with affordable housing advocates.
“ULA is working, and the rest of LA’s real estate market is rapidly adjusting to it,” Donlin said in a statement. “It would be catastrophic to give away LA’s best tool in the fight against the housing crisis as a developer tax break because of sloppy math and a rush to judgment.”
Some affordable housing advocates and tenant rights groups rallied outside of City Hall to oppose Raman’s proposal.
Meanwhile, Azeen Khanmalek, executive director of Abundant Housing, told council members that while he supported Measure ULA, he also backed Raman for “doing a difficult thing, pushing forward an important but controversial conversation.”
“I sincerely hope that with the additional time afforded by referral of this ULA motion to committee, all stakeholders can constructively work together to find a solution that facilitates housing production and potentially raises additional revenue to keep these critical funds whole,” Khanmalek said.
Phillips shared Khanmalek’s sentiments, noting that while he supported Measure ULA, the unintended consequences exceeded his expectations.
“But as I’ve said many times, the worst impacts are easy and not very costly to fix,” Phillips said, noting that 6%-8% of revenues come from multifamily buildings 15 years old or less, and insisting that exempting such projects would likely bring a lot of them back that were made infeasible by Measure ULA.
“It’s a small price to pay, considering we can barely fund 100 units of subsidized housing with 6% of ULA revenue. And if we don’t restore homebuilding in the city, there’ll be even fewer new projects to tax in the future. The other changes, including making it easier for lenders to issue debt to ULA-funded projects, are also important and very welcome,” Philips added.
The council ultimately agreed to refer the matter to the Budget and Finance Committee, and the Housing and Homelessness Committee for further discussion.
Critics of Measure ULA have argued the tax has slowed commercial development and property sales and hurt the availability of affordable housing. The Howard Jarvis Taxpayers Association has argued that Measure ULA violates both the state Constitution and the Los Angeles City Charter.
The association is working to qualify an initiative for the November ballot that would repeal Measure ULA and other real estate transfer taxes higher than 0.11%.
“Councilwoman Raman’s proposal is irrelevant to HJTA’s efforts,” Susan Shelley, vice president of communications for the association, said in an email to City News Service.
The association believes Measure ULA is an invalid tax and the group has petitioned the California Supreme Court for review of the recent appellate court decision that upheld it.
“Regardless of any changes to Measure ULA that the City Council may propose or enact, the Howard Jarvis Taxpayers Association intends to qualify and campaign to pass the Local Taxpayer Protection Act to Save Proposition 13.
“Courts have carved costly loopholes in the taxpayer protections that the people of California placed in their constitution, specifically Proposition 13’s ban on new real estate transfer taxes and the requirement for a two-thirds vote of the electorate to pass local special taxes. HJTA is fighting to restore these protections,” Shelly told CNS.
The association and supporters of their initiative are collecting signatures. Shelley said they are on track to turn in more than enough valid signatures to qualify the initiative for the November ballot by the Feb. 25 deadline.
“Proposition 13 banned new transfer taxes because Howard Jarvis recognized the danger that local governments would improperly seek to treat Prop. 13 as a property tax deferral and not as a property tax reduction. The prohibition on transfer taxes was intended to ensure that local governments would not confiscate the equity of Californians who sold their property,” Shelly added in her email.