Millionaire home sellers are slashing prices and sweetening deals this week in Los Angeles, eager to move their properties off the market before a new real estate tax aimed squarely at the rich goes into effect on April 1.
In November, Los Angeles voters backed Measure ULA, a transfer tax on big-ticket property sales that the city says will generate a new revenue stream for affordable housing projects and homelessness prevention. Known colloquially as the “mansion tax,” Measure ULA will impose a 4 percent tax on property sales above $5 million, and a 5.5 percent tax on properties above the $10 million mark.
The tax must be paid by the seller.
The city’s homelessness crisis has ballooned in recent years: Tent cities have popped up in parks, on sidewalks and under freeways. An estimated 42,000 people were homeless in the city of Los Angeles during a point-in-time canvas in February 2022, according to Los Angeles Homeless Services Authority. In 2016, the number was closer to 28,000.
A coalition of housing advocates and labor unions campaigned to put Measure ULA on the city’s Nov. 8 ballot, and the measure passed with 57 percent of the vote. Its proponents initially estimated that the tax would raise up to $1.1 billion for affordable housing initiatives, but this week the city lowered that estimate to $672 million.
Top brokers and real estate agents say the tax is not only shortsighted, but it has prompted a frantic sell-off among the city’s upper echelon of homeowners.
Some top agents are offering jaw-dropping deals to help their sellers close property transactions before the tax goes into effect. Jade Mills, a luxury broker for Coldwell Banker in Beverly Hills, and Josh Altman, a luxury broker with Douglas Elliman and a regular presence on Bravo’s “Million Dollar Listing,” are offering any agent a $1 million bonus if they can bring in a buyer by April 1 for a seven-bedroom Bel Air estate priced at nearly $28 million.
“It’s created a bit of a frenzy, with people trying to beat the April 1 date, and lots of opportunities for buyers looking for value,” said Tyrone McKillen, a broker with the luxury agency Official. Mr. McKillen said he has seen a huge spike in buyers looking to close by March 31 and using the looming deadline as leverage for offering a lower purchase price.
“I even just sold my personal home,” he said.
Advocates for people experiencing homelessness see the tax as a way to begin chipping away at an intractable crisis.
Before the vote, the editorial board of The Los Angeles Times endorsed the measure. “Lack of housing is a driver of poverty that leaves many low-wage workers living on the edge. California has the nation’s highest poverty rate because of the high cost of living, and primarily the high cost of housing,” the editorial board wrote.
The Los Angeles Times also noted that the measure is likely to affect only about 4 percent of all property sales in the city of Los Angeles.
But in the inflated Los Angeles housing market, a $5 million home was not necessarily owned by millionaires, Mr. Altman said.“$5 million isn’t a mansion in Los Angeles, just like it isn’t a mansion in New York City,” he said. “It’s a 4,000-square-foot modern house in West Hollywood.”
Mr. Altman said he would be more supportive if the tax was applied equitably to all homeowners.
“How do you tax a certain group of people, rather than everybody? Why not make it across the board? If you sell your house, no matter what the price is, 1 percent could go to helping the homeless and building affordable housing.”
And other opponents of the tax say it could backfire by prompting developers to look beyond the city limits when building housing units because the tax will apply to all real estate transfers, including commercial and multifamily properties. “We have a housing crisis. And we’re de-motivating developers to develop housing. So it makes absolutely no sense to me,” Mr. McKillen said.
Measure ULA stipulates, however, that property transfers to nonprofits, community land trusts and housing cooperatives will be exempt from the additional tax.
This is not the first time Los Angeles has sought tax revenue to help solve the homelessness crisis.
In 2016, the city passed Proposition HHH, a $1.2-billion city bond measure designed to help build thousands of affordable housing units. But the process has been sluggish, and of about 12,000 planned units, only about a third are completed, with prices skyrocketing: A 2022 audit found that some of those units cost more than $800,000 to build. In the meantime, the city’s homeless population has grown by 45 percent since the proposition passed.