In 2022, Los Angeles voters approved the ULA, a transfer tax on city-wide sales of high-value properties. Ula nickname luxury home tax, Ula taxes sales over $5 million and sales over $10 million, one of the steepest taxes in the United States. Its income is dedicated to low-income housing programs.
ULA’s taxes are paid by the seller, which explains why Mayor Karen Bass It is recommended to pause it After the wildfire. The mayor is right to worry. Pacific Palisades’ property is usually worth more than $5 million, which raises fears that taxes could punish owners who lose everything and just want to sell and move on. But the problem of measuring ULA is deeper. Whether it is suspended requires reform.
Despite its nickname, Ula is not only a tax on luxury homes. It is suitable for almost all properties priced over $5 million, including apartment buildings, offices, soundstages, hotels and shopping centers – Angelenos Live, Work and Shop.
Furthermore, ULA is not a profit tax. It is based on the sale price. As a result, the owner of an office building fell 90% of its value because of Covid-19-19- Despite the total losses of the owner, Covid-19-19 could be sold for $15 million and a ULA tax of $825,000. On the other hand, people who bought a house for $500,000 a decade ago sold a sum of money today for $1.5 million. The ULA’s design means that large losses can be taxed significantly, while large gains do not have SCOT.
The size ULA also has a steep “cliff” – the price is small with a price increase triggering a huge tax increase. A property that sold for $5 million is not taxed, but a property that sold $200,000 was paid. Such cliffs create strong incentives for owners to avoid taxes.
The easiest way to avoid taxes is to not sell them, and Our research It shows that high-value real estate sales in the city have dropped by about 50% in the first two years since the ULA was implemented, much higher than elsewhere in the same period. Higher interest rates and construction costs should not be attributed to the decline – these conditions affect the entire region. Although there was a temporary “rush to sell” before the implementation of the ULA, our analysis explains this behavior. A 50% drop is the effect of ULA.
Repressed sales mean ULA generates less revenue. Supporters estimate that ULA will raise $600 million to $1.1 billion a year. So far, the average collection is only $288 million a year, less than half the lowest forecast.
In addition, by reducing large sales, ULA slowed down production of market interest-rate apartments. Most multifamily developments involve buying the right website and then selling finished buildings. ULA can greatly increase the cost of these two transactions. And, as most market rate housing developments now include some affordable apartments provided by developers in exchange for increased project size, Los Angeles is also becoming less and less. Conservatively, we estimate that ULA loses over 1,900 new units in the city each year, with at least 160 of which will be affordable units without public funding. Meanwhile, ULA income collected from newer multifamily programs is only sufficient to subsidize half of that number because taxes are in effect. Unnecessary Ula’s design is insufficient cost City affordable housing.
The impact did not stop the housing. Ula has it too Large transactions slow down Used in commercial, industrial and office properties. This impact, coupled with a slowdown in residential transactions, is hampering property tax growth. Under California’s property tax system, local revenues mainly increase when real estate is reassessed for sale. Large transactions contribute disproportionately to this growth. More than $5 million in sales accounted for just 4% of all transactions, but accounted for more than 40% of the city’s tax base growth. Over time, fewer large transactions mean less funding to all public institutions and programs that rely on the Los Angeles tax base: schools, community colleges and counties and their safety net programs.
Although the vote language of the measure ULA has great restrictions on the power of the council to modify, ULA yes Can be fixed. The most effective way is probably national action. State governments almost always have the right to revoke or modify local actions, and transfer taxes can be said to be a matter of national interest because they have a direct impact on California’s housing goals and overall fiscal health.
Targeted state legislation could reduce the negative impact of the ULA while retaining its goal of raising funds to help low-income renters. Options include limiting taxes to single-family homes (making them a true luxury home fax), adopting marginal rates to eliminate the “cliff” (similar to income tax), or limiting the ULA to real estate that has not been sold or improved over the years; sales of these properties are more likely to represent huge surprises for sellers, which do not destroy housing and create jobs.
Los Angeles needs effective housing and economic policies, especially as we recover from the January wildfires. This means balancing the urgent need for new income with policies that encourage new housing and jobs. The current structured measurement ULA makes this balance more difficult to achieve. It could be a better tool – a tool to realize voters’ hopes for more affordable housing, strengthen local economies and protect the social and financial foundations of the region.
Michael Manville is a professor of urban planning at the University of California, Los Angeles (UCLA) and an affiliate scholar with its Lewis Regional Policy Research Center. Shane Philips is Housing Planning Manager at the Lewis Center. Jason Ward is co-director of the Rand Center for Housing and Homelessness.
