Two Years In, Los Angeles’ ‘Mansion Tax’ More Controversial Than Ever

April 1 marked two years since Los Angeles’ Measure ULA tax took effect and forced owners of the city’s distressed office towers to rush property sales to avoid the extra loss. It’s an anniversary that many in Southern California’s real estate industry still wish was just an elaborate April Fools’ prank. 

Two years, multiple thwarted lawsuits and hundreds of millions of dollars of revenue later, Los Angeles’ “mansion tax” is still the object of both praise from its supporters and disdain from its opponents, who argue the tax makes the cost of doing business in the city far too prohibitive. Yet even as ULA revenue surpasses $630 million, reports indicate commercial deal volume in L.A. is declining significantly as property sellers seek to avoid the tax. 

Measure ULA, which took effect in April 2023 following a November 2022 ballot referendum, installed an additional 4 percent tax on all property sales of at least $5 million, and a 5.5 percent tax on those of at least $10 million — stacked on top of the base tax of $2.25 per every $500. The ULA price threshold has since been raised to $5.15 million and $10.3 million, respectively, with another raise scheduled to take effect at the end of June.  

The result after almost two full years? Nearly $632.6 million from 939 transactions as of March, according to the city’s ULA dashboard, 54 percent from single-family deals. Although that figure is fractional compared to the city’s initial yearly projections, revenue collected in 2024 outpaced that of 2023. 

Those funds are expected to be a serious cudgel against the city’s affordable housing and homelessness crises, for which the tax was explicitly conceived. Indeed, the L.A. City Council at the end of last year approved guidelines for how it could use a chunk of the collected funds, about $168 million for the 2024-2025 fiscal year.

Yet, nothing in this life comes free. Despite the pool of money so far collected by the tax, the volume of non-single-family deals in L.A. has tanked in the years since it was enacted, according to a recent study by the UCLA Lewis Center for Regional Policy Studies. The study surveyed L.A. sales data from 2020 to 2024 via two metrics: quantity and price. The quantity analysis found a 30 to 50 percent decline in the amount of deals since April 2023, while the price analysis found that the odds that a deal would occur above the tax’s price threshold dropped by 50 percent since the measure went into effect. 

Such profound declines have downstream implications for not only development volume, particularly merchant developers who build a project and quickly flip it, but also for the city’s property tax revenue. Volume decline stemming from Measure ULA has resulted in an annual loss of about $25 million in property tax revenue, per UCLA’s estimate — a figure the university expects will compound if the law isn’t reformed. 

At the end of the day, few investors are eager to pay additional taxes when they could just do business elsewhere. That includes Henry Manoucheri, chairman and CEO of Universe Holdings, which owns nearly 50 properties mostly across California, but also in New Jersey and Florida. Manoucheri told Commercial Observer that his firm sold multiple properties in L.A. in 2022 and 2023, before ULA went into effect, but hasn’t sold any in the city subject to the tax since then, and hasn’t purchased any in L.A. for over three years. 

“We’ve had properties that we have considered selling in L.A., last year and this year, but we’re not going to transact because we don’t want to pay this onerous … exit tax,” Manoucheri said. “Better to just do nothing, sit back, and wait for it to get repealed someday. … People don’t want to sell. And if they are selling, it’s because they have to sell, they don’t have a choice, or they have a very low basis.”

Even some L.A. city officials appear more eager to reassess the measure and its effectiveness. Mayor Karen Bass in March said that her office was investigating ways to temporarily suspend ULA, to assist residents of Pacific Palisades who lost their homes to the L.A. wildfires earlier this year. Bass has since walked those comments back, and it’s not clear if and how the city could pause the measure beyond a fresh voter referendum even if it wanted to. 

Yet, Bass, who made fighting the city’s housing affordability and homelessness a key priority for her administration, has never publicly advocated for the tax. Although she applauded a judge’s decision in late 2023 to dismiss a lawsuit against ULA, neither she nor former political opponent Rick Caruso endorsed the tax during their 2022 mayoral race — a savvy political move, given that the promises behind the tax were vast and the opposition fierce. 

Proponents of Measure ULA, which included a coalition of renters rights groups, labor unions and affordable housing developers collectively dubbed United to House L.A., said in the lead-up to the late 2022 voter referendum that the law could help fund the development of as many as 26,000 affordable units within just 10 years, along with providing rental assistance, eviction defense and other homelessness prevention initiatives. 

The amount of units funded by ULA revenue to date isn’t clear, but a study last April by UCLA, the University of Southern California and Occidental College found that the tax had funded the construction of about 800 units within its first year. While the amount of funded projects is likely to increase over time, that figure is still well below the 10-year trend line. 

The city’s projections for how much money the tax could pull in were also, in retrospect, wildly off base. Initial estimates claimed that revenue could generate between $600 million to $1.1 billion in the tax’s first year alone — a figure that the city readjusted in its 2023-2024 adopted budget with a $604.6 million projection. Yet two years later, the tax’s revenue has only just broken past that number. 

Much of the overestimation has to do with the timing of the initiative, according to Loretta Thompson, an L.A.-based real estate attorney for international law firm Withers. ULA was conceived in the aftermath of the pandemic, when federal interest rates were low and there was a flurry of investment activity as markets buzzed with post-COVID energy. As inflation climbed, and interest rates rose along with them, it wasn’t long after ULA’s referendum that investment activity across the country, and L.A. in particular, shifted back into neutral. 

“It would have made more sense to not [initiate ULA] at such a high rate, and then reserve the right to change that rate as time went on,” Thompson said. “The collapse of the capital markets definitely also contributed to the problem with the amount of transactions actually going under contract and closing.”

Pressure to attack the city’s affordability and homelessness crises also likely contributed to the city’s feeling that it needed a hefty response, Thompson added.

“L.A. is a huge city,” she said. “There’s so many stakeholders, there’s so many voices. I think that California was under pressure, particularly the large cities, to do something about their homeless situation. … So I think it was [also] a pressure tactic.”

Still, the tax’s cost/benefit analysis is a matter of perspective. Especially because California’s (in)famous Proposition 13, enacted in the late 1970s, makes raising property taxes all but unthinkable. That law caps taxes at just 1 percent of a given property’s assessed value, and is often referred to as the “third rail” of California politics due to its popularity among state residents. 

For one thing, ULA’s revenue is a pool of $633 million in actionable funds that didn’t previously exist. And although the amount of funded units is trending below expectations, it’s still 800-plus more units than the city previously had in the pipeline. Not to mention the tens of thousands of people assisted through eviction defense, rent help and job creation via the measure, according to United to House L.A.’s website. 

“I do think it was the right move,” Thompson said. “Our transfer taxes were very, very low compared to other communities across the United States and in our cities in Northern California, and I do think that cities have an obligation to take care of their people. I know that [brokers and investors] are very upset about it, so that’s why I think some recalibration [of the tax rates and price thresholds] would help. But I think, overall, we needed to raise the [city’s] revenue in some way. And there was no other way to do it because of Prop 13.”

To Thompson’s point, Los Angeles isn’t the first city to enact a tiered property transfer tax. New York City has had a similar tax since 1989, which was expanded in 2019, and San Francisco has had its own tiered version since 1994, with updates in 2008, 2016 and 2020. Both versions currently have more price and tax rate tiers than L.A.’s ULA —  San Francisco’s current system ranges from 0.5 percent on deals between $100 to $250,000, and up to 6 percent for deals worth $25 million or more.  

Yin Ho, a San Francisco-based real estate attorney for Withers, said that unlike the ULA backlash, the private sector’s response to San Francisco raising its transfer tax rates in 2016 and 2020 was largely muted. General acceptance that the tax is just a part of doing business in the city was a factor, Ho said. But so is the fact that the region’s luxury market has been driven out of San Francisco into other parts of the Bay Area in recent years, he said, which, incidentally, do not have similar transfer tax rates.

Indeed, San Francisco’s FY 2023-2024 transfer tax revenue was $177.7 million — a 12-year low, according to a June 2024 report by the city controller. While transfer tax revenues can be volatile — the city collected a record high of $520.3 million in FY 2021-2022, and luxury sales volume is rebounding in early 2025 — the general downward trend of such sales there is similar to L.A.’s situation in the wake of ULA’s enactment. 

“Most of our luxury clients, they’re not actually buying in San Francisco anymore,” Ho said. They’re more in San Mateo, Atherton, Palo Alto … and they have the [state’s] standard rate, they’re not paying ULA rates or San Francisco rates. So those areas are just way more attractive at this point.”

Nick Trombola can be reached at ntrombola@commercialobserver.com.