Multifamily Developers and Los Angeles: It’s Not a Love Story

Los Angeles’ “Mansion Tax” will turn three years old on April 1. Much like Rosemary’s baby, the city birthed an entity that appears good-natured, even as it contributes to its own development doom. It’s a microcosm of a region, steeped in affordability crises, that can’t seem to get out of its own way. 

While it’s a nuanced picture, recent empirical and anecdotal evidence show that more commercial activity, particularly multifamily development, is trending out of the L.A. area than is coming in. The root causes are complex and plentiful: skyrocketing costs of doing business, including construction, insurance premiums and local taxation; intense regulation, land use and zoning restrictions from cities, counties and the state, particularly in coastal areas; public safety concerns and high vacancy in areas such as Downtown L.A.; and local opposition to development in certain neighborhoods in general — not to mention persistently elevated interest rates and nationwide macroeconomic concerns. 

“I don’t know that I would say that it’s sinking, but it’s certainly taking on water. And we’re not moving in the right direction,” L.A. County Assessor Jeff Prang told Commercial Observer.

“I think that local government agencies, the City of Los Angeles, the County of Los Angeles, really need to be attentive to all the barriers that are in place that make it more difficult, more expensive, and more time consuming to make those investments,” he added. “If we’re going to repurpose a lot of these downtown office buildings [for residential use, for example] … the government’s going to have to cut them some slack and encourage that sort of investment.”

Take Measure ULA. Enacted via ballot referendum in late 2022, the so-called Mansion Tax imposes a 4 to 5.5 percent tiered levy on city property deals of $5.3 million and above. The tax to date has generated nearly $1.1 billion in revenue to fund affordable housing and homelessness prevention initiatives. The transfer tax was sold to voters as a means to simultaneously tackle L.A.’s chronic homelessness — and has indeed so far stabilized thousands of tenants and supported the construction of hundreds of new units — while also compelling the city’s highest echelon to pay its proverbial fair share. 

Yet, because the tax applied to all property sales of over $5 million, multifamily and mixed-use production has declined (likely dramatically, according to UCLA research) and some lenders and investors are backing away from the city entirely. 

Those aren’t the arguments of pro-development lobbying groups, or biased editorials. It’s the recent words, nearly verbatim, of Nithya Raman, a member of both the L.A. City Council and the  Democratic Socialists of America —and now a mayoral candidate. 

“Multiple research studies and data points have shown us that the structure of this tax has slowed apartment construction in L.A. during a housing crisis,” Raman said during a City Council meeting in late January, while pushing the council to add ULA reforms she introduced to the city’s June ballot. “These studies have compared sales and permits in the city of L.A. with comparable jurisdictions in L.A. County, and found deeper declines in L.A. city. The studies estimated that ULA is preventing the construction of at least 2,000 market-rate units per year, as well as hundreds of affordable units — more units than ULA can produce.”

The council, miffed by Raman’s perceived failure to follow proper administrative procedure in introducing the reform (which would create a 15-year exemption to the tax for new or substantially renovated commercial projects, among other changes), ultimately declined to add her motion to the June ballot directly. 

Representatives for the city did not immediately respond to a request for comment for this story.

While citywide residential entitlements began to rebound last year on a quarterly basis, permitting actually remained historically weak in 2025 and stayed on par with 2024’s decade-low total number, according to a recent report by Hilgard Analytics that includes both multifamily and single-family data. Only 8,714 units were approved in L.A. last year, just 12 more than the previous year. Indeed, 2025 was the second-worst year for residential permitting in L.A. since 2013, per Hilgard’s report, and that’s despite supposed fast-tracking approvals for Pacific Palisades residents affected by last year’s wildfire. 

Multifamily-specific permitting in L.A. plummeted by 40 percent in 2024 compared to 2022, according to a UCLA report last year that analyzed the impact of the Measure ULA on apartment production. Indeed, there were just 4,755 new permit applications for projects with five or more units that year, compared to 11,786 in 2022, according to the California Homebuilding Foundation. 

L.A.’s 2021-2029 Housing Element, a state-mandated housing target for every locality in California, currently targets 456,643 new units within that time period. Just 69,233 units were completed from 2021 to 2024, according to the city’s most recent annual progress report. In other words, in order to meet its state-mandated goal, the city would have to more than quadruple its average unit production rate. 

Multifamily development activity across L.A. County is set to come back down to Earth after a recent spike in deliveries. Last year saw an influx of new residential supply relative to previous years, just over 15,406 units, but many of those projects had begun before ULA was enacted, according to a recent market report by NAI Capital. While total year deliveries were 10.7 percent higher than in 2024, the final three months of 2025 saw a 51.5 percent quarterly decline in project completions. The number of new units entering the pipeline are dropping precipitously, too, with nearly 20 percent fewer units under construction in the final stretch of 2025 compared to the same period in 2024.

“2025 was the second highest [amount of deliveries] in the past five years,” said J.C. Casillas, NAI Capital’s managing director of research. “It’s kind of what’s been needed. And you probably need more. What you don’t need is a lot of government intervention, especially on the investment side. Everybody will tell you, that’s what stifles development, especially in the city of L.A., is those onerous taxes.”

Still, it’s not as if lackadaisical development is a new concept for the region.

The amount of new multifamily unit construction in L.A. County has trended downward every decade since at least the 1950s, largely due to explosive land value and restrictive regulation, according to an August housing report by the University of Southern California. Decades of limited production has left the county’s housing stock — which has a median age of 58 years — 12 years older than the state average, and 16 years older than the national average. Fewer than 100,000 rental units were completed in the county from 2021 to 2024, the vast majority of which were market-rate rather than affordable, per the report. The state-mandated housing target for each city within the county, meanwhile, is roughly 800,000 new units combined, including single-family and accessory dwellings, by 2029. 

Despite a bump in newly delivered housing stock in 2025, Casillas said that average apartment asking rents in the county, currently at $2,263 per month, are projected to remain flat for the foreseeable future, too.

Multifamily sales volume in both the city and county has also trended downward since 2021, with Measure ULA once again a heady culprit among other factors. Although sales volume in the county did rebound in the latter half of 2025 compared to the previous 12 months, both dollar volume and average sale price per unit have dipped significantly since the late 2021 post-pandemic high, according to a recent market report by Colliers. 

Dollar volume in the fourth quarter of 2021 hit roughly $4.3 billion, with an average price per unit of about $430,000. By mid-2023, the dollar volume was less than $1 billion, and the average unit price was about $370,000, per Colliers. The county’s average price per unit in the final stretch of 2025, at about $352,500, was at its lowest point since at least 2020. 

While more difficult to track, the city of L.A. is facing similar sales activity woes. Though not broken out by specific asset class, the amount of commercial, non-single-family transactions in the city from early 2023 to early 2025 dropped by as much as 50 percent, according to a separate Measure ULA 2025 study by UCLA’s Lewis Center for Regional Policy Studies. 

“I will add my name to that list of people who really don’t quite know what the answer is,” Prang said. “I think we can look at some conditions and say the things that we think are contributing to the problem. But what the overall solution may be? I am somewhat at a loss. I don’t think that ULA is the sole cause of everything that’s going wrong, but I think it’s a contributor. Certainly, I appreciate the reason why policymakers created it: to help deal with some overriding homeless and housing needs. But I think perhaps the rate in which they decide to tax these buildings was too aggressive, and it created a negative response that’s not going to accomplish their goals … and I think it’s going to be an obstacle in terms of finding that new normal.”

Anecdotal evidence is also legion. In January, Camden Property Trust announced via brokers that it was selling its entire California portfolio: 11 properties, including one in Hollywood, with an estimated value of up to $2 billion. Alongside California’s regulatory environment and high cost of doing business, the multifamily-focused real estate investment trust ultimately decided to reinvest in higher-growth Sun Belt markets, Alex Jessett, Camden’s president and chief financial officer, told Commercial Observer.

“Our investment thesis for the past 33 years has been simple: What we believe drives demand for multifamily is population growth and employment growth,” Jessett said. “And, if you track where the population growth and where the employment growth is, it’s in the Sun Belt. That’s a very compelling case for where our investment dollars should be.

“California is an enormous economy. It’s very hard to ignore,” he added. “But it is hard to develop. We’ve talked about that quite a bit, and when we look at our portfolio, our portfolio was certainly getting a little bit older and harder to develop and add to it. Almost all of the real estate that we own, we develop ourselves, and that certainly made it hard to expand our presence in California.”

Camden is far from the only one leaving L.A. Atlanta-based Wood Partners, one of the country’s largest multifamily developers, announced in mid-2024 that it would no longer pursue development opportunities in California, Oregon and Washington. 

L.A.-based company Schon Tepler, which had only ever pursued developments within the city, paused new L.A. projects in 2023 following ULA’s enactment. Henry Manoucheri, chairman and CEO of investment firm Universe Holdings, told CO last year that his firm had not purchased any properties in L.A., and was actively expanding into other states, for the same reason. 

Even if they have no plans to formally exit California or Los Angeles, plenty of multifamily firms, from Equity Residential to Decron Properties, have recently sold off portfolios in the region for one reason or another. “California, and especially Southern California, is the most difficult place to do business in the United States,” Don Peebles, Peebles Corporation founder, chairman and CEO, told Fox Business last summer.

At least one hospitality-focused firm has joined the trend, too. L.A.-based developer Sun Hill Properties, which owns the 495-key Hilton Universal City complex adjacent to Universal Studios, announced last year that it was nixing an 18-story expansion project in the wake of the L.A. City Council voting to substantially raise the wages of hospitality workers in the city ahead of the 2028 Olympics. 

At the end of the day, the wage ordinance, which will increase the minimum wage for hotel and some airport workers by roughly 50 percent over the next few years, was too costly for the developer to justify the long-gestating expansion, Sun Hill CEO Mark Davis told CO. 

“The economic engine is growth,” Davis said. “You need new jobs, you need good-paying jobs, you need opportunity, you need housing. So you need a government that operates within their budget and doesn’t tax the business owners and homeowners so much that they can’t survive. If they overtax and put the burden on what’s here, it kills growth. It will destroy an economy when you solve your budget by over-taxing or over-regulating an industry to the point where they cannot grow, or they’re not motivated to grow. They won’t invest in new jobs. They won’t invest in new infrastructure. So, it’s broken at the root level.

“It’s hard to even justify housing,” Davis added, referring to development. “We need more housing, as everybody knows, but an investor or developer has to put the money into that project to make it work. And, for them to do that, they have to feel like that there’s going to be a gain or the ability to sustain their investment. … You can’t break the backs of the people that are in business now, because new investors won’t come. They’ll find another market, another metro, another high-density area where their business is wanted and they can survive financially.”

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