The City of Los Angeles’s “mansion tax” has led to a dramatic 70% drop in sales of properties over $5.15 million, significantly impacting property tax revenue, according to new analysis from the Sol Price School of Public Policy at USC.
The tax, officially known as Measure ULA, was approved by voters in 2022 and applies to all property types exceeding the threshold, including residential, commercial, and industrial real estate. Initially marketed as a means to fund social services and address homelessness, the policy has had the unintended consequence of discouraging sales in the affected price bracket, cutting into essential funding streams.
Mott Smith, a real estate development expert, highlights that the drop in sales has resulted in lower property tax revenue both immediately and for the future. California’s property tax system assesses taxes based on purchase price, with limited annual increases unless the property is sold.
When sales stall, potential resets to market value — and the subsequent tax revenue increases — are lost. Smith warned of dire consequences: “What Measure ULA appears to be doing is reducing property tax growth in Los Angeles County because of a bad policy in Los Angeles City at a time of probably the greatest fiscal strain we’ve seen in maybe eight to ten years.”
The tax has been especially damaging for sales of multifamily, commercial, and industrial properties, which are critical for development and economic activity. Meanwhile, areas outside Los Angeles City and properties below the $5.15 million threshold have seen sales proceed unaffected. Smith also noted a concerning decline in interest from developers.
With redevelopment being a major driver of property purchases, the tax has deterred investors who see little financial incentive to buy and improve properties. For instance, a developer purchasing a warehouse for $4 million, investing $500,000 in renovations, and selling it for $5.5 million would face a $220,000 ULA tax. This effectively wipes out much of the profit, making development projects in Los Angeles financially unviable.
The challenges in Los Angeles mirror similar struggles in other California cities. Oakland, for example, has attributed half of its $80 million budget shortfall to reduced real estate transfer tax revenue. The slowdown in sales raises broader concerns about California’s fiscal sustainability. Without active property markets, municipalities reliant on property taxes for services such as schools, public safety, and infrastructure will face significant funding shortfalls.
As Los Angeles contends with a shrinking tax base and mounting fiscal challenges, experts warn that policies like Measure ULA may drive developers and investors away. “This is a very concerning leading indicator that builders have left the LA market,” Smith concluded. “All the zoning in the world isn’t going to help if the builders have left.”
