If Measure ULA, a city tax on expensive properties, is approved by voters in the upcoming election, it would be a “veritable death blow” to high-end real estate and put pressure on real estate values at every price point, said West Hollywood real estate brokerage The Oppenheim Group.
What’s more, the company said, the measure would not only damage the market for homeowners, but also for property investors, developers and professionals involved in the sale and construction of real estate.
Oppenheim is among numerous real estate companies pushing against Measure ULA, which, if approved by voters on Nov. 8, would establish a 4% tax on the sale or transfer of properties in Los Angeles worth $5 million or more and a 5.5% tax on the sale or transfer of properties valued at more than $10 million.
Those high percentages and the measure’s nickname of the “mansion tax” are what has drawn the ire of local real estate figures.
“The proponents of Measure ULA are trying to push this off as a ‘tax the rich scheme’ by calling it a ‘mansion tax,’ but it is far from that,” Daniel Yukelson, executive director of the Apartment Association of Greater Los Angeles, said.
He added that the tax will mostly impact commercial properties and apartment buildings and drive up the costs of rent and all other types of goods and services.
“Ultimately, businesses will pass this massive tax increase onto consumers,” he said.
The point made by Yukelson is one shared by The Oppenheim Group, which added that the measure would also drive activity out of key parts of Los Angeles.
“The tax is also limited to property located in the city of Los Angeles and thus fails to consider that developers and homebuyers could just leave Los Angeles for Beverly Hills, West Hollywood or any other city without this tax,” the Oppenheim Group said in a statement. “Or they might just decide to invest or buy in another state, as so many people are already doing.”
The Oppenheim Group is active in several neighborhoods in Los Angeles, including Beverly Hills, Santa Monica and others. The brokerage and Yukelson are concerned about the measure’s effect on profit.
The Oppenheim Group provided a hypothetical example of a homeowner who earlier bought a property for $5.5 million and later sells it in a declining market for $5 million. “Not only will this homeowner lose $500,000, but they would also have to pay an additional Measure ULA tax of $200,000. Including existing closing costs of 6%, the homeowner would lose approximately $1 million,” the firm said.
Yukelson said if the measure is voted in, the timing could not be worse following the turbulence of Covid’s impact. “After nearly three years of dealing with the pandemic, government shutdowns and Covid tenant protections, and now extreme inflationary pressures that is heading our economy into a recession, there is no justification for the city passing what will be the largest property tax increase in its history,” he said. “It makes no sense.”
ULA proponents
Proponents of the measure, such as Stephanie Klasky-Gamer, see things differently when it comes to who the measure will directly impact.
Klasky-Gamer is the president and chief executive of LA Family Housing, a nonprofit focused on homelessness and housing services. She sees the measure as one that will significantly reduce homelessness without encroaching on the finances of ordinary Angelenos.
“This is a one-time recording fee that is going to affect less than 3% of residential sales in the city and that 3% are only sales of property over $5 million,” Klasky-Gamer said. “So, ordinary Angelenos are not going to be affected by this at all, except to benefit from the increased housing production, and resources to prevent Angelenos from falling into homelessness.”
The measure exempts certain housing, nonprofit and public entities from its tax and according to a Los Angeles voter information pamphlet, could generate approximately $600 million to $1.1 billion annually for existing and new programs.
The measure is also expected to provide emergency rental assistance to 5,100 households, income support to 13,000 households with seniors or disabled people, and legal counsel for 23,000 households facing eviction according to a white paper analysis of the measure conducted by the UCLA Lewis Center for Regional Policy Studies.
Klasky-Gamer added that opponents’ claims that the fee would be passed on to renters does not hold.
“Landlords, whether they’re new or old, are charging rents as high as the market will bear right now. (The measure) is not a driver to increase rents in the market. Not having enough supply of housing, that’s what has driven up our rents,” she said.
In Los Angeles County, the average rent for new leases increased 18% in the last two years according to a report by Apartment List, an online marketplace for apartment listings. A separate rent report published in late September by the platform found that rents fell nationally by 0.2% month-over-month but that rents are still up 7.6% year-over-year in the United States.
The measure analysis found no evidence that ULA would impact rents for commercial or residential tenants. It also found “very limited evidence” that the tax would impact some for-profit new construction projects.
“Developers are able to adjust their business models to minimize the impact of the transfer tax, and revenues from Measure ULA will fund the construction of a much larger number of deed-restricted affordable homes,” the analysis stated. “Real estate investors who buy to quickly resell — the harmful practice of ‘flipping’ — may be more impacted, which we view as a bonus.”
Measure HHH ‘failure’
Opponents are not sold on what ULA could potentially do and are more concerned about the follow through of the measure. Comparisons have been made to former initiatives such as Measure HHH, which was a $1.2 billion bond measure that allowed for the construction of 10,000 units of affordable housing for homeless people and those in danger of becoming homeless. The measure is still in progress and has a little more than three years to complete its goal.
Yukelson pointed toward the cost of Measure HHH units costing upwards of $837,000 each to build.
“We could raise billions upon billions in bonds and increased taxes for homeless housing and still not make a dent in the problem because of the high cost per unit being squandered by the city and developers keeping the members of the City Council in office,” Yukelson said.
He added that a better measure would have “guardrails on how much is spent on each unit” and alternative housing types such as dorm-style structures and micro units.
Klasky-Gamer does not agree with the view that Measure HHH was a failure and said that the measure has so far produced more housing than expected, a stance backed by the UCLA analysis paper, which stated that HHH is on pace to exceed its goal before it sunsets in 2026.
“I think ULA has an opportunity to build on the successes and lift up the most innovative components that were (in) triple H,” Klasky-Gamer said.
Los Angeles residents will have their chance to vote on Measure ULA on or before Nov. 8.
