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For First Time, Los Angeles City Council Approves Added Tax Dollars From New Property Sales Hike

Bulk of Initial $150 Million From 'Mansion Tax' To Go Toward Building Affordable Housing

Property Sales Hike

Los Angeles unveiled a new transfer tax in April on property sales and ownership transfers above $5 million. (Jeremiah Unruh/CoStar)


Los Angeles expects to roll out funding generated by increased taxes on real estate sales in the coming months in its latest effort to alleviate the city's worsening housing shortage.


This week, the City Council approved spending plans for the first $150 million collected through Measure ULA, often called the "mansion tax." Since April, this 4% tax has been levied on nearly all commercial and residential property sales or ownership transfers above $5 million in Los Angeles, while a 5.5% levy is charged on properties selling or transferring above $10 million. Before April, each of those taxes was 0.45%.


The idea behind transfer taxes has caught on in other localities across the country, including Chicago, where the city’s new mayor has recently thrown his support behind a revised proposal that also aims to combat homelessness.


In Los Angeles, the largest portion of the approved spending is for $57 million on the development of affordable housing construction through an initiative called "Accelerator Plus." The rest aims to assist tenants through eviction defense, harassment protections and rental subsidies for low-income residents. Some money is also planned to help struggling landlords.


So far, the transfer tax has collected roughly $55 million, Councilmember Bob Blumenfield said Tuesday at the City Council meeting. The tax, though, faces a lawsuit that may stop collection and return the money, and a hearing in that case is scheduled for next month. In addition, a November 2024 statewide ballot measure is coming that may derail the tax.


“Regardless of pending litigation, it’s imperative to move forward with a mechanism to start spending the $150 million...because lives are literally on the line,” Blumenfield said in a statement.


The spending plan still requires Mayor Karen Bass' approval. The last day for the mayor to act is September 11, according to city documents.


If approved, an online tenant portal to apply for emergency rent assistance will open in September, Ann Sewill, general manager of the city's housing department, said Tuesday. Another portal for struggling landlords is expected to open in October, Sewill said.


Affordable Housing Construction

The funding is expected to expedite affordable housing construction through Accelerator Plus. The program aims to fund shovel-ready projects with loans to close financing gaps. Eligible projects must be 40 units or more and provide affordable units. The city may lend up to $12 million for projects and can charge up to 3% interest on the loans.


Funding affordable housing is critical in Los Angeles. In the past decade, 89,000 new apartments were built in the greater region, with 95% of the properties classified as top tier, according to CoStar data.


Los Angeles is among the most expensive cities in the United States, with an average apartment costing $2,236 per month, CoStar data shows.


The relatively high apartment rent is due to a lack of supply compared with demand. The region has more than 1 million multifamily units but only about 21,960 units under construction, equating to about 2.2% of the existing supply.


That said, demand for buying and selling apartments has fallen since the new transfer tax rolled out in April and as rising interest rates have hurt commercial real estate deals across the nation.


The number of multifamily properties that sold during the second quarter was 280, well below the 630 properties that traded quarterly, on average, during the past decade, according to CoStar data.


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