The Brief

California lawmakers published a bill late Tuesday that seeks to put new guardrails on Measure ULA, the city of Los Angeles real estate tax that has become a topic of fierce debate among economists in recent months.

To address concerns the tax is driving developers away at a time when the city needs to boost housing production significantly, the bill would slash tax rates for some newly built apartment buildings.

Since April 2023, the voter-approved measure has levied a tax on the sale of properties worth $5 million or more. The city uses the revenue to fund various housing affordability efforts such as rent relief programs, eviction defense and construction of income-restricted apartments.

But the city’s so-called “mansion tax” isn’t limited to celebrity estates in the Hollywood Hills. It also applies to multi-family housing and other commercial properties. Developers can face large tax bills after they build and sell new apartment complexes and office buildings.

Several recent economic papers concluded the tax is causing a steep decline in housing development activity across the city. One UCLA study estimated the city would have more affordable housing units on balance if the tax did not apply to new apartment buildings.

“It's really concerning,” said Mott Smith, a co-author of one of the papers and an adjunct professor of real estate development at the USC Price School.

“The units that we need to support all the households coming into the city — or that have to move and deal with their lives — those aren't happening,” he said. “And when we squeeze the housing supply, the poor feel it the most.”

Mott Smith stands in front of the currently vacant project site for Chavez Gardens, a Boyle Heights affordable housing project that aims to build 110 units of low-income housing partially funded by the city's so-called "mansion tax."

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David Wagner/LAist

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With days left in this year’s legislative session, state lawmakers are now seeking to address some of those concerns. Their new bill will need to be approved by the end of Friday in order to make any changes to the city’s measure before the end of the session.

What changes could be coming for LA’s ‘mansion tax’?

Under Measure ULA, properties selling for more than $5 million have faced a 4% tax, and properties selling for more than $10 million have faced a 5.5% tax.

The new bill, co-authored by Democratic state senators Lena Gonzalez and Tina McKinnor, would keep those rates in place for high-end, single-family homes, except those rebuilt after a natural disaster in the previous five years. But the bill would lower the tax for some commercial properties built within the last 15 years to 1.5%.

This carve-out would apply to “property that was issued its first certificate of occupancy within the previous 15 years.”

The bill also aims to loosen some of the strict financing rules built into the city’s measure. Under Measure ULA, financially distressed apartment buildings that received city funding could only be sold to certain buyers, such as nonprofit organizations or community land trusts. The measure also restricts changes to rents and income limits in buildings that are losing money.

Critics say other lenders, such as major banks, will be less likely to invest in ULA projects unless they receive more assurance about avoiding risks in buildings that hit financial roadblocks. The new bill would let those restrictions come up for negotiation if a building is facing default.

The potential reforms are being debated in Sacramento just as the city is starting to accept applications from developers for $387 million in ULA funds. The city’s housing department released the “notice of funding availability” last Friday.

It's the largest in the city’s history.

Why are these changes being considered now?

LAist reached out to L.A. Mayor Karen Bass and Councilmember Nithya Raman, chair of the L.A. City Council’s housing committee, to ask if they supported legislative efforts to alter Measure ULA. We did not immediately receive a response.

Lawmakers are feeling pressure to alter the measure because the Howard Jarvis Taxpayers Association, a fierce opponent of tax increases, is now collecting signatures for a potential 2026 state ballot measure to kill Measure ULA and other local transfer taxes of more than 0.11%.

Howard Jarvis president Jon Coupal said this week that the measure’s goal would be to roll back “transfer taxes” like Measure ULA to levels pre-dating California’s landmark 1978 law restricting property taxes, Proposition 13. It would also set a higher bar for voter approval of new taxes similar to Measure ULA.

“This constitutional amendment will restore Prop. 13’s requirement that all local special taxes, those that dedicate the revenue to a specific purpose, must be approved by two-thirds of voters to pass,” Coupal said in a post on the association’s website. “No exceptions. No loopholes.”

Measure ULA received nearly 58% support from L.A. voters, enough to pass it as a citizen-led initiative. Under recent California Supreme Court rulings, the measure would have faced a higher, two-thirds threshold for passage if it had been placed on the ballot by city officials.

Some say critiques are overblown

Measure ULA has so far collected about $830 million, far below supporters’ initial estimates of up to $1.1 billion per year.

Despite the lower-than-projected revenues, proponents say the money already is helping to keep thousands of Angelenos housed and off the streets. More than $30 million in a ULA-funded rent relief program has helped clear rent debt for about 4,300 tenant households.

The funding also is paying for free legal defense to low-income tenants facing eviction, and money has been set aside for enforcement of the city’s law barring landlords from harassing tenants.

Not all researchers agree that Measure ULA is negatively impacting the city. Last week, a team of researchers from Occidental College, UCLA, and USC published a report disputing claims that the tax is stifling investment in new housing.

Joan Ling, a retired UCLA lecturer who co-authored the report, argued it’s premature to conclude that the tax is driving down development because there isn’t enough data on building permits after the tax was enacted.

“Research and analysis are important and they contribute to the policy dialogue,” Ling said. “But not when this analysis is short on time, fuzzy on the conditions and variables considered, and has a weak linkage between the very specific policy recommendation with their analysis.”

Ling also argued the other studies had not proven the tax was to blame for driving down development, rather than other variables such as high interest rates, increasing building material costs and the timing of L.A.’s overhauled housing plan, which may have caused developers to wait for new incentives before submitting projects to the city.

“Timing is everything,” Ling said.

Researchers who say ULA is harming development published a rebuttal to critiques of their work. They say other researchers also found strong statistical signals, including a team associated with UC Irvine, UC San Diego and the Harvard Business School.

How many new apartments and construction jobs?

Perhaps the strongest point of disagreement between the competing research teams has centered on how many apartments, and how many corresponding construction jobs, have been created so far by Measure ULA.

In April, supporters of Measure ULA claimed that in the past two years, the tax had “built 800 new affordable homes” and “created 10,000 union construction jobs.” Those claims were published on the website for the measure’s Citizens Oversight Committee, but on Wednesday, a representative told LAist the post was updated “to clarify that the numbers cited on the blog come from the United to House L.A. Coalition, which is distinct from the COC.”

The city’s most recent budget report shows that only about $1.5 million had been spent so far on creating multifamily affordable housing as of May.

Smith, a co-author on one of the papers critiquing Measure ULA, said it’s impossible for that relatively small amount of money to have already created so many new homes and jobs.

“Anybody can do the math,” Smith said. “If you spent every bit of it on salary, that's enough to hire maybe 10 quality union jobs. The idea of 10,000 jobs being created by this seems completely absurd.”

So far, nine apartment projects with a total of 795 planned units have been awarded partial funding from Measure ULA. However, many remain unbuilt.

Smith told an LAist reporter at Chavez Gardens – a project in Boyle Heights that is still an empty dirt lot – it’s too soon to celebrate the creation of apartments and jobs that don’t exist yet.

“Looking at this, you can see that absolutely nothing's happened on this site, except for maybe some weed abatement,” Smith said. “It raises eyebrows. People say that these are units built and jobs created.”

The project site in Boyle Heights for Chavez Gardens, where 110 units of city-funded affordable apartments are planned, but not yet built.

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David Wagner/LAist

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Joe Donlin, director of the United to House L.A. coalition, which led the campaign for passage of the tax, said supporters now describe ULA funding as “accelerating” the creation of those jobs and apartments.

Addressing the communication around those figures, Donlin said, “I don't know that there was something wrong that needed to change, but I do think that there was clarification given.”

Drilling down on job creation estimates

Smith and his colleagues say even if the number refers to future construction jobs, the estimate is still likely too high. In a recent paper they calculated that alternative estimates of jobs created through affordable housing investments would connect existing ULA projects with, at most, about 2,000 eventual construction jobs, not 10,000.

The research team from Occidental, UCLA and USC cited the 10,000 jobs figure in its recent report, including a footnote that said the estimate came from “standard accounting practice used by the City of Los Angeles Bureau of Contract Administration.”

United To House L.A. coalition representatives told LAist the bureau estimated that every $1 million spent on total development costs in previous city-funded housing projects produced about 34 construction jobs, a number that ULA supporters rounded down to arrive at the 10,000 jobs figure.

LAist reached out to the bureau for further clarification about the origin of those statistics but has not received a response.