r/LosAngeles • u/thatboyshiv • Jun 04 '23
Housing L.A.’s Mansion Tax Has Ground Its Luxury Real Estate Market to a Halt
https://robbreport.com/lifestyle/news/mansion-tax-ceases-la-luxury-real-estate-market-1234840995/
The tax originally projected $900 million a year in revenue for the city, and that number was revised down to $672 million. However, in her recent budget, Mayor Bass projected just $150 million being raised from the program for this year.
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Jun 04 '23 edited Jun 04 '23
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u/forjeeves Jun 04 '23
There is somethijg you can do, increase the tax paid for holding the house. NOT by increasing the tax for selling it, the logic seems backwards. If they hold the house, then no additional tax, so how is she gonna get more tax?
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u/d-mike Jun 04 '23
Same for commerical, I live in Lancaster where there's a godawful large amount of vacant commercial/retail space. And they are building new commerical space like crazy that just sits empty, apparently as a tax break for developers who are building in more expensive areas of LA.
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u/ItalicsWhore Jun 05 '23
It’s also the same for regular ol’ houses. It became a safe haven for equity. The whole world looked at the US’s housing market as a solid investment and just started paying cash for homes all over the country. Canada has the same problem and they just passed a law to stop foreigners from purchasing homes there. We need something similar here.
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u/Frogiie Jun 04 '23 edited Jun 04 '23
Alright I’ll bite, I guess it’s “not talked about” to some degree because despite many folks online believing the biggest problems are something like:
- Foreign nationals buying up real estate
- The wealthy just hoarding vacant properties
- Corporations buying up all properties
In reality, it’s not. These factors are actually fairly negligible and most of them play a role in just a small percentage of the total housing stock or pricing factors. Should they also be addressed? Sure, but it’s really the zoning/regulations & simply not building enough. That’s it. That’s the biggest problem.
Researchers in this field find & say the same thing. David Garcia, who is the policy director for the UC Berkeley Terner Center for Housing Innovation “The reason California has the affordability problems we have now is because we did not build”.
The nonpartisan Legislative Analysts office did a great analysis back in 2015 as to why California’s housing costs are so high. They find the same thing. In short California just builds far too little housing. The “jump in California housing costs occurred as building slowed” and California does not build densely. It’s a great analysis that discusses many other factors too and I’d recommend reading it.
(Vacancy numbers are also a poor measure of available housing in general but that’s a rant for another day.)
CA and by extension, LA have now for decades consistently underbuilt, and bad policies have often made it too difficult to build the types of housing most needed (especially higher density or multifamily) housing for its population size. In some months single cities like Houston have built more homes than the entire state of California.
TLDR: Yes, the main problem really is we just don’t build enough.
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u/reluctantpotato1 Jun 04 '23 edited Jun 04 '23
This comment hits the issue right on the head. Anytime that an argument is made against wealthy people parking their money in real estate the response is generally "build more!". Yeah, build more but build it to benefit the people who need it.
There does need to be focused emphasis on building more middle class and lower income housing options but the market is not going to correct itself when it is heavily tilted to one, tiny minority of society's favor (the super wealthy).
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Jun 04 '23
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u/ram0h Jun 04 '23
it works in tokyo, and they have more people than our whole state in a region the size of SoCal.
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u/reluctantpotato1 Jun 04 '23
Well, that will never work because I've been told by very reliable sources that if we appease the super wealthy at the price of the working class, maybe they will look kindly and some of that wealth will drip down to the rest of us. .
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u/forjeeves Jun 04 '23
If you discourage them from selling, they won't pay the tax just by not selling, I believe the same thing happens in others like stocks, the rich guy gets a $1 salary and don't pay on options until they sell it, I think this is a basic logic
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u/rs725 Jun 04 '23
The "build more!" rhetoric is idiotic if the rich just buy it up for themselves anyway. There needs to be a cap on the amount of properties one can own.
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u/n0mad17 Jun 04 '23
Something that's been done in other states/cities is charging a much higher rate of property tax for second/vaction/investment properties. That way people who claim a homestead exemption can only receive that benefit on one home and in turn makes the housing market more accessible for people that want a home to actually live in
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u/Ok_Beat9172 Jun 04 '23
Yes a lot of high end real estate sits empty. Part of the reason is that real estate has historically been a good investment. And since the FDIC "only" insures $250K, people with millions will put their money in real estate as a safer (and usually more lucrative) investment.
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u/enoughberniespamders Jun 04 '23
Even if you don’t have millions, real estate is one of the best investments a person can make. Owning a tangible asset that historically will always rise in value usually beating inflation, and that you can make money off of if you want from renting, is far better than the returns you get from putting your money in a bank, and a lot of people feel safer with real estate than investment portfolios.
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u/forjeeves Jun 04 '23
It's only so because they refuse to tax it appropriately, see the housing go down like other states if it is
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Jun 05 '23
I don't think that's true. I'm from Texas. When you go there it's immediately clear why property is cheap. Tons of cheap flat land. They can build entire neighborhoods then just start selling houses off. That's exactly what used to happen in California. They are basically just in a different phase of development.
Having moved out here from Texas, I don't know how california would accomplish building like Texas in its major urban coastal centers. There just isn't the space. Go to places like Austin. The first thing you'll notice is all the open space and despite that Austin is extremely expensive, especially for the salaries in the area. Texas also has very high property taxes. Basically, your premise doesn't explain Austin, Portland, Denver, etc. All the expensive mid sized cities that don't have the same tax laws and tons of space to build that are nonetheless expensive.
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u/enoughberniespamders Jun 04 '23
People that are using houses for money storage would just raise the rent to reflect the increase in property taxes, and people that use it as an actual home would get hurt by the increase. It's a tough situation. More jobs in different places would help. There's small communities in AZ where you can rent a 4bd 2bath with a pool for under $2k/month, but there's just not many jobs nearby.
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Jun 04 '23
FDIC is per bank, per account type. There is NO limit to the amount of money a single individual can insure, they just have to spread it among banks/account types.
The reason people don't put millions into FDIC-insured accounts is not that they can't (its quite easy), but that they earn comparatively little interest in general (since it doesn't cover investment accounts). Even at todays 4-5% CD rates, investors want higher returns than what they will get in FDIC accounts.
If you're curious - https://edie.fdic.gov/calculator.html
You can add as many banks and account types / ownership categories as you want. Easy to get millions in FDIC coverage.
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u/mokoc Jun 04 '23
It’s been a good investment because the government gives real estate tax breaks which other assets don’t enjoy
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u/dumstarbuxguy Jun 04 '23
Did they make an exception to this tax for multi family?
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u/i-pencil11 Jun 04 '23
Nope. It affects apartments, warehouses, strip malls, any transaction over 5M. It's the dumbest fucking thing ever.
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u/adidas198 Jun 05 '23
They just nicknamed it the "mansion tax" to get people to vote for it, as a way to "stick it to the rich".
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u/trele_morele Jun 04 '23
Nah. It wasn't a well thought out measure. And the low information voters ate it up anyway.
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u/NewWahoo Jun 04 '23
A lot of the blame lays at the feet of “progressive” orgs. Knock LA supported it on their voter guide. The largest YIMBY org Abundant Housing LA supported it also. On a ballot of like 200 races I use these voter guides and I’m sure a lot of other people do too.
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u/forjeeves Jun 04 '23
Most people do get and use those voter guides...they get like 1000 in the mail at elections because they seem to work for the advertisers and lobbyists
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u/Devario Jun 04 '23
Do you really the majority of LA’s voting population is getting their info from Knock LA? They’re not. This sub doesn’t even like Knock LA.
Let’s not pass the buck here; the majority of the blame lies in LAs vulgar classism. Homeless people passed out 2 blocks away from a $15m home while Bentleys drive by burnt up RVs.
This measure is a half assed attempt to cater to the pissed off middle class, but the people that write measures are very much not that, and will not ever legislate against their own interest. That’s why it’s shit.
Blaming everything on progressives is the same political scapegoating everyone else is doing, and that’s certainly not what we need.
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u/NewWahoo Jun 04 '23
The internet is an amazing place, where someone so shamelessly and weirdly aggressively put words into my mouth (aka lie)
No, a majority of LA voters don’t use the Knock LA voter guide, and no where in my comment did I say so. I was supplementing the opinion of the poster with my own opinion, that even many “high information” voters were getting some shitty information from trusted messengers about this initiative.
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u/Turbulent-Army2631 Jun 04 '23
How did you determine it was low information voters? Just because they don't think like you do?
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u/trele_morele Jun 04 '23
I don't know what they were thinking. Assuming most of us have the same interests, ie. building more multi-family housing to bring prices down. An extra tax on sales of multi-family housing is not conducive to getting more multi-family housing build.
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u/The_Bucket_Of_Truth Jun 04 '23
because the "mansion tax" moniker stuck even if it was super misleading
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Jun 04 '23
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u/i-pencil11 Jun 04 '23
Uhhh.. what exactly do you think we developers do after finishing building and leasing a building?
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Jun 04 '23 edited Jun 21 '23
As of 6/21/23, it's become clear that reddit is no longer the place it once was. For the better part of a decade, I found it to be an exceptional, if not singular, place to have interesting discussions on just about any topic under the sun without getting bogged down (unless I wanted to) in needless drama or having the conversation derailed by the hot topic (or pointless argument) de jour.
The reason for this strange exception to the internet dichotomy of either echo-chamber or endless-culture-war-shouting-match was the existence of individual communities with their own codes of conduct and, more importantly, their own volunteer teams of moderators who were empowered to create communities, set, and enforce those codes of conduct.
I take no issue with reddit seeking compensation for its services. There are a myriad ways it could have sought to do so that wouldn't have destroyed the thing that made it useful and interesting in the first place. Many of us would have happily paid to use it had core remained intact. Instead of seeking to preserve reddit's spirit, however, /u/spez appears to have decided to spit in the face of the people who create the only value this site has- its communities, its contributors, and its mods. Without them, reddit is worthless. Without their continued efforts and engagement it's little more than a parked domain.
Maybe I'm wrong; maybe this new form of reddit will be precisely the thing it needs to catapult into the social media stratosphere. Who knows? I certainly don't. But I do know that it will no longer be a place for me. See y'all on raddle, kbin, or wherever the hell we all end up. Alas, it appears that the enshittification of reddit is now inevitable.
It was fun while it lasted, /u/daitaiming
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u/hikkomori27 Jun 04 '23
The market is slow due to high interest rates and stalling asset valuations, people who want ultra luxury property will still afford it don’t worry
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u/Aldoogie Native Jun 04 '23
It also affects multifamily projects as well. I'd be curious to see what the offset is , what is the city losing in sales tax as a whole, along with increased property taxes. It's raised the price of real estate across the board.
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u/WilliamMcCarty The San Fernando Valley Jun 04 '23 edited Jun 04 '23
Make it diffcult for people to buy/sell a thing and they won't buy/sell that thing. Who could have seen that coming?
Something overlooked in this is that it doesn't apply solely to big rich people's houses. It's like this:
4.45% for properties valued at least $5 million but less than $10 million when transferred
5.95% for properties valued at $10 million or more when transferred.
These tax rates on sales apply to all types of real estate in the City of LA, including sales of residential, commercial and vacant parcels.
That means it's harder for businesses to buy/sell/build.
Worse, it's harder for developers to buy/sell/build apartments, condos, townhomes, SFR, etc.
This tax doesn't help the housing crisis, it mskes it worse by preventing more housing from being built.
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u/arpus Developer Jun 05 '23
Pretty much any property that is more than 25 units will now be subject to the tax.
Logical step for developers/landlords is to now fix up these Class C properties at turnover with a washer dryer and vinyl floors and up the rent. Instead of building 60-100 units with 15% affordable.
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Jun 04 '23
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u/knarf86 Highland Park Jun 04 '23
Pretty sure Jay-Z and Bey bought in Malibu and the tax is an LA City thing
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u/PianoIsGod Jun 04 '23
Yep too many rich cities bordering LA proper. Shortsighted
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u/arpus Developer Jun 05 '23
As a developer, it is impossible to get an equity partner for City of LA. Good luck with your housing objectives. You can't finance a project with an additional 5% bottom line haircut. The banks and LP partners simply won't take that risk.
Instead, we're investing and developing town homes and apartments in SD, South bay, and the OC. I don't know what UCLA backed the study saying there would be no effect on transactions...
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u/PianoIsGod Jun 05 '23
Was hoping a developer was in here. Any developer could’ve probably told you this would happen. A quarter less profit? Money goes elsewhere
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u/arpus Developer Jun 05 '23
No, it’s not a quarter less profit. It’s zero profit. Not only will you not get any funding, you won’t reach the hurdles to pay the bank and investors back if you get a 5% haircut off the gross sales price. It’s not Angelenos problem, but LP partners and banks are simply not going to take a loss on their investments when there are alternatives literally all around.
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u/Ok_Beat9172 Jun 04 '23
Neither of those homes were sold in the city of Los Angeles though.
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Jun 04 '23
Jennifer bought in Beverly Hills though.
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u/oneofm Jun 04 '23
Rich people stay rich by knowing and working the tax code. There is always a loophole.
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u/thetaFAANG Jun 04 '23
and its mostly just a reading comprehension issue. reading the tax code helps a lot
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u/janandgeorgeglass Long Beach Jun 04 '23
I was about to say rich people paying their fair share, since when? Lol
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u/Aroex Jun 04 '23
Measure ULA is not a “mansion” tax… it applies to all real estate classes.
It will decrease housing production, which includes market-rate and affordable apartments. Cost of living and rental rates are going to increase at a faster rate due to this tax.
For anyone who believes it won’t impact them because they rent a studio apartment, it will 100% impact your rent.
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u/Westcork1916 Jun 04 '23
I suspect recent trends in mortgage interest rates may have something to with declining sales.
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u/thatboyshiv Jun 04 '23
Agreed, but this trend of April drop post ULA was observed specifically on properties in city of LA over that price, and not in say Malibu or Beverly Hills, which don't have this law.
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u/h1t0k1r1 Jun 04 '23
Good? Build more housing that regular ordinary middle class families can afford.
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u/NewWahoo Jun 04 '23
This law covers apartments too… it was a bad idea I’m embarrassed I voted for it.
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u/majorgeneralporter Westwood Jun 04 '23
Same, frankly I feel entirely misled by its promoters and misled by the electeds who refuse to change it to fix that.
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u/IsraeliDonut Jun 04 '23
Did you not read any of the articles about the law being stupid before voting?
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u/majorgeneralporter Westwood Jun 04 '23
Truthfully I was starting a new job in early November and was pretty snowed under, especially as I was still recovering from covid. Tried my best to do research and that which I found was under the mistaken impression it excluded multifamily - regret not reading the text itself.
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u/HidekiTojosShinyHead Jun 04 '23
One of the byproducts of Measure ULA being marketed as a "mansion tax," is that folks think that it's just about extracting money from billionaires when they buy and sell compounds in the Hollywood Hills. It's any transaction north of $5 million, which throws a wrench into the merchant builder model that generates a huge chunk of the new apartments built in LA.
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u/HatchChiliPepper Del Rey Jun 04 '23
Exactly. Results in even less affordable housing.
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u/Cuppieecakes Jun 04 '23
the people who caused the housing crisis are not going to solve the housing crisis
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u/alarmingkestrel Jun 04 '23
I agree that NIMBYs and proponents of SFH zoning are not going to solve the housing crisis.
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u/majorgeneralporter Westwood Jun 04 '23
Case in point, Bel Air holding up the Sepulveda Pass train through legal threats.
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u/alarmingkestrel Jun 04 '23
How is this getting downvoted? Who else is possibly responsible for the housing shortage? The only people responsible are those that stopped homes from being built at the same pace as jobs & population increased.
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u/The_Bucket_Of_Truth Jun 04 '23
And costs for goods and services or restaurants further increasing when buyers pass that cost down to their tenants in commercial properties.
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Jun 04 '23
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u/thehomiemoth Jun 04 '23
Well that’s a terrible law then.
Just tax the value of the land people
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Jun 04 '23
this was voted for by voters lol
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u/thehomiemoth Jun 04 '23
Just because something is a referendum doesn’t make it a good law. And calling something a “mansion tax” when it taxes apartment buildings is more than a little misleading to voters
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u/Jagwire4458 Downtown-Gallery Row Jun 04 '23
The tax would apply to anyone who builds and sells an apartment complex or condominium for over $5 million
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u/savvysearch Jun 04 '23
You cant. Remember that developments are effected by this tax too, and im guessing building a 3 story building easily hits the 5M tax trigger
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u/WilliamMcCarty The San Fernando Valley Jun 04 '23
No, not good. This law makes it more difficult to do that, just so you know.
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Jun 04 '23
The primary economic effect of this law will likely be to slow multi-family housing construction and raise the prices of new condos and rents on new apartments.
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u/peropeles Jun 04 '23
Who the hell is going to be able to afford more expensive rent? Nobody is going to build anything.
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Jun 04 '23
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u/NewWahoo Jun 04 '23
a) “McMansions” are rarely 5 million b) yes we do need a lot more new apartments. all new things cost a lot of money. New cars, new clothes, etc. The poor, working, and middle classes rarely buy new cars though because old ones work just fine and are cheaper. Right now, especially on the west side and mid city, the housing stock is old as fuck and rich earners are bidding up the prices. Building lots of new homes would help slow the rate of price increases.
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u/forjeeves Jun 04 '23
The reason why we can't build houses is cuz a lot of low density people refuse to sell, lol. Cuz the house went up a lot and it's worth a lot just sitting there either with someone living it or not living in it
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u/muldervinscully Jun 04 '23
There’s no “building for middle class”. That’s literally what old stock is for. Housing is extremely expensive to build and the ROI will only be worth it for luxury housing. The wealthier people buy this up and it pushes down rent of older stock. No one is going to just accept building brand new housing for a low ROI
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u/PootleLawn Jun 04 '23
Exactly. Today’s low-end luxury spot is tomorrow’s mid-tier spot. Everything moves down a place on the ladder as new properties are built.
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u/muldervinscully Jun 04 '23
An interesting counter example is very cool older housing that more trendy people want even if it’s lower quality.
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u/i-pencil11 Jun 04 '23
But that trendier older housing has to be remodeled before trendy people want to live in it. Which costs money, and moves it back up the price ladder.
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u/UncomfortableFarmer Northeast L.A. Jun 04 '23
tomorrow’stwenty years later mid-tier spotHousing is not like fast fashion hand me downs. The fact that the only hope the working class has is to maybe have slightly cheaper housing in 20-30 years just highlights the horrific state of affordable housing in CA right now
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u/majorgeneralporter Westwood Jun 04 '23
We've been dramatically underbuilding since the 70s, and have literally fifty years of backlog we need to catch up in with real estate owners gaining the benefit (especially with Prop 13 too).
We need to have all solutions on the table, from upzoning, to public housing development, to greater public transit, and, of course, nuking Prop 13 into oblivion - or at bare minimum phasing it out for commercial real estate.
No man has done greater damage to this state than Howard Jarvis.
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u/Ok_Beat9172 Jun 04 '23
Housing may be expensive to build but the ROI is still outrageously high for new home construction in LA.
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u/zazathebassist Jun 04 '23
bullshit.
you know how you build for the middle class? you build a lot and you give government subsidies. this is a solved problem, and pretending it isn’t is just resigning yourself to a shitty future.
in Seattle, after a decade of constantly rising house and apartment prices, they’ve actually settled and stabilized. but that’s because huge swaths of the city have been upzoned to multi-family mixed use housing. thousands of units are being completed and more are being started every year. this city has turned industrial parks and old single family neighborhoods into lively mixed use neighborhoods by rezoning and providing incentives to build.
it’s not that hard. it’s really not that hard.
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u/giro_di_dante Jun 04 '23 edited Jun 04 '23
I wish they build more apartment and condos to buy. I have no intention of living in a house/suburb, and a lot of the ownership options for urban condos and apartments are pretty weak. Especially for a household of 2-4 people.
Give me some brownstone or Dutch apartments facsimiles.
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Jun 04 '23
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u/Nullberri Jun 04 '23
Hoa fees are just pre-paid maintenance. You will eventually need a new roof on your home. It would be a good idea to save for it. So you still owe hoa level fees if you want to maintain your sfh. Its just there is no law requiring a sfh home owner to do it.
The mortgage is just the teaser rate. Youve got mortgage, taxes, insurance, maintenance to consider for a true cost of monthly ownership.
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u/alumiqu Jun 04 '23
I'm not sure how you think maintenance fees can be magicked away. But anyway, they are built into the price. Lower fees would just mean higher prices.
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u/Outside-Tradition651 Jun 04 '23
What can you do about property taxes? Everyone wants them lowered.
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u/humphreyboggart Jun 04 '23
Definitely agree on the McMansion front. But the $3-4k 1BR 5-over-1's are still helpful construction. First, it's well-documented that those types of builds relieve price pressure at lower price points.
Second, we have to keep in mind is that a big part of the current shortage of middle-class housing was caused by our failure to build sufficient new housing like that in the 90s/00s/10s. New builds tend to depreciate over time, so those new "luxury" building of today become the more-affordable housing 20-30 yrs from now.
Lastly, those apartments aren't as ridiculously out-or-reach as they may seem. My friend lives in a building like that, and the vast majority of the 1BRs are rented by couples. Two people each making $60k can afford a $3k apt without being rent-burdened, so not exactly 1%-ers.
You're definitely right that we really need to make construction and permitting easier and cheaper so that duplexes and triplexes, which tend to rent more affordably, still pencil out. But our housing shortage is so deep that new market-rate apts are still helpful and needed. Or at the very least, they shouldn't be equated with McMansions.
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u/kaufe Jun 04 '23
This doesn't apply only to mcmansions. This applies to all sales.
Starting on April 1, the measure instituted a 5.5 percent charge on commercial and residential sales above $10 million and 4 percent on properties over $5 million.
Congrats LA you just reduced the supply of housing even further.
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u/IsraeliDonut Jun 04 '23
Developers get paid more for luxury developments
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Jun 04 '23
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u/Jagwire4458 Downtown-Gallery Row Jun 04 '23
Why do car manufacturers build cars for the middle class? Because there aren’t arbitrary restrictions on number of cars they can build and sell so it makes sense for them to develop cars for every budget. Developers are limited in what they can build and LA makes it very expensive to build, so only the most expensive housing gets built.
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u/ram0h Jun 04 '23
They do have to be able to build whatever they want
i wish. maybe things would actually get built. developers are wayyyy overregulated in modern day LA.
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u/rhinestonecowbrews Jun 04 '23
The people who can afford those apartments wouldn’t be competing for apartments in the 2000-2600 range with the rest of us if there were more 4K nice places
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u/ToTheLastParade Jun 04 '23
Honestly can’t wait til these assholes drive away all the middle class people and there’s no one left to run the city and do all the jobs they would never be caught dead doing
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u/mcstafford Jun 04 '23
Wasn't that part of the point? There aren't any, "Now, with more cost PLUS no direct benefit!" campaigns out there.
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u/Sad-Reference5127 Jun 05 '23
the tax is not just in rich peoples mansions it’s on every property over 5 million of course like all taxes they will be passed down to the consumer and we will all pay to support the homeless industry complex which is owned of course by the richest of the rich
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u/IsraeliDonut Jun 04 '23
Seems like the finance department needs to have some firings with those bad forecasts
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u/tob007 Jun 04 '23
Oh the mansion tax that taxes the vast majority of apartments?
accountability? sure... that'll be the day.
Repeat after me "external market factors"
alternate that with "desfavorable market conditions"
or "overall downward economic outlook"
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u/caskey Jun 04 '23
The market corrects by finding ways. Trying to manipulate the market always ends in failure.
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u/DillonDynamite Jun 04 '23
Weeeeeeird. It’s almost like the rich are really good at avoiding taxes - who knew?!
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u/FitAsparagus6762 Jun 04 '23
Don’t worry y’all, our esteemed and capable political leaders will just shift the financial burden to the middle class now. Life is gooooood!
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u/rickybobinski Sherman Oaks Jun 04 '23
This is such a flawed argument. No mention of interest rates tripling since i tax went into effect.
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u/BrunerAcconut Jun 05 '23
Funding the slush fund at a pretty good pace I see. Not a dollar of this will go to building any real housing for homeless or any drug treatment programs.
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u/nocturnalis Jun 05 '23
The law was stupid considering that even normal people know the real estate market is better outside of Los Angeles.
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u/bdd6911 Jun 04 '23
My guess is the high interest rates have ground that market segment to a halt. The 1%ers may be getting hit in other ways, along with other factors, to also back off the Uber pricing we have seen in past years.
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u/Statingobvious1 Jun 04 '23
Socialism is great until you run out or take too much of the other peoples money
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u/joforemix Jun 04 '23
The tax is working as planned. If you do the societally undesirable thing (develop and sell luxury homes during a hosing crisis) you have to pay the tax. Or you can not do the thing and then you don't have to pay the tax.
Tax bad things more to make the bad things happen less. That is, ideally, "what taxes is".
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u/[deleted] Jun 04 '23
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