A ‘Mansion Tax’ in Los Angeles Is Worsening the City’s Housing Crisis

I sometimes prattle about a proverbial $1 million tax on poodles as a way to illustrate the counterproductive nature of many tax proposals. This is an ideal analogy for Los Angeles’ Measure ULA, the “mansion tax” that voters in 2022 approved by a wide margin. It has had the same negative effect as that punitive tax on pooches, based on recent research.

The city of Los Angeles has a licensed dog population of around 100,000, with poodles of all types (standard, miniature, and toy) being among the most popular breeds at around 6 percent. The city last year faced an estimated $1 billion deficit and closed it with a variety of cost-cutting measures. But city officials were, quite obviously, barking up the wrong tree.

If City Hall had simply imposed that $1-million levy on all 6,000 of those pups, it could have easily closed its budget gap—and had $5 billion left to hire more animal-control officers to track down all the unlicensed ones. Even by LA’s big-spending standards, that’s a pile of cash.

But, alas, the ballpark revenue raised by the Rich People’s Poodle Tax would be zero. Poodle owners would insist that their curly-haired companions really are mutts. Go figure, but they were just guessing at the breed when they filled out the license form. Others would sell or give them to dog lovers in other jurisdictions, dump them at the shelter, or figure out a workaround that didn’t put them in the financial doghouse. The market for dogs described as poodles would evaporate.

Back to our real-world tax: The idea behind Measure ULA was to fill city coffers by taxing a luxury item at punitive rates. It placed a 4 percent transfer tax on properties that sell between $5 million and $10 million and a 5.5 percent tax on properties that sell for above (now adjusted to $5.3 million and $10.6 million). The city would use the revenues to help the homeless and low-income tenants.

Its main pitch was to improve housing for people who can’t afford to live in Bel Air or Brentwood. The ACLU of Southern California described it as “a once-in-a-generation chance to end housing insecurity in Los Angeles.” ULA would “help keep people in their homes” and “will build the homes we need to reduce houselessness.” I can’t comprehend the difference between homelessness and houselessness, but the ACLU reassured us that the measure was backed by “housing experts.”

Now we see the results. Unlike the situation with poodles, owners of LA mansions haven’t suddenly declared their homes as hovels, but they have mostly decided not to sell them—or to adjust the asking prices to circumvent the tax. The tax proceeds haven’t been zero, but they are far less than supporters’ promises. It has yielded around a quarter of the most optimistic projections.

“The easiest way to avoid the tax is to not sell, and our research shows that over the first two years since ULA was implemented, high-value property sales in the city fell by about 50 percent—a far steeper decline than elsewhere in the county during the same period,” explain researchers from UCLA’s Lewis Center for Regional Policy Studies. News stories about Los Angeles Dodger Freddie Freeman revealed that he had to pay $258,000 in ULA taxes on a house where he took a significant loss. But many people in LA have just stayed put.

Research from the pro-housing California YIMBY finds that the tax has also reduced property taxes by quashing sales of commercial, industrial, and apartment construction, as the measure applies the tax far beyond the sale of fancy residences. Per the group, fewer sales means fewer properties are reassessed under Proposition 13, which caps property taxes and reassesses them at time of sale, which then slashed an estimated $25 million in property tax revenue.

The City Council recently rejected one council member’s proposal to ask voters to exempt apartment- and condo-related properties for 15 years, so it will likely be up to the state’s voters to decide on a tax-limitation measure that would, among other provisions, limit transfer fees to a modest amount and roll back LA’s doggone tax. The group likely has enough signatures to qualify it for the November ballot.

The worst result is the tax has halted apartment construction in a city that has long faced housing shortages—especially since last year’s wildfires obliterated a portion of the region’s housing stock. “Even though demand for housing in the region is red hot, many people who build apartments for a living have paused putting shovels in the ground because, they say, it’s just too hard to turn a profit,” the Los Angeles Times reported in October. Developers specifically called out Measure ULA, which obviously makes it harder to turn a profit.

If the state’s voters don’t come to the rescue, then new apartments and condos could one day be as hard to find in LA as a taxable puppy.