Los Angeles is experiencing a noticeable slump in new apartment construction, and a growing number of developers are pointing fingers at Measure ULA as a key culprit. The transfer tax, dubbed the “mansion tax” by critics, was intended to fund affordable housing and homelessness prevention. But just a year after its implementation, many in the real estate industry argue it is having the opposite effect.
A Chilling Effect on Multifamily Projects
Measure ULA, officially known as the United to House LA initiative, went into effect in April 2023 and imposes a 4 percent transfer tax on property sales over $5 million and a 5.5 percent tax on properties selling for more than $10 million. While its proponents hoped the policy would create a robust stream of funding for social housing programs, the tax has dramatically reshaped market behavior.
According to CoStar data, multifamily building permits in Los Angeles have dropped nearly 40 percent year-over-year, with many developers citing the added financial burden of ULA as a major deterrent. “It’s not just about paying the tax at the point of sale,” said one local developer. “It impacts underwriting, investor appetite, and project timelines.”
The tax burden becomes especially problematic for developers who typically rely on selling completed projects to institutional investors or refinancing based on exit values. If sales are taxed at an additional 4 to 5.5 percent, the returns on these transactions shrink, making many potential developments financially unfeasible.
Pipeline Stalls and Projects Paused
The pipeline of new apartment projects has stalled, especially for mid- to large-scale developments. In some cases, shovel-ready projects have been shelved indefinitely as developers reassess whether they can pencil out deals under the new tax environment. Even well-capitalized players are hesitating.
Industry professionals also note that the uncertainty around the administration of the tax and its potential legal challenges adds another layer of risk. Several lawsuits, including one led by the Howard Jarvis Taxpayers Association, are seeking to overturn the measure. While those efforts wind their way through the courts, the freeze in development activity continues.
Policy Intent vs. Market Reality
Measure ULA was designed to raise as much as $900 million annually for homelessness prevention and affordable housing initiatives. Yet by early 2024, actual revenue collected was significantly lower than expected. The Los Angeles Housing Department confirmed that in the first nine months of the tax’s implementation, only about $150 million had been raised.
“We’re seeing a classic case of unintended consequences,” said Tracy Hernandez, CEO of the Los Angeles County Business Federation. “Instead of boosting affordable housing, this policy has throttled the very engine of housing creation.”
Developers Looking Elsewhere
With Los Angeles development prospects dimmed, many developers are now looking toward more business-friendly jurisdictions in Southern California and beyond. Markets like Phoenix, Las Vegas, and Dallas have seen increased interest from Los Angeles-based firms seeking to sidestep ULA altogether.
Some local policymakers are beginning to acknowledge the chilling effect Measure ULA has had. Discussions around exemptions or amendments for new construction are underway, but progress has been slow. In the meantime, affordable and market-rate units alike are being left on the drawing board.
Sources: CoStar, Los Angeles Times, Bisnow, Urbanize LA
