In 2022, Los Angeles voters approved ULA measurement, a transfer tax on the sale of large value properties within the city limits. Nicknamed the manor tax by its supporters, Meason Ula imposed a tax of 4% on sales of more than $ 5 million and a tax of 5.5% on sales of more than $ 10 million – one of the highest samples in the country. Its income is reserved for low -income housing programs.
ULA’s tax is paid by sellers, which may explain why Mayor Karen Bass suggested suspending him after forest fires. The mayor is right to worry. The value of properties in the Pacific palisades often exceeds $ 5 million, which fears that the tax will penalize the owners who have lost everything and who simply want to sell and move on. But measure ULA’s problems deeper. Suspended or not, it must be reformed.
Despite her nickname, Ula is not only a tax on residences. It applies to almost all properties at the price of more than $ 5 million, including apartment buildings, offices, sound internships, hotels and shopping centers – Place Angelenos live, work and store.
In addition, the ULA is not a tax on profits. It is based on the sale price. Thus, the owner of an office building which plunged 90% of value since the COVID-19 pandemic could sell it for $ 15 million and cause a ULA tax of $ 825,000, despite the overall loss of the owner. On the other hand, someone who bought a house 10 years ago for $ 500,000 and who sells today for 1.5 million dollars would pay nothing. ULA design means that significant losses can be strongly taxed while large gains become without Scottish.
Measuring the ULA also has strong “cliffs” – the thresholds where small price increases trigger massive tax increases. A property that sells $ 5 million does not produce a ULA tax, but a vend for a more dollar pays $ 200,000. These cliffs create strong incentives for owners to avoid tax.
The easiest way to avoid the tax is not to sell, and our research shows that during the first two years since the implementation of the ULA, sales of high value in the city have dropped by around 50% – a much more serious decline than in the county during the same period. Higher interest rates and construction costs are not to be blamed for the decline – these conditions have affected the whole region. And although there was a temporary “precipitation” before Ula’s implementation, our analysis explains this behavior. The 50% drop is a specifically ULA effect.
Depressed sales mean less income generated by the ULA. Donors estimated that the ULA would increase $ 600 million to $ 1.1 billion per year. Until now, the collections have an average of $ 288 million a year – less than half of the lowest projections.
By also reducing significant sales, Ula has slowed down the production of marketaries to the market rate. Most multifamilial developments involve the purchase of an appropriate site, then the sale of the finished building. The ULA can add significantly to the cost of these two transactions. And because most of the market -rate housing developments now include certain limited affordable apartments provided by developers in exchange for an increased size in the project, Los Angeles also gets less. Conservative, we believe that the ULA costs the city more than 1,900 new units per year, of which at least 160 would have been affordable units produced without public funding. Meanwhile, ULA income received in new multifamilial projects, because the entry into force tax is only enough to subsidize, at best, half of this number. The bad design of ULA unnecessarily costs The affordable housing of the city.
The impact does not stop at the accommodation. Ula has also slow down transactions For commercial, industrial and offices properties. This effect, combined with the slowdown in residential transactions, obstructs the growth of property tax. Under the California land tax system, local income increases mainly when the properties are reassessed for sale. Large transactions contribute disproportionately to this growth. Sales of more than $ 5 million represent only 4% of all transactions, but represent more than 40% of the growth of the city’s tax base. Over time, fewer transactions mean less funding for all public agencies and programs based on the Los Angeles tax base: schools, community colleges and the county and its security network programs.
Although the language of the ballot to measure Ula included limits to the power of the municipal council to modify it, ula East reparable. The most effective approach can be the action of the state. States governments almost always have the power to revoke or modify local actions, and transfer taxes are undoubtedly a question of interest in the State, because they have direct effects on the housing objectives of California and global budgetary health.
Cibed state legislation could reduce the negative effects of the ULA while preserving its objective of collecting funds to help low -income tenants. The options include the restriction of the tax for single -family houses (which makes it a real mansion fax), the adoption of marginal rates to eliminate “cliffs” (to work similarly to income taxes), or limit the ULA to properties that have not been sold or improved for many years; Sales of these properties are much more likely to represent an important windfall for sellers and these sales would not tend to undermine housing and job creation.
Los Angeles needs housing and economic policies that work – especially since we recover fires in January. This means balanced the urgent need for new income with policies that encourage new housing and new jobs. Measure Ula, as currently structured, makes this balance more difficult to reach. This could become a better tool – the one that fills the hopes of voters for more affordable housing, strengthens the local economy and protects the social and tax foundations of the region.
Michael Manville is an urban planning professor at the UCLA and a researcher affiliated with his Lewis Center for Regional Policy Studies. Shane Philips is project manager Initiative Housing Initiative at Lewis Center. Jason Ward is Rand Center co-director on accommodation and homelessness.
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