City officials consider ‘mansion tax’ changes, but critics say proposed fixes don’t go far enough

Los Angeles leaders could soon make changes to the city’s embattled “mansion tax.” But some housing advocates, who blame the tax for a slowdown in apartment development, say the new attempts at reform don’t go far enough.

The city’s Housing Department released a report last week recommending the City Council make four changes to voter-approved Measure ULA, a tax on real estate sales of $5.3 million or more.

The changes, described by the Housing Department as “narrowly focused,” mainly deal with the financing and regulation of affordable housing projects funded by Measure ULA. The department recommended the City Council approve those changes by early fall so loans for new affordable housing projects can close later this year.

Mott Smith, an adjunct professor of real estate at USC and a critic of the tax, said the reforms proposed in the report could fix overly restrictive spending rules. But he said they don’t address the tax’s broader impact on housing development across the city.

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“This is really a form of admission that ULA is not working as designed,” Smith said. “It’s frankly about time that the city admits this because we’re never going to fix it if they can’t admit there’s a problem.”

The report’s conclusions were reviewed and endorsed by the citizen oversight committee tasked with monitoring Measure ULA’s outcomes. Joe Donlin, director of the United to House L.A. coalition, said supporters are in favor of the proposed changes.

“ULA was written with flexibility to make these exact kinds of amendments,” Donlin said. “We always knew that there would need to be adjustments along the way, and we continue to support efforts to optimize Measure ULA in any way possible.”

How the tax has worked so far

Since taking effect, Measure ULA has raised more than $1 billion for tenant aid programs and affordable housing construction. Before voters approved the tax in 2022, proponents said it could produce 26,000 homes in its first decade. So far, the tax has funded the construction of about 800 homes, according to supporters.

Tax proponents say thousands of new homes are entering the development pipeline. Last year, the city began taking applications for $387 million in funds for housing development and preservation. But according to the Housing Department report, affordable housing lenders have told the city that Measure ULA requirements can discourage them from funding projects.

Based on those concerns, the report recommends changes that would:

Exempt projects built by affordable housing developers from paying the taxEnsure terms for other sources of public funding don’t conflict with terms for Measure ULA funding Allow foreclosed projects to be sold to other developersLet building owners increase rents if they lose rental subsidies

Azeen Khanmalek, executive director of Abundant Housing L.A., said those changes would help unlock Measure ULA funding but wouldn’t do much to convince market-rate developers to return to L.A.

“The biggest thing that we don’t see in this report is around addressing the impact measure ULA is having on multi-family housing production across the income spectrum,” Khanmalek said.

Several economic studies have concluded that because the so-called “mansion tax” applies to new apartment buildings — not just mansions — development has slowed in L.A. more than in nearby cities.

Tax supporters dispute those findings, blaming high interest rates and other macroeconomic factors for slower building in L.A.

‘Mansion tax’ fight headed for the ballot

The proposed changes come at a time when Measure ULA has come under fire, with multiple efforts to reform the tax — or invalidate it — likely to appear on the November ballot.

The Howard Jarvis Taxpayers Association has turned in signatures for a ballot measure to overturn such taxes statewide.

Meanwhile, the L.A. City Council has set up a committee to develop potential reforms for the November ballot that would alter but not eliminate the tax. The new report from the housing department has been referred to that committee, but it has not yet been scheduled for a vote.

Miguel Santana, president of the California Community Foundation, said he and other business leaders, academics and affordable housing developers recently formed a new coalition — called Mend It, Don’t End It — to support proposals such as a 15-year tax exemption for new apartment buildings.

“ULA has created circumstances where investors are deciding not to invest in Los Angeles and are investing in surrounding communities,” Santana said. “We know that at the crux of the affordable housing crisis is supply and to be able to respond to that issue.”