Can Overhauling L.A.'s Mansion Tax Boost Housing Construction?

This week, lawmakers in Sacramento introduced a legislative proposal to amend Measure ULA, also known as the "mansion tax," aimed at addressing the housing crisis in Los Angeles. This measure, originally passed by voters in 2022, imposes a tax on property sales over £4.2 million to fund homelessness prevention and affordable housing initiatives. The new bill seeks to alleviate some tax burdens viewed as detrimental to housing development, which critics argue has suppressed new construction in L.A.

Last updated: 24 October 2023 (BST)

Key Takeaways

• Senate Bill 423 aims to modify Measure ULA, focusing on reducing taxes for newer commercial properties.
• The proposal comes amid concerns that Measure ULA has hindered housing production in Los Angeles.
• Supporters argue that the changes could stimulate economic growth and encourage new development.
• Opponents worry that the proposed modifications will undermine the original intent of Measure ULA.
• The outcome of this legislation could affect the future of housing policy in California.

Understanding Measure ULA

Measure ULA was introduced as a response to Los Angeles's ongoing housing crisis. It targets high-end property sales, imposing a tax on any sale above £4.2 million. The funds generated from this tax are earmarked for various programmes aimed at reducing homelessness and increasing affordable housing supply. In its first year, Measure ULA raised over £800 million, although critics argue that the funds have not been effectively utilised, citing slow spending and bureaucratic delays.

The Need for Change

Critics of Measure ULA, including members of the real estate sector and some housing economists, argue that the tax has deterred developers from building new properties. They contend that the tax creates an additional financial burden, making it less attractive to invest in new housing projects. Notably, former Assembly Speaker Bob Hertzberg, who has been involved in the legislative negotiations, stated that while Measure ULA was intended to address housing issues, its implementation has had unintended negative consequences.

Senate Bill 423: A Legislative Response

Senate Bill 423, co-authored by State Senator Lena Gonzalez and Assemblymember Tina McKinnor, proposes several key amendments to Measure ULA. The most significant change is the reduction of the tax rates for certain property types:

• A 4% tax for single-family homes over £4.2 million.
• A 5.5% tax for homes priced at £8.7 million and above.
• A reduced rate of 1.5% for commercial properties, including apartment buildings, retail centres, and warehouses built within the last 15 years.

This restructuring aims to make it more financially viable for developers to engage in new construction, ultimately increasing the housing supply in Los Angeles.

Political Dynamics and Stakeholder Reactions

The introduction of SB 423 has sparked a heated debate among various stakeholders. Proponents, including Mayor Karen Bass, argue that these changes are necessary to revive housing production and ensure that Measure ULA meets its original objectives. On the other hand, opponents, such as the Howard Jarvis Taxpayer Association, view the bill as an attempt to undermine the will of the voters who supported Measure ULA.

Jon Coupal, president of the Howard Jarvis Taxpayers Association, has labelled the proposal a "lame effort" to sabotage his group's ballot measure, which seeks to impose stricter limits on local taxes and ultimately nullify Measure ULA. The tension between these opposing viewpoints highlights the complex landscape of housing policy in California.

Impact on Housing Production

If SB 423 passes, the anticipated outcome is an increase in housing construction within Los Angeles. Dave Rand, a land use attorney, stated that the proposed changes would be a "very significant, welcomed proposed change," potentially leading to greater investment in housing development. By revising tax rates, the bill aims to stimulate economic activity and encourage developers to pursue new projects.

Concerns Over Funding for Affordable Housing

While proponents of the bill argue for its positive implications on housing development, critics warn that reducing tax revenues could severely limit the funds available for affordable housing initiatives. Joe Donlin, director of the coalition behind Measure ULA, cautioned that the proposed changes could lead to a funding shortfall of 15% to 30%, undermining efforts to tackle the housing affordability crisis.

The tension over funding is emblematic of the larger struggle to balance immediate housing needs against the long-term sustainability of housing policy in Los Angeles. As the city grapples with rising rents and increasing homelessness, the outcome of this legislative proposal could have far-reaching consequences.

Future of Housing Policy in California

As legislators in Sacramento work to craft a solution that balances the needs of developers and the obligations to address homelessness, the future of housing policy in California hangs in the balance. The proposed amendments to Measure ULA are just one piece of a larger puzzle that includes ongoing discussions about housing supply, affordability, and the role of taxation in funding public services.

In the coming months, stakeholders will be closely watching the developments surrounding SB 423 and its implications for both the housing market and the broader social issues at play. The outcome will not only affect Los Angeles but could also set a precedent for how other cities in California approach similar challenges.

What Happens Next?

The fate of SB 423 and Measure ULA will depend on various factors, including public opinion, lobbying efforts by interest groups, and the state of California’s housing market. If the Howard Jarvis Taxpayer Association's measure makes it to the ballot, it could complicate the situation further, as it seeks to impose stricter regulations on local tax measures.

As the legislative session progresses, discussions will likely intensify over the best approach to meet L.A.'s housing needs while ensuring that the funding mechanisms remain intact. The dialogue surrounding these issues reflects the broader challenge California faces in addressing its housing crisis amidst a rapidly changing economic landscape.

FAQs

What is Measure ULA?

Measure ULA is a tax imposed on property sales in Los Angeles exceeding £4.2 million, designed to fund homelessness prevention and affordable housing initiatives. It was passed by voters in 2022.

What changes does Senate Bill 423 propose?

Senate Bill 423 proposes to lower tax rates for newer commercial properties and maintain existing rates for single-family homes, aiming to stimulate housing development in Los Angeles.

How much revenue has Measure ULA generated so far?

Since its implementation, Measure ULA has raised over £800 million, although critics argue that spending has been slow and ineffective in addressing housing needs.

Why do some critics oppose Measure ULA?

Critics argue that Measure ULA has deterred housing development by imposing additional costs on developers, leading to a slowdown in new construction and exacerbating the housing crisis.

What implications could SB 423 have for affordable housing funding?

If passed, SB 423 could reduce funding for affordable housing initiatives by 15% to 30%, according to some advocates, potentially undermining efforts to address the housing crisis.

As California navigates its complex housing landscape, the implications of these proposals will be pivotal in shaping the future of housing policy. What strategies will emerge to balance development incentives with the needs of vulnerable populations? #HousingCrisis #MeasureULA #CaliforniaLegislation