LA’s “Mansion Tax” Falls Short of Revenue Expectations

The city of Los Angeles is facing a major setback in its efforts to combat homelessness as its “mansion tax” falls short of revenue expectations. Last year, voters approved an extra tax on home sales over $5 million, with the promise of generating $700 million annually to address the city’s homelessness crisis. However, a year later, the tax has only brought in a quarter of the projected revenue, leading to a decline in high-end home sales as wealthy homeowners opt to stay put rather than pay the hefty tax bill.

The tax, known as the United to House LA (ULA) measure, imposes a 4% real estate transfer tax on properties selling for between $5 million and $10 million, and 5.5% on properties selling for over $10 million. This has resulted in a significant drop in transactions for homes in this price range, with only 230 homes over $5 million sold in Los Angeles since the tax was enacted, a 60% decline from the previous year.

Experts and real estate professionals have criticized the tax, arguing that it creates a disincentive for homeowners to sell and could be exacerbating the city’s housing affordability problem. Some have questioned the threshold of $5 million, noting that these homes are not always luxury properties in Los Angeles.

Meanwhile, there is a movement to repeal the mansion tax in November, with similar measures in other cities meeting mixed results. Chicago recently rejected a similar tax, citing concerns about its impact on the housing market and affordability for middle-class residents.

In contrast, Berkeley, California, has seen success with its progressive mansion tax, which adjusts for market fluctuations and taxes the top third of high-dollar transactions. The city has seen a decrease in its homeless population and generates $10 million annually to fund services for the homeless.

As cities grapple with the issue of homelessness and housing affordability, the debate over mansion taxes continues to unfold, with some questioning the effectiveness of such measures in addressing these complex challenges.