Luxury real estate accolades for THE transfer tax

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(Getty)

Proponents say the measure will raise up to $1 billion a year from the people who can most afford it to create housing for those Angelenos who need it most.

But many industry players, especially in the luxury sector, have a different opinion.

The proposal in question is Measure ULA, an initiative backed by a coalition of social advocates and affordable housing groups that garnered enough signatures to secure its place on the November ballot. The measure, called the “mansion tax,” would impose a new transfer tax of 4% on sales of properties in the City of Los Angeles valued between $5 million and $10 million, with the tax rising to 5.5% for sales of $10 million or higher.

“It’s a major threat,” said Dan Yukelson, executive director of the Apartment Association of Greater Los Angeles. ” It sounds good. It’s a big rallying cry for voters – “We’re going to take all this money from the rich and help the homeless.” In the long run, it’s going to come back and bite our ass.

The tax would be added to the city’s existing 0.45% transfer tax, for an overall transfer tax of almost 6% on sales over $10 million, and would be in addition to the transfer tax of 0.11% of the county.

The money would be paid by the seller and would apply to residential and commercial properties. Real estate data shows that in 2021, this would have applied to about 4% of all real estate sales in the city, including about 700 single-family transactions – less than 3% of all single-family sales – and about 270 sales of apartment buildings. apartments and 150 commercial sales.

The $5 million and $10 million thresholds would be linked to inflation and would likely increase. Proponents say the tax, had it been in place last year, would have generated $923 million, funds that would be earmarked specifically for affordable housing production and homelessness prevention programs.

“Measure ULA represents a holistic approach to addressing the housing affordability and homelessness crisis in the city,” wrote a team of researchers, including professors from UCLA and USC, in a white paper. released last month. The measure, the scholars concluded, “would have a positive impact on the city’s housing crisis, while having no effect on the average Angeleno.”

Two similar measures are also on the ballot in Santa Monica (a city where home prices and rents are even higher than in Los Angeles): one would add a 5.7% tax on transactions above at $8 million and would continue indefinitely, while the other would add a 2.5% tax on transactions over $8 million that would expire after 10 years unless extended by the city council. The city already charges a 0.6% transfer tax on transactions over $5 million.

“Game changer” or “coup de grace”?

With dozens of nonprofits and socially minded political groups – United Way, immigrant advocacy group CHIRLA, LA County Democratic Party – Measure ULA has the support of affordable housing developers, including nonprofits EAH Housing, Century Housing and Community Housing Works.

“I really believe this would be a game-changer for us,” Stephanie Klasky-Gamer, president of a supporter, the nonprofit homeless housing developer LA Family Housing, told the LA Times recently, citing the benefits of the steady stream of revenue from measurement.

But many luxury brokers and owners only see the impending pain – if they are aware of the potential new tax.

“It’s unbelievable how many people don’t know that,” said Westside Estate Agency co-founder Stephen Shapiro. “It’s frightening.”

Even Shapiro was unaware of the ballot measure until several weeks ago when another broker asked him about it. Then he quickly sent an email, from the Westside real estate account, to some 10,000 industry contacts.

“Vote NO on Ballot Measure ULA,” read the subject line.

If the measure were worded differently, it might not be so bad, Shapiro explained, but he sees a fundamental problem in the way the proposal is structured. It calculates the tax amount based on the total sale figure, regardless of the seller’s net profit or net loss – meaning that a homeowner who is already facing a big loss or whose home value is n ‘rose that due to major work he performed would still be affected by an effective sanction.

Shapiro’s email blast gave the example of a buyer who bought a house for $6 million and then sold it for $5 million, which would equate to a $1 million loss dollars, not including closing costs, plus another $200,000 tax bill.

“The real problem is that it was not thought of by rational businessmen, and it defies common sense and basic logic,” the email reads. “Let’s call it the ‘Let’s get the rich’ movement,” Shapiro added in an interview. “It’s so poorly designed.”

A few weeks before the elections, the opposition is rising. Jason Oppenheim, the reality TV star and founder of The Oppenheim Group, has become a high profile adversary, emailing his own agency. A Sherman Oaks-based coalition of homeowners and small businesses called Angelenos Against Higher Property Taxes has organized an Official Opposition campaign calling the measure an unnecessary “gift of special interest” to affordable housing developers, a line picked up by the politically conservative Los Angeles Daily News Editorial Board. Some owners are also exploring legal options.

Some residential developers have started speaking out, including Aeries Development founder Billy Lehman Goodyear. After hearing about the tax, Lehman Goodyear recently told the LA Times that he had in fact pulled out of a land deal in Brentwood where he planned to build two houses, as he had calculated the project would no longer be feasible.

“This new tax… will make the work of many real estate developers unprofitable and will force many to stop developing in the City of Los Angeles,” he wrote to the newspaper. “For many, this tax will be the deathblow.”

Yukelson, of the AAGLA landlord group, says the impact of the tax would also ripple through the rental market, as it will curb the development of market-priced housing and further limit supply – an equally damaging consequence for tenants.

“The last thing we need is more taxes,” he said. “It just makes it harder to entice people into this business if they know they’re going to have to pay these kinds of exit fees to sell these properties.” He predicted that more developers would reject the city of LA, where bureaucratic red tape is already notorious.

Market impact

While the measures are unlikely to have a widespread impact on a housing market currently hardest hit by rising interest rates, some analysts predict a transfer tax would slow luxury sales, especially for homes. which is priced around the $5 million L.A. threshold or the $8 million threshold. in Santa Monica, where sellers and buyers are more likely to be put off by the new cost.

“At least at the margin, this is going to hold some sellers back, or at least make them think twice,” said Jordan Levine, an economist at the California Association of Realtors. “It kind of undermines the broader growth of the housing market.”

In progressive LA County, the two cities’ ballot measures appear to have a decent chance of passing — though it’s also telling that none of the LA mayoral candidates came out in favor of Measure ULA. Instead, they both point out that the city — which in recent years has received $1.2 billion in Affordable Housing Bonds from the HHH proposal — needs to spend the money it already has more wisely. for affordable housing.

“While I support the idea of ​​a dedicated revenue stream for housing and services for the homeless,” Caruso said in a statement, “I think we need to first demonstrate to the public that it can trust the government to use these funds effectively”.

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