Los Angeles implemented a new tax on luxurious real estate to finance affordable housing
5 min read
Los Angeles has introduced a “mansion tax” which applies a 4% rate to real estate purchases ranging from 5 to 10 million dollars, and a 5.5% rate for properties exceeding ten million dollars. In total, this tax is projected to generate approximately 670 million dollars in revenue. The funds will be allocated towards financing affordable housing in order to prevent homelessness.
The tax, officially known as “Measure ULA” was agreed upon by the state legislator after a referendum in November 2022 as close to 60% of voters cast their ballot in favour of the proposed law. Los Angeles being the city with the highest number of homeless people in the country, it’s little wonder that such a tax comes to fruition. California in general is also known as the second most expensive state when it comes to real estate, only being topped by Hawaii.
Under the new tax, a millionaire selling a house worth 5 million dollars would have to pay 200 thousand dollars to the government. To put the necessity of action in the city of LA into perspective, the recent crises have made the number of homeless people skyrocket to around 42,000 people in February 2022. In 2016 the number was closer to 28,000 people without a home according to an article published in the New York Times.
The “US Department of Housing and Urban Development” has provided alternative calculations, indicating that the quantity of individuals experiencing homelessness in LA is an astonishing 65,111 people.
Real estate owners are employing innovative strategies to evade the newly imposed taxes, leading to widespread panic.
Despite the relatively low sum of tax money in comparison to the enormous profits made in the real estate market, millionaires and celebrities sought for evermore creative and desperate ways to avoid contributing to improving societal living standards. According to “The Guardian“, one desperate super rich homeowner of a 16.5-million-dollar mansion was going as far as to gift a supercar to whoever buys his house, just to get out of paying around 900 thousand dollars in tax.
Others are taking different approaches to avoid paying taxes. A legal challenge has been put before court, claiming the tax violates the Californian constitution. The outcome of the challenge is, as of now, still open, and it will very likely take a while until any result comes of it.
The Tax would only affect 4 Percent of the Real Estate Transactions in LA
According to the luxury real estate platform “redfin” the median selling price for property in California is just short of a million dollars. It is hovering around 900 thousand dollars. The tax therefore would only affect about 4% of real estate transactions in the city.
Real estate agents representing the ultra-wealthy make intriguing statements. They argue that the tax rate is insufficient, as a residence worth 5 million dollars should not be classified as a mansion.Real estate agent Scott Tamkin states that five million dollars does not equate to luxury. Rather, it represents a pleasant house situated in a desirable location. It falls short of being classified as a luxury property in a prime area, according to the majority’s perception.
Critics initiate an extensive public relations effort to influence the perception of the general public.
However, he is not the sole real estate agent attempting to convince ordinary individuals that a five-million-dollar residence (approximately 4000 square foot in Beverly Hills as stated by Josh Altman, a real estate agent and reality TV personality) is not considered luxurious. It appears that a significant public relations effort has been initiated to influence public sentiment against the tax, with numerous prominent US news organizations publishing articles opposing the suggested tax, disregarding the widespread scientific, political, and public backing for the legislation.
The new Tax will bring in about 627 Million Dollars
According to an article published by the Guardian, it is projected that the tax will generate approximately 627 million dollars. This substantial amount falls short of the initial expectation of one billion dollars by nearly 400 million dollars. However, it still exceeds the revenue collected from the previous active transfer tax by more than three times, which currently stands at around 200 million dollars per year.
Several universities and analysts, particularly the University of California (UCLA), have recently emerged to oppose the public relations campaign by multi-millionaires aimed at reversing the tax. They argue that the funds generated and the influence on the housing market will significantly contribute to alleviating the homelessness crisis in Los Angeles.
