The ULA Effect: Power Players Weigh In On Controversial L.A. Tax

More than six months in the so-called mansion tax in L.A. and Measure ULA is still a hot topic of conversation among real estate professionals. Approved by the voters in November 2022, the city’s real property transfer tax is applicable on all home sales $5 million and above within the city of Los Angeles (4 percent for properties conveyed over $5 million and 5.5 percent for properties sold at $10 million or more. With so many elite luxury agents gathered at our 2023 Power Players Showcase, we had to get their take on how the tax has affected business and what their buyers and sellers are doing to still make moves happen.

Ernie Carswell: “The last two weeks of March [this year] were the strangest time, where everyone was racing to close at $5 million or higher before or by March 31. And then April had only two closings in L.A. County that were $10 million or higher—the first April in history with that little of luxury closing. So there was instant reaction. But now what I’m finding is people have somewhat adjusted, my serious sellers are still choosing to move forward. Some are  trying to accommodate some of that percentage for the tax in their price.” 

Kofi Nartey: “We have been fortunate to have properties that fall outside of the given areas. The ones that do, it’s been really about getting creative. Is there a creative way to structure deals and workaround that fall in that closer price range, especially in the $5.5 and $6 million deals. [Measure ULA] knocked the market down, I believe, 67 precent year-over-year in the first two months of its existence, in terms of activity. And it failed, it terms of what it was supposed to produce by about 95 percent.” 

Rochelle Atlas Maize: “The thing that has really changed in my business is that there are not as many sales because of ULA. My client base that are $5 million and up don’t want to sell because you have capitol gains tax and the ULA tax. Combined that’s a lot. So what I’ve seen is more of a shift to lease. A lot of clients are putting their properties on the market to lease them, to then turn them into 1031 exchanges so they don’t have the capitol gains and they transition it that way. So we’re seeing a lot more leasing. I’ve never done more leasing in my life than I have the past nine months. Trust me: take the leases. Do them. Have the communication with those clients because eventually they’re going to sell. Some of those leases turn into lease-for-sale, and you want to be the person they go to. It’s more work now, but it’s worth it. We’re going to have another great market, but now you’ve got to work a little harder and differently.”

Ernie Carswell: “Be sure of this: more people who are going to vote on this do not have a $10 million house than do. So that vote is probably not going to go very well the second time around. But at least the voters will be informed this next time around. No one knew what hit them this last round and I think it was a very unfair ballot situation. I didn’t event feel informed properly and then the boom fell. Many other major cities in American already have a mansion tax. New York has one, San Francisco. The city of Santa Monica has one that is higher than L.A. So we just have to adjust to the idea that there will be an additional luxury tax now.” 

Kofi Nartey: “There are measure and discussions in place to mitigate or even potentially repeal it, but in the meantime we’re figuring out the workarounds. We all know that when it comes to those price points, those buyers and sellers motivation is a range: Where they do have to buy or sell because its a life-changing event, but the majority of them don’t. The motivation to sell can wait. So how are we engaging with those buyers? That’s where ancillary opportunities or new development opportunities can be great for engaging in conversation. So when that motivation meter hits to the point where they’re ready to sell, they’re going to think about who they have been engaged with over the last six, eight months or a year.”

As we previously reported, the tax has raised less than $60 million since April, far below city expectations. The first installment of tax funds were recently allocated, with the city council approving $150 million in spending across six programs, all connected to housing support within the city. The expenditure plan will be directed to short-term emergency rental assistance, eviction defense, tenant outreach and education, direct cash assistance for low-income seniors and people with disabilities, tenant protections, and affordable housing production. However, the city won’t be able to use the full $150 million until the tax generates $150 million.