Los Angeles Real Estate Market Data Analysis – March 2024
The Effect of Measure ULA aka “The Mansion Tax” on the real estate market
It’s been one year since Measure ULA went into effect in the city of Los Angeles. This “Mansion Tax” levies a 4% transfer tax on all property sales above $5 million and a 5.5% transfer tax on sales above $10 million, with the proceeds of the tax going to fund homelessness and affordable housing initiatives.
Since its inception, Measure ULA has generated roughly $215 million, according to the LA Housing Department. Proponents of the measure and city officials estimated that it would bring in $600 million to $1.1 billion. Setting aside how this $215 million has been used to address the affordable housing crisis, it is clear that, so far, Measure ULA has not been the windfall to fight homelessness that proponents promised.
We can’t speak to the effect that Measure ULA has had on addressing homelessness, but we can speak to how it has affected the Los Angeles real estate market.
Based on data found on the MLS, the city of Los Angeles saw 276 sales over $5M in the year leading up to Measure ULA going into effect (April 2022-March 2023). In the year since Measure ULA’s inception (April 2023-March 2024), there were 114 sales over $5M. That’s a 57% decline.
During this same time period, interest rates increased dramatically and market activity slowed across the Los Angeles area in general. However, neighboring cities that were not subject to Measure ULA did not see as dramatic a decline in sales. Santa Monica and Beverly Hills both saw a roughly 33% decline in the number of sales above $5M, and Malibu experienced only a 13% decline. Even accounting for the change in market conditions, this suggests that Measure ULA is responsible for between 24-44% decline in sales. The LA Times had an even more aggressive estimate, stating “in L.A. — the only city affected by the tax — home sales above $5 million have plummeted at twice the rate of other affluent cities, as buyers opt for homes in neighboring areas that aren’t subject to the tax.”
The Interest Rate Issue
Aside from Measure ULA, what else is causing the market slowdown in Los Angeles? The one-two punch of higher interest rates and low inventory.
Analyzing data from the National Mortgage Database, through the end of 2023, in California:
11% of mortgages have rates less than 3%
35% of mortgages have rates between 3-4%
28% of mortgages have rates between 4-5%
12% of mortgages have rates between 5-6%
In total, 86% of people with mortgages in California are paying rates under 6%. When current mortgage rates are over 7% for most borrowers, it doesn’t make financial sense for people to sell their current homes and buy something else with a higher borrowing cost. This feeling of “rate-lock” has, of course, worsened the already tight supply of homes for sale in California, as potential sellers opt to stay put in their current homes.
A Silver Lining for Sellers?: New Higher Measure ULA Thresholds
Effective for transactions closing after June 30, 2024, the new thresholds for ULA will be $5,150,000 and $10,300,000. Transactions above $5,150,000 but under $10,300,000 will be assessed a 4% tax and transactions $10,300,000 and up will be assessed a 5.5% tax.
If you’d like more information about the mansion tax and how it is effecting the real estate marketing in Los Angeles, please get in touch! And if you’re curious what your home may be worth, and would like to receive a complimentary price valuation, send me an email at juliette.hohnen@elliman.com.