A previous version of this article inaccurately featured a photo of Beverly Hills instead of Los Angeles. The mistake has been rectified, and the correct photo of Beverly Park, an LA neighborhood, has been included with the appropriate caption.
LOS ANGELES — The implementation of a mansion sales tax in Los Angeles with the aim of combatting homelessness hasn’t quite gone according to plan. Wealthy residents who own homes priced at $5 million and above—the properties targeted by the tax—have resisted, resulting in lower tax revenue than anticipated since its introduction on April 1.
The revenue generated from the tax is intended to be used for eviction prevention, tenant outreach, emergency assistance, and affordable housing acquisition, among other initiatives. Supporters of the tax, which was passed with 58 percent of the vote as a ballot initiative last year, believe that sales will increase once the real estate market adjusts to the new tax. However, taxpayer rights groups and landlord organizations have filed lawsuits to halt the tax. As a result, some homeowners are holding off on selling their properties, and city officials are being cautious about spending the money, as there’s a possibility they may have to return it.
In the midst of this debate, the stark wealth inequality and housing crisis existing in Los Angeles and many parts of the country have been laid bare. The city’s homelessness problem, with over 40,000 people living on the streets, is directly linked to a severe shortage of affordable housing. Even individuals with jobs cannot afford to rent or buy property, which is why the “mansion tax” was introduced—to address these issues.
According to the Los Angeles Homeless Services Authority, the homeless population increased by 32 percent between 2018 and 2020, but the growth rate has slowed in recent years. Los Angeles has always been a city of extremes, but the homelessness crisis is a test of whether the liberal entertainment hub can effectively tackle a crisis within its own borders.
Opponents of the tax argue that a $5 million home cannot be considered a mansion in today’s Los Angeles, where the super-rich reside in properties priced at $20 million and above. “It’s a completely ridiculous tax. First of all, $5 million in Los Angeles is not a mansion,” says Danielle Revelins, a real estate agent with Compass.
The tax imposes a 4 percent rate on properties priced between $5 million and $10 million, while properties priced at $10 million and higher face a 5.5 percent tax. Revelins is frustrated by the fact that the government has already spent millions of taxpayer dollars on the homelessness problem without making significant progress, which is another reason she opposes the tax. “This government is insane the way they squander money,” she says.
Supporters of the tax dismiss such arguments. A study led by Peter Dreier, a professor at Occidental College, found that fewer than 3 percent of single-family properties sold in Los Angeles in the 2021-2022 fiscal year were priced at $5 million or higher. “Ninety-eight percent of homeowners in L.A. won’t feel this at all, and those who do can afford to pay it,” says Dreier. “This is rich people going on strike against the poor—and it includes some movie stars and other celebrities.”
In the months leading up to the implementation of the tax, luxury real estate sales in Los Angeles soared as homeowners hurried to sell their high-priced properties before the new levy took effect. Celebrities like Brad Pitt and Mark Wahlberg were among those selling their homes in the days leading up to April 1, according to the Los Angeles Times. Pitt’s representative declined to comment, while there was no response from Wahlberg’s representatives.
In a last-minute attempt to close deals before April 1, some real estate agents even offered free luxury cars as incentives. “To me, that is the epitome of selfishness,” says Dreier. “Giving away a luxury car to avoid paying a tax that would help those who sleep in their cars.”
While other cities like San Francisco and New York have implemented taxes targeting high-value real estate transactions, Los Angeles appears to be the first city to specifically use such a tax to alleviate its housing crisis.
Revelins has listed a home in the Venice Beach neighborhood of LA for $4,999,000—a deliberate strategy to avoid triggering the $5 million tax threshold. The property, a three-story, 3,961-square-foot “entertainer’s dream,” features a floating staircase and hardwood floors. “That property is worth slightly more,” says Revelins. “But if we listed it at $5.2 million, the buyer would have to pay an additional $200,000 in taxes. I believe the city would squander that money.”
Multiple homes in Los Angeles are listed just below $5 million as sellers employ various strategies to avoid the “mansion tax.” These techniques include subdividing properties or dividing ownership between spouses as “tenants in common” who can then sell their shares separately. These methods were suggested in a blog post titled “Nine Ideas to Avoid the Effect of Measure ULA—The New Mansion Tax” by law firm Ervin Cohen and Jessup.
In Q1 of the year, there were 248 sales of commercial and residential properties priced above $5 million in Los Angeles. However, between April 1 and mid-June, only 34 sales were recorded. Critics of the tax argue that it is counterproductive, as the city is losing out on transfer tax revenue due to reduced sales. “I believe the intentions behind the tax were good,” says Nathan Stark, an account executive at Chicago Title. “But the way it has been implemented is actually working against the goals, making it cost-prohibitive to sell properties priced at $5 million or higher.”
Apart from ongoing litigation, California voters will vote on a 2024 ballot initiative that would give them greater control over taxation in the state. This initiative would require a two-thirds majority to approve local tax increases, beginning from January 1, 2022, potentially leading to the elimination of the “mansion tax.”
City officials hope that by the time of the 2024 election, Angelenos will have witnessed positive outcomes resulting from the new tax and will support its continuation. “I think it is crucial for all of us to reflect on what we see on our streets and the homelessness and housing security crisis that tenants, unsheltered individuals, and people across all wealth ranges experience,” says Greg Good, a senior adviser at the Los Angeles Housing Department. “It is unfortunate that some are trying to avoid the tax, but I trust that over time, Angelenos will become comfortable with the outcomes. These outcomes may be the most significant progress we’ve seen in terms of investing in building more housing and preventing homelessness.”
Initially, advocates of the tax hoped that it would generate around $900 million annually, based on previous years’ sales. However, due to the housing market slowdown caused by rising interest rates, the first-year revenue is projected to be closer to $670 million, according to the city administrative officer. As a precautionary measure due to the ongoing litigation, Mayor Karen Bass only included $150 million from the tax in the $1.3 billion budget to combat homelessness.
As of the end of May, the tax has raised a total of $15.5 million, based on five transactions in April and 24 in May, according to city officials. This suggests that sales for properties priced at $5 million and above may be starting to increase despite opposition from many real estate agents and sellers. The city plans to spend the money only when it has been collected, as there is a possibility of having to return it if opponents of the tax are successful in litigation.
This situation led to a dispute during a recent hearing…
Denial of responsibility! VigourTimes is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.
