Los Angeles recently gave developers an incentive to limit new apartment buildings to no more than 15 units

By Daniel Alman (aka Dan from Squirrel Hill)

April 13, 2024

The Los Angeles Times recently reported:

Though it’s known as the “mansion tax,” except for rare exceptions it applies to all properties sold for more than $5 million, no matter if they are gas stations, strip malls, apartment buildings or actual mansions. Under the measure, a seller is charged 4% of the sales price for properties sold above $5 million and below $10 million.

At $10 million and above, the tax is 5.5%.

Apartment developers and real estate brokers said additional costs from ULA make it even harder to earn a reasonable profit in what can be a risky business.

That’s because when building apartments, developers often sell their finished product, which would probably trigger the ULA tax for any building over 15 units, according to Greg Harris, a real estate broker with Marcus and Millichap. Even developers who hold onto their properties typically need to take out a mortgage on the finished building — and Harris said lenders are willing to give less because they too would need to pay the tax if they foreclose and sell the property.

Los Angeles recently gave developers an incentive to limit new apartment buildings to no more than 15 units.

Given that the city already has a severe shortage of housing, I think this new policy is a bad idea.