In early 2023, the Los Angeles luxury real estate market boomed as deals were closed ahead of the April 1 implementation of Los Angeles’ ULA Measure, known as the “mansion tax.” In the first quarter, the number of homes sold over $5 million increased by 35 percent, with Brentwood, Pacific Palisades and Hancock Park proving particularly active. Before the tax went into effect, Brad Pitt sold a complex for $33 million, while Mark Wahlberg sold a mega-mansion for $55 million. After April 1, taxes on those properties would have been around $1.8 million and $3 million, respectively.
The ULA Measure adds a transfer tax of 4 percent for sales over $5 million and 5.5 percent for transactions over $10 million; real estate transactions in the city below those levels pay the already established transfer tax rate of .56 percent.
“The flurry of activity that occurred through April 1 was pretty phenomenal,” says real estate attorney Loretta Thompson, a partner at Withers Worldwide. “And then, of course, after that, people started pulling their listings out. There has been a quantifiable pause on anything over $5 million. It cooled the market immediately, which was what everyone expected it to do.”
Luxury real estate agents, who were generally opposed to Measure ULA, continue to speak out against the tax. John Iglar by Douglas Elliman He argues that it is a fundamentally ill-conceived transfer tax, which punishes sellers since they are responsible for declaring and paying the tax.
“In Los Angeles, sellers pay the mansion tax. In New York, buyers pay,” explains Iglar. “A buyer buying a $10 million home is wealthy at the time of purchase, so a tax on them is truly a tax on the wealthy. Someone who sells a $5 million house might be an old lady who has $1 million in equity and a $4 million mortgage, and that $1 million is her life savings. It’s not fair. A home buyer is, by definition, wealthy at the time of purchase; the seller may be rich at home and poor in cash. So, it is a distorted tax that will affect a lot of normal people.”
This means potential sellers are much more wary of listing a home for sale. “There has to be a reason you’re selling,” he says. miguel nourmand of Nourmand & Associates. “It can’t just be ‘We wanted a change of pace.’ ”
Iglar expects the downward trend in sales to continue. “My prediction is that we are going to see a pretty dead high-end market for the rest of 2023,” he says. According to Chris McKenzie of commercial real estate firm Lee and Associates, the tax has also hit the commercial market hard and is expected to continue to do so.
There are some winners. Independent cities in Los Angeles County, such as Beverly Hills and Malibu, have become more desirable since the measure does not apply to them. It’s also shifting the balance of power in luxury real estate, long a seller’s market. “Buyers are being picky right now,” Nourmand says, adding that some people are willing to wait in the hope that sellers will lower prices on mansions: “They feel they have the upper hand in the luxury market. They don’t feel like they have to rush, they think time is on their side.” James Corden, for example, listed a Brentwood home in January for $22 million, then reduced it to $18 million before selling it in July for $17.1 million. According to Dirt.comthe sale of Corden is subject to nearly $1 million in taxes under Measure ULA.
However, many hope that the tax will be renewed or rescinded. With two lawsuits already challenging the move, the City of Los Angeles’ chief financial officer has been instructed to withhold the money received, rather than use it as intended to create affordable housing options in the city.
Even if the tax stays, Thompson believes the market will adjust, if everyone takes a breather. “I’m forever optimistic about Los Angeles real estate,” Thompson says. “People want to be in [places like] bel air [and] Holmby Hills”.
A version of this story first appeared in the July 14 issue of The Hollywood Reporter magazine. Click here for subscribe.