Measure ULA Tax Off To A Slow Start, Nets $3.6M In First Month

One month into Measure ULA, LA’s new real estate transfer tax, data provided to Bisnow by the city administrative officer shows revenue generated by the new tax is pacing far below the roughly $56M per month it would need to generate to hit the $672M estimate for its first year. 

For transactions closing in April 2023, the city received just over $3.6M in revenue from five deals that were subject to the new tax, which adds a 4% tax on real estate transactions of more than $5M and a 5.5% tax on transactions over $10M.

Measure ULA went into effect April 1 and was billed by proponents as a way to create a consistent revenue stream for affordable housing and, over time, help the city address its shortage of housing that people can afford.

Supporters of the new tax weren’t surprised that the first month’s receipts weren’t tracking with annual estimates, Move LA Executive Director Eli Lipmen said. 

Lipmen said that he and other supporters expected to see a rush to close deals before the tax went into effect and, as a result, anticipated a lull to follow that rush. But he emphasized that he and the coalition of local organizations that threw its support behind the measure are “in this for the long haul.” 

“Affordable housing has been an issue for more than two decades and will continue to be for the foreseeable future,” Lipmen said. “We believe the market will adjust just as it has in other cities where they've implemented a real estate transfer tax.” 

While revenue from just one month does not comprehensively reflect what could happen in the rest of this year, it does serve as a stark reminder that this tax relies on the commercial real estate community to transact.

Office, which is challenged across the country, saw investment sales volume drop 72.1% year-over-year in Los Angeles in the first three months of this year, according to an Avison Young report. Multifamily sales volume year-to-date in the same period was down 52% in greater Los Angeles, a Colliers report showed. 

“With rising interest rates, [the real estate transfer tax] and overall economic uncertainty, sales volume is likely to remain down until the economy normalizes,” the authors of the Colliers report wrote. 

Ervin Cohen & Jessup partner Geoffrey Gold, who authored a post on the law firm’s website exploring potential avenues for selling property without triggering the tax, said he doesn’t think that the tax will end up generating as much money as anticipated because he expects people to figure out loopholes for avoiding the tax. Measure ULA is so significant and has such an impact on deals that everyone engaging in a recorded real estate transaction over $5M will be motivated to figure out how to lessen the tax’s impact. 

He also thinks the number of transactions that would be subject to the tax, especially larger ones, are likely to decrease. Gold also noted the negative impact of rising interest rates on real estate transactions in general.

“You're just going to see less of these deals,” Gold said. “People are going to be incentivized to keep their properties.” 

But Lipmen questioned how much of an impact these efforts might have. Multimillion-dollar homes are still being listed for sale and shopping centers are still transacting, he said. 

“​​California has always had a robust market of lawyers and consultants and wealth management folks who advise their clients on how to pay less taxes and that will continue,” Lipmen said. “We knew and anticipated that would occur. That's just their business. We're not worried.” 

Since it was proposed, the measure garnered the pushback of the real estate industry, which launched legal challenges and a state ballot measure that all take direct aim at invalidating the new tax. 

Those legal and potential legislative challenges put up hurdles to spending the money that Measure ULA generates. In the city budget for the 2023-2024 fiscal year, Mayor Karen Bass proposed spending up to $150M from the new tax on programs to combat housing insecurity, with about $62M for buying and renovating existing housing and about $25M each to help rent-burdened seniors and people with disabilities supplement their incomes and provide eviction defense services. 

The mayor outlined a plan if the legal challenges were to prevail that involved using $150M in federal funds it’s expecting for any reimbursements. At this rate, the city will only need to use about a third of that.