Taxing LA mansions likely hindered efforts to build affordable housing. Can it be fixed?

It’s easy to understand the appeal of Los Angeles’ so-called “mansion tax.” Under the tax, owners of very valuable homes give back to their community when they sell their homes and are cash liquid.

Many of those owners have reaped huge windfalls from Proposition 13, which restricts assessments on the properties of longtime owners. They also have benefitted from rising property values and municipal investments in road and other infrastructure. 

Through the mansion tax — versions of which other jurisdictions, notably San Francisco, have adopted — high-end homeowners return the favor when the home is sold. Or so the argument goes.

The money generated from the tax is then targeted toward construction of affordable housing and rental and eviction assistance for those at the very bottom of Los Angeles’ extremely stratified landscape, where thousands of the very poor reside at the base of hills populated by the very rich. 

Los Angeles voters approved the mansion tax in 2022. It imposes a 4% tax on the sale of any property exceeding $5 million and a 5.5% tax on any property selling for more than $10 million. 

The tax has raised more than $1.14 billion since it was adopted. 

The trouble with the tax is that it doesn’t work. It has not spurred a wave of affordable housing construction in Los Angeles. It has not bridged the gap between rich and poor. It has, in fact, done a fair bit of the opposite.

Collateral damage

The tax has drawn the attention of researchers, who say its results are unambiguous: It has depressed construction of multi-family units — apartment buildings — in Los Angeles, precisely the market most likely to bring down rents. 

As one recent study concluded, “Policies targeting luxury markets risk collateral damage to the very segments they aim to uplift.” The author of that study, Yingru Pan of UCLA, added that the tax “may deepen disparities by discouraging moderate-density solutions.” 

The proof of that is not just in the fact that new construction has been slow in recent months — permits for multifamily construction projects in Los Angeles dropped from 1,540 in 2022 to under 1,000 in 2024. Those trends continue, and some of the blame falls on Washington, where President Donald Trump has introduced dizzying levels of uncertainty as he toys with tariffs and economic policy, depending on his mood and who he’s mad at on any given day. 

But the tax’s negative effects go beyond Trump, and can best be understood by comparing construction in Los Angeles to that of neighboring cities, all of which live under the same Trump cloud. And there, the results are hard to contest. For while all new construction suffered in this economy, Los Angeles has fallen notably behind neighbors such as Santa Monica, Burbank and Culver City.

New construction permits in Los Angeles fell 21% after the mansion tax was approved, Pan said, in stark contrast to stable permit trends in neighboring places. 

“Taxing high-value housing does not inherently redirect resources toward affordability,” Pan’s report finds. “Instead, it risks broadly stifling supply.”

Restoring its purpose

In response, a coalition of affordable housing advocates, builders and others have urged the city to re-orient the tax back toward its original target: mansions. 

Their group’s name, “Mend It, Don’t End It,” speaks to its mission, which is not to discard the tax but rather to make changes to it.

Jesse Zwick, a member of that group, stressed in an interview this week that the tax’s unintended consequences are now visible for all to see, especially its effects on new apartment construction.

 “We talked about it as a tax on mansions,” he said, but its graver impact has been on other types of construction.

Indeed, in the years since voters approved Los Angeles’ mansion tax, it has funded some 800 new housing units — hardly a roaring success, given that more than 45,000 Angelenos continue to sleep without a roof over their heads. 

Zwick and his colleagues have recommended the transfer tax be amended to exempt transactions for commercial and multi-unit projects for 15 years. During that time, no tax would be charged if the property changed hands; after it, the tax would be in effect. 

Other reforms might complement that amendment, but it would at least give developers a greater margin for investment and a greater appeal to bankers funding these projects.

It also would bring Los Angeles more in line with neighboring cities, evening the playing field that the city’s mansion tax has skewed.

The political clock

Sarah Dusseault, who has helped guide city and county housing policies for decades, agrees that the tax, as written, reflects good intentions but is falling far short of its goals of spurring new housing and job creation. 

“We really need to do something,” she said.

That needs to happen soon, for the political clock is ticking on the issue. 

Anti-tax advocates, including the Howard Jarvis Taxpayers Association and the California Business Roundtable, have been stirred to action by the efforts of Los Angeles and San Francisco to extract revenue from real estate transactions. They are formidable foes, and they are moving to place a measure on the November ballot that would do away with the power of local governments to impose these levies. 

Hoping to head that off, Councilmember Nithya Raman introduced a measure in January to let city voters take up amendments this June, but her motion came in without much warning and landed with a thud among her colleagues. Instead, a committee of the council is considering those proposals and may offer a package for the November ballot. Voters would have to approve any changes.

Meanwhile, the Jarvis-backed measure is plowing forward. Should it pass — and Californians do have a history of using the ballot box to wipe out unpopular real estate taxes — Los Angeles would lose its mansion tax altogether, ending it rather than amending it. 

That would be a shame.