Los Angeles ‘Mansion Tax’ Slashes Permits 40%

A tax introduced to address homelessness and expand low-income housing in Los Angeles is now being tied to a steep slowdown in new construction, according to a recent report.

In a report released by the UCLA Anderson School of Management, researcher Yingru Pan said the total number of building permits issued by the City of Los Angeles fell 40% in 2024 compared with 2018–2019, before the so-called “mansion tax” was implemented.

By housing type, permits for multifamily housing declined 27%, while single-family home permits dropped 45%. The report said developers grew wary of financial risks, including the added tax burden at resale and policy uncertainty, and held back even on mid-priced projects.

The so-called “mansion tax,” which took effect in April 2023, imposes an additional 4% tax on property transactions valued at $5.3 million or more and less than $10.6 million, and 5.5% on transactions over $10.6 million. The tax applies to all real estate sold for more than $5 million, including apartments and other multifamily properties.

The tax has generated more than $1 billion in revenue so far, based on figures from the Los Angeles Housing Department, but Pan argued the resulting pullback in investment has instead worsened the housing problem.

For developers, the report said, the possibility of paying millions of dollars in additional taxes at resale has made nearby cities such as Burbank, Long Beach, and Pasadena more attractive than Los Angeles.

Comparing permit data in the City of Los Angeles with data from 87 nearby cities in Los Angeles County that are not subject to the tax, the report found that in surrounding areas such as Beverly Hills, Pasadena, and Redondo Beach, permits for single-family homes and accessory dwelling units (ADUs) were maintained or increased over the same period. In the City of Los Angeles, construction activity fell sharply.

The report said a rush of transactions occurred just before the policy took effect. After implementation, sales in the $5 million to $6 million range plunged to near-standstill levels by mid-2023.

More recently, the report found that homeowners in that price bracket have increasingly chosen remodeling instead of selling amid the tax burden, and renovation permits rose 46%.

BY HOONSIK WOO [woo.hoonsik@koreadaily.com]