The Los Angeles City Council’s recent adoption of the DTLA 2040 Community Plan Update (DTLA 2040) was a major milestone in a nearly decadelong process to create a long-range land use plan and guiding policy document that will advance Downtown’s vibrancy and growth through the year 2040.
Drafted by city staff with input from many stakeholders, DTLA 2040 doubles the area in Downtown where housing can be built, eliminates parking requirements and implements the city’s new zoning code for the very first time.
DTLA 2040 includes updates to the Adaptive Reuse Ordinance (ARO) to make adaptive reuse even more effective in its goal of unlocking greater opportunities for creating housing, promoting sustainable development and preserving historic buildings. DTLA 2040s updates include removing minimum and average unit size requirements and allowing buildings built as recently as 10 years prior to conversion to be eligible for the provisions of ARO. The updates also allow basements and rooftop features to be used and not count against how much can be built on a site.
Measure ULA, commonly known as the “mansion tax,” would impose a new “Homelessness and Housing Solutions Tax” on transfers of residential and commercial real property in the city of Los Angeles valued in excess of $5 million.
Under the measure, sales of residential and commercial real property valued at over $5 million but less than $10 million would be subject to an additional tax at the rate of 4%, while sales of properties valued at $10 million or more would be subject to an additional tax at the rate of 5.5%. The new tax would apply to the entirety of the sale value, not solely the amount in excess of the $5 million and $10 million thresholds, and regardless of whether the property is sold at a gain or a loss. The thresholds would be adjusted each year based on inflation. The tax would apply to property sales occurring on or after April 1, 2023.
The new tax would be in addition to the existing documentary transfer tax imposed on property sales in the city of Los Angeles, which is imposed at a combined city and county rate of 0.56%.
This tax will have a negative impact on property sales, especially industrial real estate sales given they are generally sold at a higher value than many other types of properties. The tax could possibly make properties in the City of L.A. less attractive to buy.
Who will end up paying the new real estate transfer tax? Below are the percentage of sales based on recent data for each property type.
- Single-Family Residences and Condos: 2.6%.
- Multi-Family Apartment Buildings: 6%
- Commercial (office buildings, retail, etc.): 11%
- Industrial: 19%
- Other (vacant land, utilities, etc): 1.9%
The ordinance exempts certain transfers from the ULA Tax. Transfers to non-profit entities, Community Land Trusts, and Limited-Equity Housing Cooperatives are exempt, as these are the types of transactions the City is intending to encourage.
On December 21, 2022, the Howard Jarvis Taxpayers Association and the Apartment Association of Greater Los Angeles brought suit in state court challenging the validity of the ULA Tax. Plaintiffs argue that the ULA Tax is a “specific tax” prohibited by the California Constitution on the grounds that ULA Tax revenue must be used for specific purposes. The litigation is currently pending.
Above data from An Analysis of Measure ULA, by UCLA Lewis Center.
This freshly approved City of Los Angeles ordinance will impose a one-time 4% tax on property sale transactions above $5 million that would rise to 5.5% on transactions above $10 million. A $5-million sale would generate a $200,000 tax bill.
This will negatively impact the sellers of all property types including residential and commercial such as retail, office, apartments, and industrial.