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.
Below is a good summary by the city of its new zoning code and how they think it will be better than the current legacy code.
City Planning is modernizing Los Angeles’s Zoning Code to align with contemporary planning needs. This is the first comprehensive update to the Code since 1946 and marks a major shift from strictly Euclidean zoning—the most common form of land use regulation in the United States—to a hybrid, or modular, zoning approach.
This shift responds to the desire for zoning that focuses both on land use and buildings’ proposed mass, scale, and characteristics, allowing the Department to separate regulations governing the built environment from a property’s use. The creation of this new framework supports a wider array of options that reflect the cultural and demographic diversity of Los Angeles and its community neighborhoods.
This evolution in planning recognizes that a building’s physical character is equally as important as the uses permitted on-site. Conventional methods of zoning have traditionally focused more on prohibiting uses at a given site than on regulating the built environment. These planning methods reflected the priorities of an earlier period in Los Angeles’s history, when housing choices were limited and dominant interests sought to restrict all types of development other than single-family homes. As times have changed, so have the overall needs and priorities of our City’s communities.
The proposed modular zoning structure consists of five key modules, or “districts”: Form, Frontage, Development Standards, Use, and Density. While Form, Frontage, and Development Standards regulate the built environment, Use and Density refer to the activities allowed on a site. The new Zoning Code is organized in a clear, consistent way that is easier to navigate than its predecessor and constructed to enhance desired outcomes through objective standards.
Currently, zoning regulations are scattered throughout the Zoning Code, resulting in an ad hoc and incremental approach to zoning that hinders the Department’s ability to implement adopted plans more effectively.
The new Zoning Code is adaptable to current and future policy needs and will allow planners to implement a wide range of community visions that address the design of the public realm in balance with the local architecture and characteristics of our neighborhoods. Additionally, the new Code is easier to understand and navigate due to the unbundling of regulations for the built environment from activities allowed on a site, as well as other requirements.
Best of all, it consolidates the public benefits incentive programs into one place, including affordable housing, access to bonus FAR/height, and relief/waiver from regulations, thereby creating a predictable and adaptable incentive system.
To provide a framework for this comprehensive revision, the Processes and Procedures Ordinance, anticipated to go to a full Council vote this fall, will reside in Chapter 1A of the Los Angeles Municipal Code and establish a new home for the updated Zoning Code.
The above map is a draft version of the Downtown Los Angeles Map of Land Use and Zoning. On the left is the Financial Distict and South Park while on the right is the Warehouse District and Arts District.
The City Planning Commission is updating the Downtown Plan for future growth and changes in land use. The new plan will set a new direction for the future of DTLA to guide the physical development of neighborhoods, and establish goals and policies for land use in addition to a range of planning topics, including streets and open space, urban design, mobility, and arts and culture.
Heavy Industrial zoning would be removed. A new Hybrid Industrial Zone would dominate in the Arts District.
In the upper right section the Cornfield Arroyo Seco Specific Plan (CASP) area encompasses a large area sometimes known as the North Industrial District. Older generations may refer to it as part of Chinatown or Dogtown.
In a June 14, 2021 letter by the Chinatown Stakeholders to the Planning Commission, CASP was addressed per the below excerpt which is somewhat critical.
In the Cornfield – Arroyo Seco Specific Plan (“CASP”) adopted in 2013, City Planning attempted to promote infill development in the CASP area but also sought to limit the percentage of residential space in the floor area of new projects. This had the unintended effect of discouraging new development even at a time when other parts of the Central City were experiencing a development boom. The only project within the CASP area that has been approved since adoption of CASP (1457 N. Main St., with 244 live/work units) moved forward only as a result of the Central Area Planning Commission granting (in May 2020) an exception from CASP’s limitation of residential uses not exceeding 15 percent of the floor area. The City Council subsequently approved Councilmember Cedillo’s motion (Council File No. 13-0078-S2) directing City Planning to review the land use incentives in CASP to determine whether they had the net effect of discouraging the production of mixed-income housing.
In addition to the above commentary, the Shimoda Design Group submitted its criticism of the draft plan as per below excerpt:
The draft plan website states “Several years ago, City Planning set out to create a modern and efficient zoning system for Los Angeles. The proposed approach aims to establish a new Zoning Code that is more responsive to the needs of Los Angeles’s neighborhoods, in addition to being easier to use.”
These are noble goals, but the current draft of the code does not show itself to be more responsive to local needs, nor is it easier to use. We believe that the zoning sections regarding Form, Frontage, Standards & Use and Density are too prescriptive and need to be revised to allow for creativity and diversity in aesthetics and construction. As it stands this document is too granular and contains many contradictions in its prescription. The density and the complexity of the current version will create an administrative nightmare for the city in its implementation and interpretation. Many of the prescriptions for dimensional minimums and maximums are not reflective of real market conditions and place unnecessary limitations on creativity. The code will inadvertently create requirements that will effectively neuter Los Angeles as a competitive and desirable place to invest in. The result will negatively impact the future of Los Angeles.
We strongly believe that the current draft needs further revisions and input from the professional design and development community prior to adoption. The draft analysis of the Downtown, Arts District, Little Tokyo, and Chinatown districts in particular need to be reconsidered and not be defined by transitory cultural associations, a form-based code or by prescribed use requirements that will not evolve over time to reflect the community that it serves. We strongly believe and support the up zoning of all of these areas to increase density and affordability.
The CASP is a land use document that governs a 600-acre industrial area interspersed with clusters of residential neighborhoods, commercial activity, City-owned land, affordable housing developments, and open spaces, such as the Los Angeles State Historic Park (the “Cornfield”). The area contains 3.7 million square feet of industrial space—the most prevalent use in the CASP—of which 74 percent is used for warehousing, storage, or distribution. There are about 1,800 dwelling units in the CASP, three-quarters of which are in multi-family buildings, totaling about 6,200 residents.
