The Los Angeles “mansion tax,” officially known as Measure ULA, was adopted nearly three years ago to combat homelessness and fund affordable housing, but new research suggests the policy has backfired, stalling construction citywide.
The controversial tax, which went into effect in April 2023, imposes a 4% levy on property sales of $5.3 million to $10.6 million, and a 5.5% levy on sales exceeding $10.6 million. That is in addition to a 0.45% tax the City of Los Angeles already applies to all real estate transactions. The seller is typically responsible for paying both taxes.
The so-called mansion tax, which in reality applies to all real estate priced at over $5 million, including apartment buildings, was intended to generate revenue to build much-needed affordable housing in L.A., as well as fund homeownership programs and assistance for low-income tenants.
Yet, according to a working paper from Yingru Pan, a Ph.D. student at UCLA Anderson School of Management, Measure ULA has had the unintended consequence of curbing construction of both budget-friendly and luxury housing across L.A., even as development in the suburbs has expanded.
In her 60-page analysis, titled “Taxing the Top, Building the Bottom? The Impact of Los Angeles’ Mansion Tax on Housing Supply and Affordability,” Pan argues that compared to 2018-2019 levels, before the passing of Measure ULA, overall construction permits in Los Angeles plummeted 40%.
A closer look at the housing data shows that multifamily construction permits fell 27%, while permits for single-family homes dropped 45%.
“Developers likely hesitated to pursue even moderately priced multi-family units due to perceived financial risks, such as cascading tax impacts on project valuations or uncertainty about future policy adjustments,” Pan writes.
The ripple effect of unintended consequences
That hesitation could not have come at a worst time.
Los Angeles is one of the nation’s most expensive housing markets, with the median listing price in the metro registering at $1.025 million in January, according to the latest monthly housing market trends report from Realtor.com®.
At the same time, the city remains in the grips of a severe housing crisis, facing a shortage of nearly 500,000 affordable rental units needed to house low-income residents—a scarcity resulting from decades of underbuilding that has driven up rents and contributed to homelessness.
The revenue generated by Measure ULA, which so far has topped $1 billion and counting, according to the Los Angeles Housing Department’s online tracker, was supposed to help alleviate L.A.’s housing affordability challenges, but Pan argues that it has only made it worse by discouraging investment in development across the board.
“The tax’s primary effect was to broadly suppress construction activity rather than shift development toward affordability or multi-family housing,” she writes.
Pan compared L.A.’s permitting data to 87 surrounding suburbs within Los Angeles County that are not subjected to the mansion tax, including Beverly Hills, Pasadena, and Redondo Beach.
Her analysis reveals a stark divergence: While permitting for single-family homes and accessory dwelling units (ADUs) remained steady or grew in neighboring communities, construction activity within Los Angeles city limits plummeted.
The paper also unmasks some of the strategies developers and sellers have embraced to bypass the mansion tax, such as pricing luxury homes just below the $5 million cutoff to avoid a hefty bill.
Pan points out that prices on high-end properties in L.A. steeply increased just before Measure ULA went into effect, climbing to an average $6 million; and the number of transactions spiked as sellers seemingly raced to closing tables to avoid the tax.
After the tax’s implementation, sales activity in the $5 million-$6 million range drastically contracted, with sales volumes dropping to near-zero levels by the middle of 2023.
“This bunching effect creates a visible ‘cliff’ at the tax boundary,” writes Pan.
Instead of selling and having to pay the tax, many luxury homeowners have increasingly chosen to remodel their homes, causing renovation permits to jump 46%.
The researcher notes that this approach has stifled inventory turnover and further tightened already-strained supply constraints.
Meanwhile, developers reacted to the mansion tax by keeping new single-family projects below the $5 million and $10 million tax thresholds, or moving them out of L.A. altogether.
“Construction permits in the city for luxury homes fell between 15% and 19%, compared to constructions for mid- and low-priced single-family homes,” write the author.
Pan’s findings suggest that the mansion tax is failing in its mission of boosting affordability by taxing high-priced housing.
“Instead, it risks broadly stifling supply,” she concludes. “For future reforms, pairing taxation with direct affordable housing incentives—such as streamlined permitting, density bonuses, or targeted subsidies—may better align revenue generation.”
Calls for reform and legal challenges
There is a growing chorus of critics calling for Measure ULA to be repealed, or at least amended to mitigate what they are calling its chilling effects on new multifamily housing construction.
In January, Los Angeles City Councilmember Nithya Raman introduced a measure aimed at reforming the tax; but the City Council declined to immediately put it on the June ballot, instead sending it to the Housing and Homeless Committee for additional study and public input.
Raman was proposing to add a 15-year exemption from the tax for newly built multifamily, commercial and mixed-use projects, and a three-year exemption after any natural disaster if the homeowner can prove that the levy will cause “an undue hardship.”
The councilmember, who was an early backer of Measure ULA, said in a speech to the council that studies have demonstrated that the tax has slowed apartment construction in the middle of a housing crisis.
“The parallel would be if we were trying to address hunger, and you did it through a program that increased food shortages. You can’t address the housing crisis with a policy that worsens our housing shortage. You just can’t,” she said.
Supporters of Measure ULA, led by by United to House LA—the group that spearheaded the initial ballot initiative in November 2022—are vehemently against changing the tax, arguing that amendments would delay and reduce funding of affordable housing solutions.
Late in 2025, a California appeals court rejected a legal challenge from the Howard Jarvis Taxpayers Association, which advocates for lower taxes in California. The group claimed that Los Angeles lacked the authority to impose the tax, but the court upheld Measure ULA.
In turn, the Association has been gathering signatures to put a measure on California’s November ballot that would strike down Measure ULA and similar real estate transfer taxes exceeding 0.11% in some two dozen cities.
