Selling Sunset Drama on Los Angeles Mansion Tax and What It Means

  • In the new season of “Selling Sunset,” there’s more drama around expensive homes.
  • This time, it’s down to Los Angeles’ new mansion tax, which affects homes sold for more than $5 million.
  • This tax is designed to fund affordable housing, but it may be flawed.

Less than 10 minutes into the new season of the Netflix reality show “Selling Sunset,” two luxury real estate brokers have already complained about a new tax being imposed on the wealthiest homebuyers in Los Angeles.

“This is going to be a nightmare for us,” says veteran real estate agent Mary Fitzgerald. “We’re just screwed.”

The city’s so-called “mansion tax” was about to go into effect when the show was filming its final season — and the high-end real estate industry was on edge. The owner of the $26 million, 13,000-square-foot home that agents were trying to sell will have to pay an additional $1.43 million in taxes under the new law. The policy, which took effect on April 1, 2023, imposes an additional 4% tax on homes sold for more than $5 million and a 5.5% tax on homes worth more than $10 million. Sunset Sales agents were terrified that their business would dry up as owners feared the new tax, as well as high interest rates.

“These are huge numbers and I think they do a lot of damage to the real estate market as a whole,” Nicole Young, one of the agents, said on camera.

Reportedly, the head of clients at Oppenheim Brokerage Group, Jason Oppenheim Tell customers in an email The new tax “defies common sense and basic logic.”

It’s not often that a tax measure becomes a vehicle for real-life drama. But the prevalence of the mansion tax in Los Angeles can be felt throughout the seventh season of the reality real estate drama, as clients… Scrambling to sell before executing itOr have difficult conversations with their customers. and Oppenheim Realtors – famous for marketing gaudy, outrageous homes while also making them garish sartorial Options – not alone.

Los Angeles’ new tax is designed to raise revenue for affordable housing and prevent homelessness, but some advocates would agree with Selling Sunset agents that the law is flawed — but not for the same reasons.

While luxury property owners worry about their sales, some housing advocates are celebrating the new tax. Only 16% of Californians can afford a single-family home with a statewide median price of more than $840,000, according to the Housing Affordability Research Institute’s Housing Affordability Report. California Association of Realtors. In Los Angeles, you would need a minimum income of $198,000 for this to be possible.

“The affordable housing crisis is already worsening in every corner of the country,” Mary Castaldi, director of state housing policy at the nonprofit Center on Budget and Policy Priorities, told Insider. “This is a very reasonable and fair way to generate some resources that can support those needs,” she added of the city’s mansion tax.

But even some of the law’s biggest supporters say it has a major flaw. Critics say the tax would likely discourage the development of multifamily buildings, the same construction that would boost the supply of affordable housing.

Unintended consequences of the mansion tax

The United to House LA (Measure ULA), known colloquially as the mansion tax, passed in November 2022 with 58% support.

The Los Angeles act has a large number of wealthy and vocal critics. Real estate interest groups and others filed two lawsuits over the policy, but both were dismissed. The court rulings are likely to be appealed, and critics of the law plan to do so Other ways to undermine it. But the tax is currently in effect and is expected to raise about $150 million this year.

Los Angeles isn’t the only city relying on high-end home sales to boost low-income housing efforts. New York and Washington both impose mansion taxes at the state level, while the governor of Massachusetts has given her blessing to municipalities that want to implement a property transfer tax on high-value properties. Chicago City Council also recently Make a suggestion To raise taxes on homes sold for more than $1 million. The latest is Santa Fe They voted for an additional 3% tax. That buyers would pay for homes worth more than $1 million as a way to raise money for the city’s affordable housing programs.

In Los Angeles, Mayor Karen Bass and the City Council have already decided what this year’s tax revenue will be spent on. The largest portion — $56.8 million — will go to affordable housing projects. Another $30.4 million will go toward funding short-term assistance for renters and small landlords. $23 million will be allocated to provide those facing eviction with representation, the Los Angeles Times reported mentioned.

Shane Phillips, a UCLA housing researcher whose work helped institute the mansion tax in Los Angeles, worries that the mansion tax discourages new development, especially multifamily buildings.

He pushed for a policy of exempting first sales within 10 years of construction so that the tax would not discourage developers, who often sell apartment buildings soon after construction is completed.

In Los Angeles, at least 10% of the units in multifamily buildings are set aside for low-income residents, meaning that if a number of new apartment buildings are not built due to the tax, the city could end up losing a number of affordable apartment buildings Reasonable. Units that the government is too expensive to build or support.

“We’re taxing these new buildings, and the new buildings probably represent about five or 10 percent of the total revenue, maybe $100 million at most, but we may lose a bunch of privately built units at below-market prices that will cost us more,” Phillips said. “We support over $100 million.” “So it’s like, ‘What are we doing here?’”

Transfer taxes are “the third best property-related tax,” Phillips said. The best type is a land value tax, he said, because it increases revenue and encourages higher and better use of the plot of land.

He said that the second most effective method is property taxes, as they can be collected regularly, rather than only when ownership of the property is transferred. But both are politically difficult in California, where property taxes are largely limited by the state Proposition 13.

Transfer taxes on expensive real estate sales have an admirable goal: to redistribute some of the wealth that the real estate industry and homeowners have amassed as home values ​​have soared in recent years. When designed effectively, they can have little negative impact on the market, while raising significant funds.

“A lot of money has been raised, and to some extent, trying to recover a small share of it is a very reasonable goal, especially if that money is then spent on helping people hurt by rising prices.” He said.

In the months leading up to April 1, Sunset Sale customers weren’t the only ones swarming in. Sellers all over Los Angeles did everything they could to unload their belongings before the deadline, Billy RoseThe co-founder of luxury real estate company The Agency told Insider.

“When you look at the numbers, you will definitely see a spike in activity that occurred in the 30, 60 or 90 days before April 1,” Rose said. He added that there were “car offers, large commissions and various incentives to try to close the sale” before implementation, although he personally did not know of any situations in which this actually happened.

The new tax, coupled with higher interest rates, is contributing to a stagnant market, Rose said: “We’re getting less and less properties available for sale.”

This chilling effect is likely temporary. The impact so far has been skewed by sellers delaying putting their properties on the market to see if pending legal challenges will result in the tax being repealed, Castaldi said.

Phillips is not concerned about a short-term freeze in the high-end real estate market. It is often believed that owners who want to sell their properties will eventually do so, and the transaction rate will return to normal within about a year.

Rose said he “can understand why some people would be sympathetic to taxing millionaires,” but the tax “would not suit those really wealthy people.” Instead, he said, it may fall to people struggling with inflation and trying to buy a home, especially with less construction work going on.

If the city finds that the mansion tax does not stimulate development and reduces the supply of affordable and market-rate housing, the City Council could revise the ordinance. If the law were amended to exempt sales for the first time, the mansion tax would “undoubtedly do more good than harm,” Phillips said.

“Every tax has negative consequences,” Phillips said. “There’s a definite negative consequence that we really need to resolve, but other than that there are very limited consequences of a tax like this. And to get $700 million, $1 billion a year to spend on affordable housing, rental assistance, and right.” – Counseling and things like that – it will do a lot of good.

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