Los Angeles has introduced a tax known as the “mansion tax”. This tax applies at a rate of 4% for real estate purchases ranging from 5 to 10 million dollars, and 5.5% for properties exceeding ten million dollars. Overall, it is estimated that this tax will generate approximately 670 million dollars in revenue. The funds will be allocated towards financing affordable housing in order to prevent homelessness.
The tax, referred to as “Measure ULA,” was approved by the state legislature following a referendum in November 2022, as nearly 60% of voters supported the proposed law. Given that Los Angeles has the highest homeless population in the country, it is not surprising that such a tax has been implemented. California, in general, is recognized as the second most costly state for real estate, second only to Hawaii.
Under the new tax, a millionaire selling a house worth 5 million dollars would have to pay 200 thousand dollars to the government. To put the necessity of action in the city of LA into perspective, the recent crises have made the number of homeless people skyrocket to around 42,000 people in February 2022. In 2016 the number was closer to 28,000 people without a home according to an article published in the New York Times.
Other estimates by the “US department of housing and urban development” put the number of homeless people in the LA at a staggering 65.111 people.
Real estate owners are employing innovative strategies to evade the newly imposed taxes, leading to widespread panic.
Despite the relatively low sum of tax money in comparison to the enormous profits made in the real estate market, millionaires and celebrities sought for evermore creative and desperate ways to avoid contributing to improving societal living standards. According to “The Guardian“, one desperate super rich homeowner of a 16.5-million-dollar mansion was going as far as to gift a supercar to whoever buys his house, just to get out of paying around 900 thousand dollars in tax.
Different strategies are being employed by some individuals to evade tax payments. A legal case has been presented to the court, arguing that the tax is in violation of the constitution of California. The final decision on this case is currently undetermined and it is expected to be a lengthy process before any outcome is reached.
Only 4 percent of the real estate transactions in LA would be impacted by the Tax.
According to the luxury real estate platform “redfin” the median selling price for property in California is just short of a million dollars. It is hovering around 900 thousand dollars. The tax therefore would only affect about 4% of real estate transactions in the city.
Real estate agents representing the ultra-wealthy make intriguing statements. They argue that a home priced at 5 million dollars should not be considered a mansion due to the relatively low tax rate.Real estate agent Scott Tamkin states that five million dollars does not equate to luxury. Rather, it represents a pleasant house located in a desirable area. It falls short of being classified as a luxurious property in a prime location, according to the general perception.
Critics initiate an extensive public relations effort to influence the perception of the general public.
However, he is not the sole real estate agent attempting to convince ordinary individuals that a five-million-dollar residence (approximately 4000 square foot in Beverly Hills as stated by Josh Altman, a real estate agent and reality TV personality) is not considered a luxury. It appears that a significant public relations campaign has been initiated to influence public sentiment against the tax, with numerous prominent US news organizations publishing articles opposing the proposed tax, disregarding the widespread scientific, political, and public backing for the legislation.
The new Tax will bring in about 627 Million Dollars
According to an article published by the Guardian, it is estimated that the tax will generate approximately 627 million dollars. This amount falls significantly short of the initial expectation of one billion dollars, but it still exceeds the revenue collected from the previous transfer tax by more than three times. The previous tax was bringing in around 200 million dollars annually.
Several universities and analysts, particularly the University of California (UCLA), have recently emerged to challenge the public relations campaign launched by multi-millionaires aiming to reverse the tax. Their argument is that the funds generated and the influence on the housing market will significantly contribute to addressing the homelessness crisis in Los Angeles.