(Bloomberg) -- Los Angeles real estate investors are gearing up for a campaign to defeat a ballot measure that would increase a tax on the sale of multimillion-dollar properties to help pay for housing one of the biggest US homeless populations.
The city council last week unanimously approved putting the proposal, backed by the grassroots group United to House LA, on the November ballot. It would increase the transfer-tax rate on the sale of LA residential and commercial properties of $5 million to $10 million to 4%, while those valued at $10 million or more would be charged a 5.5% rate, both up from the current 0.45%. The money would go toward new housing units and services like down-payment assistance and eviction prevention.
The initiative sets the stage for a fight between the measure’s backers and Los Angeles’s powerful real estate industry, which argues the proposal would only add to affordability problems in the second-largest US city. Even with signs of cooling in some corners of the market, LA is one of the country’s most-expensive areas for housing, with the median home price jumping 14% to $1.05 million in May, according to Redfin.
The scarcity of cheap housing has been driving more and more people onto the streets. Los Angeles County has about 66,500 people experiencing homelessness each night, second only to New York City, according the latest point-in-time homeless count conducted in 2020 before the Covid-19 outbreak. Some experts say the expiration of pandemic-era eviction protections may leave even more people unhoused.
Daniel Yukelson, executive director of the Apartment Association of Greater Los Angeles, a group representing rental housing providers and residential property managers, called the measure “nonsensical.” He said the tax hike would drive deep-pocketed homeowners and businesses out of the city, as well as escalate rents.
“Who’s going to want to re-develop these properties when they would risk them being put up for sale on such a high tax sale?” he said.
Yukelson said his organization is talking to other stakeholders like industry groups, large property holders and local chambers of commerce, and they soon plan to form a formal committee to oppose the proposal.
United to House LA collected more than 98,000 signatures for the proposal, enough to qualify it for the ballot. The group estimates the tax would generate revenue of $875 million per year and lead to the creation of 26,000 new housing units within the first decade. Overseen by a citizen-led oversight committee, the funds would be used to create new affordable multi-family housing, subsidize rent for low-income households, among other tenant-rights initiatives.
Campaign manager Yuval Yossefy said it’s a modest price to pay considering that the tax would likely only apply to 3% of all property sales in the city, based on his team’s assessment of tax data from Los Angeles County.
“It’s a really great opportunity to set something progressive up in the city that can really tackle homelessness prevention and affordable-housing development, while ensuring that only the millionaires and billionaires who sell properties in Los Angeles pay their fair share to contribute to that solution,” he said.
Homelessness is a top concern for Los Angeles voters, who will also be choosing the next mayor in a Nov. 8 race that pits billionaire developer Rick Caruso against US Representative Karen Bass. Bass has vowed to tap her connections in Washington and Sacramento to bring money and resources for housing and other social services needed to clean up the city, while Caruso has taken a more law-and-order approach to removing encampments and fighting crime.
The ballot initiative will test voter appetite for another taxpayer-funded program for the homeless. Los Angeles voters in 2016 approved Proposition HHH, a $1.2 billion bond to provide as much as 10,000 housing units for the unsheltered. About $1 billion of that money has been committed to projects, of which $167 million are already in service, according to a February report by the Los Angeles mayor’s office.
However, that initiative has stumbled in its rollout. Only 14% of the 10,000 planned income-restricted supportive housing units have been built and the average cost for each home increased 12% to $596,846 in 2021 -- with some being built for as much as $837,000 per unit, according to Controller Ron Galperin.
Anthony Vulin, president of the Greater Los Angeles Realtors, said the proposed hike in the transfer tax will increase prices for multifamily units -- which can house lower- and middle-income families.
“It’s not just affecting homeowners,” Vulin said, adding the impact “could trickle down to the renters. It’s the wrong time to do this and places more of a burden on homeowners and renters.”
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