Measure ULA, also known as the “Homelessness and Housing Solutions Tax,” was a ballot measure in Los Angeles which was recently approved by voters in the 2022 Los Angeles County Midterm Elections. Measure ULA will impose a new and additional transfer tax on real estate valued at more than $5 million. Although this tax is sometimes misleadingly advertised as a “mansion tax,” it will be imposed on both residential and commercial real estate transactions. The new tax will apply to real estate transactions occurring on or after April 1, 2023 and will remain in effect until repealed by the people of the City of Los Angeles. San Francisco, Culver City, Santa Monica, and a number of other California cities have recently passed similar measures imposing new transfer taxes or increasing existing transfer tax rates for real estate transactions.

The tax rate for the new Homelessness and Housing Solutions Tax will be 4% of the consideration paid or value of the property transferred when the consideration or property value exceeds $5 million but is less than $10 million, and 5.5% if the consideration or value exceeds $10 million. The foregoing $5 million and $10 million thresholds will be adjusted annually based on inflation. The new tax will be in addition to the existing 0.56% combined documentary transfer taxes imposed in the City and County of Los Angeles (0.11% County Documentary Transfer Tax and 0.45% City Documentary Transfer Tax) and will, therefore, represent a significant increase in the cost of real estate purchase and sale transactions in the City of Los Angeles.

The new Homelessness and Housing Solutions Tax is not a progressive tax. In other words, the new tax will apply to the entirety of the consideration or value of a property; not just the portion of the value or consideration that exceeds the applicable dollar threshold. For example, if the sale price of a property is $7,500,000, the tax payable will equal $300,000, and if the sale price of a property is $15,000,000, the tax payable will equal $825,000.

Unlike the Los Angeles documentary transfer tax, the Homelessness and Housing Solutions Tax is not exclusive of the value of any lien or encumbrance remaining on a property at the time of the sale or transfer (i.e., the new tax will be calculated on the full gross value of the property, and not the net equity value, if property is transferred subject to existing mortgage indebtedness).

The Homelessness and Housing Solutions Tax exempts certain qualified affordable housing, non profit, and government organizations. The tax applies only to properties located within the City of Los Angeles and does not include the other 87 incorporated cities in Los Angeles, such as Burbank, Long Beach, Pasadena, and Santa Monica.

The revenue generated from the new tax will be allocated primarily to establish and authorize programs to increase affordable housing and provide resources to tenants at risk of homelessness (e.g., homelessness prevention measures in the form of rent relief, income support, tenant rights education, and legal counsel for qualified tenants), in response to the ongoing affordability and homelessness crisis in Los Angeles.

The Homelessness and Housing Solutions Tax is estimated to raise over $900 million per year (based on County Assessor data from fiscal year 2021-2022). For context, currently, the City of Los Angeles raises an average of $207 million per year from documentary transfer taxes (based on pre COVID 19 fiscal years 2016-2019), and such revenues are added to the General Fund, not earmarked for housing.

Measure ULA left a number of questions regarding its implementation unanswered but authorizes the Director of Finance to issue rules and regulations for the implementation of the tax. Some examples of unresolved questions include: (i) Will the consideration or property values be determined on a per property basis or in the aggregate for portfolio sales that involve more than one parcel of real property in the City of Los Angeles?; (ii) Will the tax apply to transfers of interests in entities that own real property in the City of Los Angeles?; and (iii) Will the exemptions that apply to the existing Los Angeles documentary transfer tax apply to the new tax? 

Similar to the existing Los Angeles documentary transfer tax, we expect that Los Angeles will interpret the new Homelessness and Housing Solutions Tax to apply to transfers of interests in legal entities that result in a “change in ownership” of real property held by a legal entity. Notably, however, Measure ULA also amends the City of Los Angeles Municipal Code to authorize the Director of Finance to further define the term “realty sold,” which term triggers both the existing documentary transfer tax and the new Homelessness and Housing Solutions Tax, and which authority may be used by the Director to expand the scope of transactions that trigger the existing documentary transfer tax and the new tax.

By the same token, we expect that the rules and regulations for the implementation of the new tax will incorporate the same general exceptions and exemptions that apply to the existing Los Angeles documentary transfer taxes (e.g., transfers effectuating a mere change in the form of ownership and transfers by foreclosure or deed-in-lieu). However, we will await further guidance from the City’s Director of Finance regarding the implementation of this tax.