Los Angeles’ mansion tax has raised more than $1.14 billion since voters approved it in 2022, but new research suggests the money came at a steep cost to affordable housing construction.
The tax, which imposes a 4% levy on property sales above $5 million and 5.5% on sales above $10 million, was designed to fund affordable housing development and rental assistance for low-income Angelenos. The intent was straightforward: wealthy homeowners, many of whom benefited from Proposition 13’s assessment caps and decades of rising property values, would return some of that gain to the community when they sold.
It hasn’t worked out that way.
Multifamily construction permits in Los Angeles dropped from 1,540 in 2022 to under 1,000 in 2024, according to city data. That’s the apartment market, the segment most likely to push rents down across the broader housing stock. And the decline didn’t hit neighboring cities the same way.
New construction permits in Los Angeles fell 21% after the mansion tax took effect, according to Yingru Pan, a researcher at UCLA who studied the tax’s effects. Santa Monica, Burbank, and Culver City all operate under the same broader economic pressures, including federal tariff uncertainty and rising construction costs, yet permit trends in those cities stayed comparatively stable. That gap is hard to explain away.
Pan’s study put it plainly. “Policies targeting luxury markets risk collateral damage to the very segments they aim to uplift,” Pan said, and the tax “may deepen disparities by discouraging moderate-density solutions.” That’s a significant indictment of a policy that was sold to voters as a tool for equity.
The mechanism isn’t complicated once you see it. Developers who build mid-range apartment complexes, not luxury towers but the workhorse multifamily projects that add real rental supply, often sell those buildings when complete. If the sale price clears $5 million, which in Los Angeles it almost certainly does, the 4% tax hits. That adds hundreds of thousands of dollars to the cost of a transaction that was already thin on margin. Some developers don’t build. Others build somewhere else.
San Francisco adopted a similar transfer tax structure, and proponents of the model argue the revenue stream justifies the tradeoff. Los Angeles supporters make the same case. The $1.14 billion raised is real money that has funded rental and eviction assistance programs and some housing construction. But if the tax simultaneously suppresses the construction it’s meant to encourage, the math gets complicated fast.
The Trump administration’s economic whiplash, with tariff policies shifting week to week, has added a layer of uncertainty that’s hurt construction nationwide. Some of Los Angeles’ slowdown belongs to that story. But Pan’s comparison to neighboring jurisdictions cuts through that excuse. Every city in the region faces the same federal environment. Los Angeles is the one with the mansion tax, and Los Angeles is the one falling behind.
The question now is whether the tax can be restructured to preserve its revenue without punishing the apartment developers who aren’t the intended target. Several approaches have circulated among housing policy researchers and city officials, including raising the threshold at which the tax kicks in, carving out exemptions for new multifamily construction, or applying the tax only to residential sales rather than commercial and mixed-use transactions.
None of those fixes are simple. Raising the threshold reduces revenue. Exemptions create new boundaries to litigate. Narrowing the tax’s scope means less money for the programs it funds, programs that help people who can’t wait for a multi-year policy debate to resolve itself.
What’s clear is that the current structure has costs the city’s voters weren’t fully shown when they approved the measure in 2022. The campaign framed the tax as a way to make the very rich give something back. That framing wasn’t wrong, exactly, but it was incomplete. A transfer tax applied at the point of sale doesn’t distinguish between a hedge fund manager unloading a Bel Air estate and a developer selling a newly built 80-unit building in Koreatown. Both transactions get taxed. Only one of them was the target.
Pan’s finding that permit declines in Los Angeles significantly outpaced those in comparable neighboring cities gives the city’s housing officials a specific data point to reckon with as they weigh any changes to the program.