Among all the other measures on the Los Angeles area’s ballot last November was a referendum in the city of Los Angeles for a “mansion tax” that would impose a new transaction tax on any real estate sale in excess of $5 million. The referendum passed with nearly 58% of the vote and called for the following:
The more tightly things are grasped, the more likely they are to slip through the fingers. Predictably, the elite who normally support progressive measures found themselves scrambling to sell their homes before the measure, known as the “Mansion Tax,” kicks in.
The real estate market might be cooling nationally, but among the multimillionaire set in Los Angeles, it has been red hot — so much so that some sellers are getting burned.Sellers have been throwing in brand new Bentleys and McLarens and drastically slashing prices in order to incentivize a quick close.That’s because a so-called “mansion tax” goes into effect Saturday in Los Angeles, adding a 4% tax for sellers on homes that sell for between $5 million and $10 million and 5.5% on amounts $10 million and above.The change will add hundreds of thousands — if not millions — of dollars in additional new transfer taxes for sellers, which will go to support a homeless housing measure Angelenos passed last November.
Supporters assert that the tax will bring in $900 million annually for subsidized housing in an area in which affordable housing is a significant issue.
Of course, supporters of tax increases count on monies they don’t yet have and fail to consider all the unintended consequences.
[The] tax applies to every real estate sale within Los Angeles that is not exempt – including not just mansions, but apartment complexes, retail and industrial buildings and other structures, causing some in the real-estate business to warn that developers will look elsewhere to build.”So you add another 5% onto the equation – a lot of times the margins are very thin. If they don’t have the incentive to build, and people aren’t going to build for a loss, we’re going to have less housing,” said David Kramer, president of Hilton & Hyland, a real-estate broker that deals with homes that generally cost more than $10 million.And he’s not referring to mansions, but to apartments. Kramer says large complexes that lease out homes can easily cost more than $10 million to build. Tacking on potentially millions more in taxes will scare developers away.”When you include the tax, plus commissions, plus other taxes, potential sellers are looking at 11%,” said Aaron Kirman, CEO and Founder, AKG/Christie’s International Real Estate. “And that is a lot of money.”
The once robust tax-base is now fleeing the state in droves. Fiscal experts are beginning to notice the state’s economy is on edge.
Thousands of Californians have been laid off in the last few months, the cost of living is increasingly astronomical, and Gov. Gavin Newsom revealed in January that the state faced a $22.5 billion deficit in the 2023-24 fiscal year — a plummet from the $100 billion surplus a year ago.“It’s an EKG,” Mr. Newsom said at the time, comparing a graph of the state’s revenue to the sharp spikes and drops of the heart’s electrical activity. “That sums up California’s tax structure. It sums up the boom-bust.”The structure, which relies in large part on taxing the incomes of the wealthiest Californians, often translates into dips when Silicon Valley and Wall Street are uneasy, as they are now. Alphabet, the parent company of Google, one of the state’s most prominent corporations, said in January that it was cutting 12,000 workers worldwide, and Silicon Valley Bank, a key lender to tech start-ups, collapsed last month, sending the federal government scrambling to limit the fallout.
But, hey, if the progressives feel good about their choices . . . isn’t that what’s really important?
May God have mercy on California, as no one else will.
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