By Mercedes Shaffer l Published in Apartment News Magazine
Fantastic weather, safe communities, top schools, beautiful beaches…do I need another reason why Orange County is the BEST place to live and own real estate? Well, I’ve got one more reason -- we don’t have a “Mansion Tax.”
Los Angeles voters just approved Measure ULA, also known as the “Mansion Tax.” It imposes a one-time transfer tax on commercial and residential real estate sales valued at over $5 million. The transfer tax rate jumps from .45% for all properties to 4% for properties valued at $5 million to $10 million and increases to 5.5% for properties valued at $10 million and above. Apartment owners selling a $10 million property, for example, would face about $522,000 in additional taxes on the sale (after commission fees).
What does this special tax fund you might ask? It funds a tenant advocacy group that supports tenant access to legal representation to help defend them against evictions. If you’re a housing provider who has to evict a tenant for non-payment of rent, the government isn’t setting aside funds to help you. Instead, you must hire an attorney and pay out of pocket to have the attorney defend your rights, while the non-property-tax-paying (and likely non-rent-paying) tenants get free legal representation that is funded by the property owners. Yes, this is just one more new tax that Los Angeles residential and commercial real estate owners get to look forward to.
This is the biggest investment in tenant protections in the history of LA, and further drives a wedge between property owners and tenants. It gives even more free resources and rights to tenants and takes away from property owners. I can’t help but wonder if this is part of a larger plan to de-privatize real estate and put housing in the hands of government.
The tax will go into effect on April 1st, 2023, and without a sunset clause, it would be permanent. The group that backed the ballot measure, United to House L.A., estimates that the tax hike could generate between $600 million and $1.1 billion per year in additional aid to help Los Angeles address its homelessness problem and aid tenants facing eviction. The group states that these funds would go directly to innovative solutions to the housing crisis, including creating affordable housing and purchasing hotels for the purpose of converting them to housing. According to the proposal, nonprofits, qualified affordable housing organizations and government agencies would be exempt from the tax. Another tax by government, for government and to fund yet another bureaucracy.
The Los Angeles County Registrar-Recorder/County Clerk showed that nearly 56% of voters in the November 2022 elections approved the city ordinance, and a majority vote is all that was needed for it to pass. It’s not a surprise that this ordinance was approved by voters. In the city of Los Angeles, the majority of residents do not own real estate valued at $5M or more, and more importantly, tenant rights groups are very vocal about their beliefs and encourage and embolden tenants to believe that they are entitled to free housing. These groups band together and fund ‘protesters’ to wear bright shirts, hold picket signs, and make noise at city council meetings. They make their voices heard, while property owners are missing from these meetings because they are likely at work so that they can earn the money needed to pay their mortgage bills, taxes, retrofits, etc..
While Orange County does not have a Mansion Tax, and it seems like it could never happen here, these ideas spread fast and are more contagious than COVID. Los Angeles is not the first city to pass a mansion tax, New York also has one, and if apartment owners don’t stand together to become a political force and fight for our rights to build a business, this could happen here too. Let’s keep Orange County a great place to own real estate, and in turn housing providers will be incentivized to continue to invest in maintaining their rental properties so that they can provide top-notch housing, which is great for tenants too!
Mercedes Shaffer is a real estate agent with Coldwell Banker and specializes in residential and commercial real estate, helping clients buy and sell apartment buildings and homes and perform 1031 Exchanges. If you would like help with buying, selling or doing a 1031 Exchange, she can be reached by phone at 714.330.9999, by email at InvestingInTheOC@gmail.com or visit her website at www.InvestingInTheOC.com . DRE 02114448
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