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The first quarter of the year saw a major drop in multifamily units sold in L.A. County, and a newly issued report identifies Measure ULA as a new factor adding to a host of established market challenges.
Over the first three months of the year, 52% fewer units sold in L.A. County compared to the previous year, with 3,533 units changing hands, according to NAI Capital. The multifamily vacancy rate held firm at 4.8% despite an increase in newly completed units — particularly on the high end of the market — that drove the average asking rent per unit higher.
High interest rates, rising construction costs and reduced rent growth have all been cited as factors in low multifamily investment in the county, but a report from by NAI Capital identified as a new challenge Measure ULA, the local initiative opposed by developers and property owners alike since going into effect in April 2023.
One developer even named the tax the “most destructive” action he’s seen to new development in the city.
Informally referred to as the “mansion tax,” Measure ULA applies to property sales exceeding $5 million — taxing transactions by 4% for L.A. properties selling for $5 million or more and by 5.5% for properties at $10 million or more.
The ULA Tax's benchmarks and corresponding rates are subject to annual adjustment, based on the Bureau of Labor Statistics' Chained Consumer Price Index. For transactions closing after June 30 of this year, the ULA thresholds will be $5.15 million and $10.3 million, with the same respective 4% and 5.5% taxes applicable.
The NAI report, penned by NAI Capital Commercial Research Managing Director J.C. Casillas, found that sales volume of apartment buildings valued over $5 million in Los Angeles “significantly” reduced year over year, dropping by 71%.
Apartment sales volume on L.A.'s Westside, where luxury single-family and multifamily homes are ubiquitous from Beverly Hills to Santa Monica, dropped 85% last quarter compared to Q1 2023.
In the San Fernando Valley, multifamily sales volume fell by 75% year-over-year.
Casillas said the stats frame the impact of the ULA Tax. Still, other challenges in the market persist. Interest rates continue to rise, while tight credit and softening market conditions collectively result in a decrease in transaction volume and investor interest.
Multifamily prices are also not coming down despite the lower sales volume. Last quarter, the average sale price per unit increased 2% year-over-year to $314,500. More than 500 fewer units sold last quarter compared to Q1 2020, NAI Capital found.
Heightened borrowing costs, inflation and financial risks are having an impact on developers and investors, as well. NAI Capital found that at the end of last quarter, multifamily units under construction in L.A. County were down nearly 13% year-over-year, with a 30% decline in completed units.
