Soaking rich homeowners fails in Los Angeles
By Randal O’Toole | June 9, 2023
To help fund the $1.3 billion that Los Angeles’ City Council believes it needs to house the homeless, the city decided to impose a “mansion tax” of 4 percent on the sales of any homes or commercial properties above $5 million and 5.5 percent on sales above $10 million. This was projected to bring in $900 million a year, funding most of the homeless program.
The reality is far different because planners, as usual, failed to take into account how their regulations and taxes would influence human behavior. In the month before the tax went into effect on April 1, 126 homes sold for more than $5 million. In the month since? Just two.
Homeowners were in a frenzy to sell homes before the new tax went into effect and offered free Bentleys or other luxury cars to anyone who would close the deal before April 1. As soon as April 1 arrived, property owners yanked houses off the market to avoid paying the tax. Some even reduced their prices to just below $5 million so they wouldn’t have to pay it.
What strikes me is that a $5 million home in Los Angeles doesn’t even seem like a mansion. While L.A. has plenty of $50 million to $160 million homes for sale that are true mansions, the $5 million to $10 million homes just look like a slightly larger than usual suburban home anywhere else. And that’s exactly what they are: similar homes in Houston or San Antonio are selling anywhere from $700,000 to $1.5 million with only a few asking more than $2 million.
This disparity is not because Los Angeles is a more desirable place to live than Houston or San Antonio. Los Angeles is no more desirable today than it was in 1970, when census data showed that median home prices in the urban area were 2.25 times median family incomes, compared with 1.95 times in San Antonio and 1.77 times in Houston. That’s nothing compared with the disparity in 2021, when Los Angeles urban area value-to-income ratios are 8.16 vs. 3.04 in Houston and 2.99 in San Antonio (based on American Community Survey data).
Instead, the disparity is because Los Angeles County, Orange County and Ventura County all heavily restrict development beyond existing urban fringes. There are no such restrictions in Texas, which is why homes are more affordable.
Instead of solving this problem, Los Angeles is focusing on a “housing first” program that enriches non-profit and for-profit developers while it only scratches the surface of the homeless problem and does zero for housing affordability. As Joe Lonsdale of the Cicero Institute points out in a recent commentary, the entire West Coast is mired down by big-money programs that are ineffective at truly fixing the homeless problem. Lonsdale says recent legislation passed by the Georgia Legislature will work better; I look forward to seeing if that is true.
In any case, this is just one more demonstration of the problem with tax-and-spend liberalism: the tax revenues are never as great as projected with the spending (on usually worthless projects) always ends up being more than projected. It’s true for light rail and it’s also true for homeless programs.
This article was reprinted with permission from The Antiplanner, a blog dedicated to ending government land-use regulation, comprehensive planning and transportation boondoggles.