Michael Manville is a professor of urban planning at the UCLA Luskin School of Public Affairs.
In 2022, Los Angeles voters approved an ambitious attempt to redistribute real estate wealth to fund affordable housing. Measure ULA, nicknamed the “mansion tax,” placed a 4 percent tax on property sales over $5 million and a 5.5 percent tax on sales over $10 million. Revenue went toward preventing homelessness, protecting tenants and building subsidized homes.
The tax’s appeal was understandable. For one, most people would never pay it. It was, its proponents said, “a tiny tax on mega mansions” aimed only at “millionaires and billionaires.” And Los Angeles needed a solution to its housing crisis. Because the city doesn’t build enough, many residents struggle with rent even as others sell properties for eye-popping sums.
A venerable tradition in public finance holds that land is both efficient and fair to tax. Efficient because land can’t be moved or hidden; fair because rising prices don’t usually reflect owner effort. Suppose you bought a home in Los Angeles in 2000. By 2025, its value probably quadrupled — but not because of anything you did. You might have remodeled the kitchen, but your home appreciated mostly because the region didn’t build even as its economy took off like a rocket. You got lucky, so it can make sense for the government to tax and redistribute a portion of your windfall gain.
But the devil is in the details. Any tax will create some combination of two outcomes: new revenue and changed behavior. Which of these results is stronger depends on how the tax is designed.
This is where things went wrong. Measure ULA’s goal was to raise revenue, but it was written like a tax to change behavior. Revenue-maximizing taxes tend to have low rates and broad bases. ULA had the opposite. It applied a high rate (transfer taxes rarely exceed 2 percent) to a very narrow base (just 4 percent of the city’s sales are over $5 million). The narrow base was a political advantage but a fiscal liability. It made ULA’s revenue reliant on a small group of people who, precisely because they weren’t everyday owner-occupants, could avoid the tax by choosing not to sell.
When the tax took effect, higher-end sales plunged, and stayed down. Measure ULA, which was projected to raise up to $1.1 billion annually, has averaged just one-third of that. It has also diminished other local revenue. In California, property can’t be reassessed unless it changes hands, so ULA, by reducing transactions, is depressing the local property tax revenue that supports schools and other services.
Worst of all, the tax seems to be discouraging new housing. Measure ULA, its proponents’ claims notwithstanding, isn’t just a tax on mansions. It falls on any transaction over $5 million, including sales of commercial, industrial and multifamily parcels. These parcels are crucial inputs to new development; constructing an apartment building often means buying a parcel to build on and selling it once complete. ULA takes a bite out of both. A Rand study published in May estimates that the ballot measure has reduced construction of large apartment buildings by 30 percent. If that’s right, the tax is aggravating the crisis it was written to remedy.
Measure ULA is a cautionary tale — but its moral is not that cities can’t help the less fortunate. The lesson instead is threefold. First, though good intentions matter, boring details matter more. A carelessly written statute can easily convert bold visions into unintended consequences.
Second, taxes that narrowly target the rich are not the best way for cities to broadly help the poor. Taxing the rich has its place, but social programs are expensive, and they require stable revenue. That revenue stability is more likely when the tax base is larger. ULA, with its laser focus on the biggest sales, leaves most of Los Angeles’s real estate windfalls untouched. The owner of a typical home whose value doubles or triples doesn’t pay anything, because their gain, though proportionally large, never crosses the $5 million threshold. The city could raise more money, with fewer unwanted side effects, with a lighter tax on many transactions.
The final point is simple: In Los Angeles and cities like it, scarcity is at the root of the affordability problem. These places are so expensive because they have a shortage of housing. A safety net is crucial, but programs like Measure ULA need to complement, not compete with or cannibalize, efforts to build. Subsidies can help people cope with high rents, but rents won’t come down until housing comes up.
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