What's Next, Los Angeles? with Mike Bonin
Los Angeles is at a turning point. We are living in a defining moment. What happens next is up to us. Over the past few years, problems and challenges have shaken this city -- and tremendous opportunities for change have presented themselves. How do we rise to this moment and emerge a better place to live? What will it take to create a more just and a more equitable community? Working together, how are we going to create a stronger, forward-thinking Los Angeles? Mike Bonin, writer, teacher, progressive activist and former City Councilmember, looks at the issues and problems facing Los Angeles, examines ideas, and talks with the people who will lead us to a brighter future.
Produced in partnership with LA Forward.
What's Next, Los Angeles? with Mike Bonin
What's the fuss about ULA?
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What is the fuss about ULA, the measure Los Angeles city voters approved in 2022? The debate over its impact may be more hotly contested today than it was when it was on the ballot.
Measure ULA, dubbed “the mansion tax" by supporters, imposes a transfer tax on property sales above approximately $5 million. Funds go toward affordable housing production and homelessness prevention programs in the city. It's supporters say it is boosting production of affordable housing and keeping tenants housed, reducing homelessness. Detractors say it has had minimal impact on affordable housing, and is chilling production of affordable and market-rate housing, and putting a drag on the economy.
A conversation about Measure ULA is a conversation about housing, about affordability, about homelessness prevention, about finance and taxation, about real estate market forces, and about the finer details of government regulation. And that is what Mike discusses this week with Joe Donlin of United House LA, a champion of ULA, and Mott Smith, co-author a study critiquing ULA.
UCLA Lewis Center Study: Unintended Consequences of Measure ULA
Rebuttal: Major Research Flaws Undermine Authors' Bold Claims: Unpacking the Debate on Measure ULA
What has Measure ULA Done So Far? (Shelterforce)
How LA's transfer tax cost schools and local government $25 million (CA YIMBY)
Lawmakers seek to overhaul LA mansion tax (LA Times)
Mayor Bass withdraws her bill to overhaul LA mansion tax (LA Times)
United to House LA website: https://unitedtohousela.com/
Council of Infill Builders: https://www.councilofinfillbuilders.org/
What's Next, Los Angeles? is produced and hosted by Mike Bonin, in partnership with LA Forward.
Measure ULA, what is the big fuss? We're going to get into it on this episode of What's Next Los Angeles. Hi everybody and welcome. It's Mike Bonin. Thank you for joining me. It was the best of times, it was the worst of times. It was the age of wisdom, it was the age of foolishness. It was a huge boost for affordable housing and homelessness prevention. It was killing the housing market and harming the economy. With all due apologies to Charles Dickens, that's about as good as a setup to a discussion of Measure ULA that I can think of. The measure approved by LA voters in 2022 may be the subject of more raging debate now than it was then. Now, a conversation about Measure ULA is a conversation about many things. About housing, about affordability, about homelessness prevention, about finance and taxation, about real estate market forces, and about the finer details of government regulation. Full disclosure, I was a big supporter of Measure ULA, and I still support it. But I will concede that a discussion about it is not black and white. That conversation lives in shades of gray amid a wave of complex and often difficult to digest details. So let me try to back up a bit. Measure ULA was dubbed the mansion tax by its supporters, and it was approved by LA voters in November of 2022. It imposes a transfer tax on property sales above approximately five million dollars. The funds go towards affordable housing production and homelessness prevention programs in the city of Los Angeles. Now here's what supporters say about it. They say that Measure ULA is successfully raising money for critical housing programs, with nearly 800 million collected to date, funding hundreds of affordable units, and providing 30 million in rental assistance to over 4,300 Los Angeles households. They say it has provided relief for working families, that it has helped prevent evictions and reduce hardship among vulnerable renters, especially households with incomes under 80% of the area median income. They also make the point that Measure ULA is making those benefiting from high-value property transactions contribute to solving the city's housing affordability crisis. Now, here's what critics say. They argue that ULA has raised far less revenue than promised. They say only about $830 million collected versus initial projections of $1.1 billion per year. And they raise doubts about ULA's ability to meet its ambitious housing goals. They say that real estate analysts and some academics claim that the tax has sharply reduced high-value property sales, with the odds of a property selling above the tax threshold dropping by as much as 50%, particularly when it comes to multifamily properties. They also say that the tax burdens developers and investors, and that potentially discourages investment in commercial and industrial and in multifamily properties, which are vital for revitalizing the local economy and for building new housing. So the fight over ULA has grown fierce in the past couple months, really fierce. A couple months ago, there was a UCLA Lewis Center study sharply criticizing ULA. And then a couple months later, another academic study from Occidental College essentially refuting those arguments and touting ULA's success. And then two weeks ago, in what seemed to be a sudden move, the state legislature jumped into the fray with a bill introduced in the legislative session's final few days proposing big changes to measure ULA. This came as a shock to ULA advocates. They were shocked that the state legislature would seek to change the impact of a measure approved by LA voters. And then it was reported that the person pushing this bill was none other than LA mayor Karen Bass, who tapped former state lawmaker Bob Hertzberg to craft a deal for her in Sacramento. From people in groups seeking to defend ULA, from people in groups seeking to kill ULA, and from people in groups who wanted to change it but still preserve it. I tried to keep up with the changing details and the rumored amendments, and even though I'm certainly no novice at legislating, it was incredibly complex, incredibly confusing, very, very hard to understand. In the end, the weight of that complexity was too much. And at the request of the mayor, the bill was withdrawn temporarily, with the understanding that it would be back at the start of the next legislative session in early 2026. The aftertaste of all this is pretty bitter and sour, and no one involved is really happy. So to get to a better understanding of what ULA is, how it's working, and what the next stage of the fight might look like, I talk with two guests. The first is Joe Donlin, the executive director of United to House LA, the coalition behind ULA, and then with Mott Smith, an author of the UCLA Lewis Center study. First up is Joe. Since 2023, Joe has been the executive director of United to House LA. As I said, that's a broad coalition. It's made up of homeless service providers, affordable housing nonprofits, labor unions, community land trusts, renters' rights groups, and other housing advocates in LA. Joe spent probably countless hours on the phone and in Sacramento over the past couple weeks. I spoke with him a couple of days after the actions in Sacramento went down. Joe Donlin, welcome to What's Next Los Angeles. Thanks so much for having me. You are still recovering from what I imagine was an incredibly busy week last week.
SPEAKER_00Absolutely. Yeah. Looking forward to continuing the good work of the United House of A Coalition. But yeah, last week was a bit of a roller coaster.
SPEAKER_02Yeah, ULA has never been a quiet subject because there's always been folks who are very strong supporters, stroke folks who have been very strong critics. Last week was definitely a week of some high drama with some high-stakes gamesmanship in Sacramento. But before we get into last week, I just want to sort of level set. Tell me a little bit about what ULA is and who the coalition is behind it.
SPEAKER_00Sure. So measure ULA, it's the city's largest source of revenue for affordable housing and homelessness prevention programs ever in its history. And that's all thanks to the voters of Los Angeles who passed the measure in 2022 on a citywide ballot. It raises revenue by taxing very few but very expensive property sales. And it turns out that that can raise a lot of money for the city. And in fact, it's raised over $830 million in just over a couple of years. And those revenues have been on a steady climb upwards since the beginning of the measure. And the coalition behind it is the United House A Coalition. We had over 240 organizations who worked on the ballot measure to pass it. These are community-based organizations, affordable housing developers, labor unions, faith-based groups, and many more. And, you know, when we designed the measure, we knew that a big revenue source would be essential for taking on our crisis of housing insecurity. And in this era of drastic federal and state cuts to funding and a budget crisis in the city, it turns out that ULA is even more a lifesaver for Los Angeles than we had imagined. And it's so important because it's funding essential homelessness prevention programs and the creation of new affordable housing. And we should not be surprised that the city's first drop in its homeless count in years has coincided with ULA's first two years. So we think these investments are working. Can you talk a little bit more about the specific programs it's been funding? Absolutely. So ULA requires that the funds go into about 11 affordable housing production, affordable housing preservation programs, homelessness prevention, and tenant protection programs. So for example, just a couple weeks ago, the city released its largest injection of funding for affordable housing in its history, thanks to ULA. That was nearly $400 million that is now going out for affordable housing providers, community land trusts, public agencies to tap in to build new affordable homes, acquire buildings to make permanently affordable and to expand home ownership opportunities. ULA also funds rental assistance, which has already been used to keep about 10,000 Angelinos housed who likely would have lost their homes if not for this essential ULA rental assistance. Similarly, ULA has been providing crucial income support to low-income seniors and people with disabilities. And ULA funding has enabled the city to pass a tenant's right to counsel, allowing the city to begin a multi-year phase-in process to ensure low-income tenants facing eviction have an attorney to help them exercise their rights. ULA is also funding the enforcement of the tenant anti-harassment ordinance. Harassment is one of the biggest drivers of displacement and homelessness in our city. And in addition to the nearly $400 million that went out earlier this month, ULA has already helped developers build who are building 795 affordable units move their projects faster. This is supporting thousands of union construction jobs. And I could go on and on. There's almost too much big impact to talk about.
SPEAKER_02Let me ask this question. There's always a huge gap between the idea and the reality. Making something, a legislative proposal, happen is even harder than getting the legislative proposal passed in the first place. How well is ULA doing? Letter grid?
SPEAKER_00ULA is doing really well. Obviously, there's been a lot of barriers put in front of it. You know, as soon as we passed the measure, there have been lawsuits brought against it. All of those have failed. There have been ballot measures trying to challenge it, and those things have been bumps in the road. But with this release of $400 million and the early release of the rental assistance funds and funding into the Affordable Housing and Accelerator Plus program, it's been making real impact. There's an amazing Citizens Oversight Committee that is really tasked with overseeing the expenditure plan and the program guidelines. We had well over a hundred organizations in our coalition contributing to that public process to help design the details of each of these programs. And we want to move the money as quickly as possible, and the money's going out the door, but never fails fast enough because our crisis is real.
SPEAKER_02So the ULA has from the beginning had its detractors. A lot of those recently worked together and published a report from the UCLA Lewis Center, which had a number of criticisms of ULA's structure and its implementation. They argued that it wasn't really producing any affordable housing, that the impact on uh multifamily and on commercial development was extreme and therefore was impairing housing development and was having an overall sort of bad impact on the economy. What's your response?
SPEAKER_00I know we're going to talk about this, but first thing I'll say is a recent report from researchers from UCLA, USC, Occidental College, and public counsel have demonstrated pretty convincingly that the Lewis Center reports were deeply flawed, which I can say more about in a minute. But they the Lewis Center attempted to make claims about ULA impacting new housing construction. They did this mainly by looking at housing transactions, not at actual development metrics. And when they did look at building permits, they did so in a way that did not control for count confounding factors, such as high interest rates or inflating commodity prices or rising insurance rates that we know are affecting development everywhere in California and across the country. And in the end, they they made sweeping recommendations to give 15-year tax breaks to big commercial and residential developers.
SPEAKER_02And what about one of their arguments was that the estimate of the number of affordable housing units that ULA has created and the number of jobs that have been created were inaccurate and inflated.
SPEAKER_00In its first year, ULA put funding into what's known as the Accelerator Plus program, which is for affordable housing projects in the development pipeline, but need additional funding to get their projects moving faster or get them over the finish line. And so ULA has contributed to about 795 affordable housing units that, if not for ULA funding, would not be able to get closer to the finish line. And already some of those units are open and housing Angelinos right now. So some are open and some are still in the pipeline. Correct. And job creation? Yeah. So what's great about ULA is not only is it producing affordable housing, keeping people housed, but it's also creating good jobs for Angelinos. Obviously, there's got to be a lot of public sector jobs that help implement these programs. But also when we're building affordable housing, these projects have to be under project labor agreements. And that means good union construction jobs. And so with those initial almost 800 units, the estimates that we've seen project thousands of construction jobs being produced. And now that we have another $400 million going out the door, that's going to be a lot more good jobs for Angelinos as well.
SPEAKER_02So in talking the other day with Mott Smith, one of the contributors or authors of the UCLA Lewis Center report, they argued that voters really got more than they bargained for when they got ULA, that it was sold as a mansion tax, but it does a lot more than single-family homes. It also does commercial, industrial. And a big concern a lot of folks have raised are is the impact on multifamily. How do you respond to that allegation? Is that people thought they were voting for transaction tax on single-family homes, but it's a lot broader than that?
SPEAKER_00I I think, well, we've always said, you know, this is a real estate transfer tax. And it does apply to any property sale above about $5 million. And the tax revenues go into this crucial fund for affordable housing and homelessness prevention programs. And it's doing exactly that. The majority of transactions are uh in that mansion category, but a big chunk, if not a majority, of the revenue is really coming from the commercial and larger buildings that have been paying into the tax. And so those are really crucial, crucial sources for the revenue that's going into these housing solutions programs. And, you know, I would just say, you know, about that report that's come out critiquing the Lewis Center's research. What they, you know, what the analysts in that report had showed that the Lewis Center failed to demonstrate that ULA is having a negative impact on housing construction because they neglected to control for a number of confounding factors. They biased their analysis by eliminating all the ED1 projects. They used very tiny samples and they didn't meet the basic requirements for the main statistical test that they use called a difference and difference. And then they neglected to look at the benefits of ULA and weigh that against the costs of the recommendations. And I think it's really important to look at some of the factors that we're seeing right now. They, their whole claim was that ULA is having an impact on housing construction. But when you look at the development indicators, you actually see major signs of confidence by real estate developers. And I can give you three examples. First, transactions paying ULA have followed a steady increase quarter over quarter since the beginning of ULA. This is showing that the market is adjusting and continuing to transact properties. Second, entitlements or approvals to build new housing units in the city are up 52% between 2022 and 2024, when ULA has been in effect. And that means developers who own land are getting ready to build and probably waiting for those sticky interest rates to come down a little. And third, and this may be the most telling of all, in just six months, developers proposed 17,029 new units of housing since a new development incentive known as the CHIP or Citywide Housing Incentive Program went into effect in February of this year. So you see the CHIP in the city's major rezoning plan that created capacity for half million new units of housing in LA. It had been delayed for multiple years. Yet developers could see what was being planned, and many, as you can imagine, waited for these new development incentives to come online before submitting their proposals for thousands of new units of housing. So you can see that this delay in the rezoning plan likely had a chilling effect on the real estate market. And this is another factor that has been ignored by the Lewis Center and the whole public debate, while big real estate interests seek to pin the blame on ULA. So you put all that together, transactions are up, entitlements are up 52%, and 17,000 new units proposed in the last six months. And you can see that there are major signs of confidence in the real estate market. And as interest rates start to tick downwards, we may just see soon see a flood of new development.
SPEAKER_02So the Lewis Center study came out a while back. The re the rebuttal from uh from Oxy and USC and others came out a couple weeks ago. And then last week, towards the very tail end of the legislative session up in Sacramento, all of a sudden there was a bill that would have made some pretty significant changes to ULA. Part of it, there were folks like the Howard Jarvis Taxpayer Association, which would like to get rid of this and any tax anywhere. And then there are others who say they're fine with ULA, but they want to make some changes. Where do you think the action in Sacramento this week was coming from? Or do you even agree with that interpretation that there's some folks who want to get rid of it and others who just want to mend it but not end it?
SPEAKER_00There certainly are real threats against ULA. And as you mentioned, the Howard Jarvis Taxpayer Association has a measure that they're seeking to qualify. That's a real threat, and we're committed to fighting against that. So last week there was this last-minute attempt to push a bill through Sacramento and what's known as a gut and amend process. Thankfully, it got pulled, but had it moved forward, it would have been the least democratic vehicle for legislation, given it would have not had any time for changes or any public input. Of course, we're talking about something that would impact a citizen's initiative that has been passed by the voters of Los Angeles. And so what they wanted to try to do again is to give tax breaks for developers and big property owners, essentially allowing them to not have to pay the ULA tax until their buildings are over 15 years old. Had that been put into place, those tax breaks would have taken anywhere from 15 to 30% of revenues out of the ULA homelessness prevention and affordable housing programs. Taking last fiscal year, which, you know, where ULA raised about $450 million, that would have meant anywhere from $65 million to $130 million would have been lost with those tax breaks. That's a lot of households who could be kept off the streets with rental assistance and income support. And that's a lot of affordable housing that could be built.
SPEAKER_02Do you think that this is all about killing ULA, or do you think that there are some folks who want to see changes but are okay with the broader superstructure of ULA staying in place?
SPEAKER_00I think there are some who want to make some changes to ULA. The real politics that are behind these maneuvers that are happening in Sacramento and elsewhere really seem to be driven by the big real estate interests, the big commercial developers and the big property owners.
SPEAKER_02So that that's the politics behind it, the players behind it. It was widely reported, LA Times, number of media outlets, that the push for these changes in Sacramento were being the that push was led by Mayor Bass and the former legislator Bob Hertzberg was doing the negotiating for her. Have either the mayor or her office or Hertzberg communicated to the ULA coalition what it is they're seeking to do?
SPEAKER_00We did not know this bill was coming forward. And look, we know the mayor wants the best for our city, as do we. We're raising the question about whether this is the best way to do that. We think this conversation should be kept at the local level where there have already been robust local conversations about ULA and figure out how to move forward together.
SPEAKER_02Of the various elements of what they were proposing in Sacramento last week, you discussed that 15-year window where it wouldn't apply to projects that have gotten, I guess, their certificate of occupancy in the past 15 years. That's everything new and recent. What were other elements of the proposal that were objectionable?
SPEAKER_00So that was a big one. And I think there also was a section that was addressing some technical changes around affordable housing covenants. And while that appeared to be an attempt to be helpful, when experts looked at that language, they actually were really concerned that it would undermine how affordable housing. Is done and is regulated not only in the city of LA, but statewide. And so there are real questions about that particular section. And would that really cause a rupture in the affordable housing industry?
SPEAKER_02These changes were moving pretty fast. They had a lot of a lot of weight and a lot of energy behind them. And then your coalition got activated very quickly and very forcefully, I think on Wednesday or Thursday. And then the next day, bill had been pulled. What did you folks do to change the dynamic?
SPEAKER_00Well, I think there are a lot of, you know, what's interesting if you look at the supporters and the opponents that came out in through through letters submitted, there's actually a lot of opposition to the bill, perhaps from big business interests that you might have thought would be supportive. And ultimately, I think they realize that they're needed, um, there were a lot of problems with the bill. And one of the key things that we've been saying, again, is that this is a local citizens' initiative passed by Angelinos. Any conversations about ULA should be happening at the local level. And we've been a part of robust conversations along those lines. And you try to overturn something like this through statewide action, it raises a lot of questions. It raises questions about the legal viability of something like that. Would it hold up in the courts? And you even saw in some of the letters from big business interests who actually raised the same point. They weren't even sure that this was a way that it would address their concerns because of the legal issues.
SPEAKER_02So the bill didn't actually die. It was turned into a two-year bill, which means it's coming back in the next legislative session. There is energy, I understand, to make that happen quickly because there's they they want to impact the deadline by which Howard Jarvis needs to put something on the ballot signatures due in in February. Do you think there is the potential of a compromise to be struck up in Sacramento? Or is it really the feeling of the coalition that this is a local issue that needs to be solved at the local level and Sacramento shouldn't be part of the equation?
SPEAKER_00So, first on the Howard Jarvis measure, we really all need to take that on. That's that's something that we've got to fight and understand the intention written into that particular provision. We're just not convinced that's gonna be convincing to Jarvis or any of the backers of that measure.
SPEAKER_02They've said it won't be. They said they're going for it anyway.
SPEAKER_00So And so I think that strategy, there's a lot of questions around that strategy, right? And so I think we've always said we we want ULA to be the best it can be for our city. We've been a part of robust conversations at the local level where we think the plans should for ULA should be had and we'll continue to engage in those local conversations. We're not closed-minded to change, but you know, what some are trying to force through does not match the evidence nor the need for our city.
SPEAKER_02Let me ask again, though, does that mean a any compromising changes needs to be done at the city level?
SPEAKER_00This is a city citywide citizens' initiative. The changes were created by the voters of Los Angeles. That's where the conversation should remain. And I think for legal reasons, that makes the most sense as well.
SPEAKER_02Yep. Have you gotten any feedback from the mayor's office or anybody that they're open to having that kind of dialogue?
SPEAKER_00We're eager to be in conversation with the mayor's office around this, and we've raised these issues, and I think we're gonna stay in conversation about it.
SPEAKER_02Okay. Anything else as this conversation continues, this debate continues? Anything else you'd like listeners to to know about ULA, what it's doing, or what people are doing to defend it?
SPEAKER_00We're excited to keep watching ULA doing its great work and also how the market is responding. As more and more data, like we talked about previously, comes out, we see that the market is moving forward and all the blame that's being pointed at ULA is really questionable. And I think as more time passes, that's gonna play out. Now, of course, you have property owners who look at this attempt in Sacramento and like, ooh, maybe I'll wait a few more months to sell my property. You know, you're gonna have those kinds of effects, and that that's been happening since the beginning when the first lawsuits went forward, when Jarvis had their first measure that failed. You know, what we have to take all of this in into context, but in the meanwhile, ULA is gonna be building affordable housing and keeping people housed. All right, sounds good. Joe Donlin, thanks for joining me. Thank you so much for having me, Mike.
SPEAKER_02Next up is my interview with Mott Smith. Mott is an adjunct professor at the USC Price School of Public Policy. He teaches and writes extensively on housing production and regulation. He's a co-author of the academic study that was critical of ULA and its claims of success. He's a developer and a policy analyst, and he's an expert in real estate and urban development. And he is the founding board member of the California Council of Infill Builders. He also once served as the editor of the Planning Report, a publication covering LA land use, infrastructure, and governance. Mott Smith, welcome to What's Next Los Angeles. Hey, great to be here, Mike. Great to have you. It's about time I spent some time on the show talking about ULA. It's been in the news for quite a while. So let me dive right in. You've been involved in in housing and development policy in Los Angeles for a long time. Back me up a little bit and tell me what your what your take is on ULA.
SPEAKER_01I I'm one of those people that thought that it was a pretty good idea when it was first proposed because for I'm I may make some enemies when I say this, but I think Prop 13 could stand some reform. And I think that we I think there's a a system in California where people chronically underpay their fair share of taxes. And the more of an incumbent you are, the more you underpay your fair share. At the same time, it's scrambling every year to get money for affordable housing and for low-income families who are at risk of losing their housing is just not a sustainable system. And so this idea of having a permanent source, and I know we've been talking for literally 30 years since Jan Breidenbach was in Scanf about permanent sources for affordable housing, we've never really achieved it. And so the idea of having something that is like a permanent source that also is a corrective to some of the distortion that Prop 13 put in place is a cool idea. I was watching it very closely, and one of my colleagues from UCLA, Shane Phillips, he wrote a book where he actually recommended transfer taxes and then he was part of a group that before Measure ULA was approved, he did a little analysis along with other members of the United House LA coalition and said, Yeah, this is gonna be pretty good. And I and many others in the in in the affordable friendly real estate community were like, All right, if Shane says it's cool, it's probably cool. And then when it passed, I and I'm embarrassed to say this because I am a nerd and a policy wonk. I read it for the first time after it passed. I kind of, I think so many voters went off the headline, which was a mansion tax to pay for affordable housing and to give assistance to low-income families. And like that on its face is a good thing. Yep. And then I started to look at some of the details and I was like, oh, this is maybe not gonna work the way people thought it was gonna work. And it's it's a 29-page law, it's very complex. It's not just a mansion tax to help low-income people, it's uh is a very complicated thing. I had been watching it very closely since it passed. And after it had been in effect for about a year, there was a report that came out of Occidental College saying it's we're a year in, we can declare ULA a smashing success. It's great. And again, I wasn't paying much attention to it. And then two years in, I'm like hearing lots of chatter about this, and I'm uh I'm wondering what's really going on. And I was able to get my hands on some very detailed data from basically every real estate transaction that happened in LA County from January 1st, 2020 through the end of 2024. And we were able to, for the first time, really analyze what had happened with Measure ULA. And it turns out that, like I said, the details of it really mattered, and they got some key details wrong, I think. And the effects weren't what I think a lot of people had signed up for.
SPEAKER_02So before we get into what those effects were, tell me what the details, either what the details were that they got wrong or the elements of it, and this may be the same, the elements of it that that went beyond the the public title of mansion tax.
SPEAKER_01Sure. Okay. So Measure ULA kind of made three promises. It said that we were going to tax rich people's houses to pay for public goods, and it was gonna raise, it was gonna raise a good amount of money. The projections at the time were between 600 million and a billion dollars a year. Second thing it promised was to build affordable housing. This is gonna be a funding source for affordable housing. And the third thing that it promised was that it wasn't going to really affect the real estate market that we care about. Again, I may make some enemies when I say this among certain groups, but I don't really care much about whether the mansion market is impacted by Measure ULA. Right. But I care very deeply if the apartment building industry and commercial development and the ability to reposition office buildings and build sound stages and manufacturing centers. I care deeply if places where regular people live and where regular people work are impacted. And these are the questions. Did it raise money? Did it build affordable homes? And did it not impact the real estate market that we really should care about? And what Measure ULA, like I can give you the answer. The answer is it only generated about 50% of the low end of the revenue estimates. It has built basically no housing to date. We're two years in, and it's only actually spent $1.5 million on housing, which is crazy. When you consider how desperately affordable housing developers need funding, that measure ULA has only managed to move $1.5 million is shocking. And then the third thing has it affected the markets that we're paying attention to? And the answer is very much so. Apartment building is basically stopped in Los Angeles and commercial development and all of the associated things. There's basically nothing new coming into the pipeline right now. And that's very scary. And you asked me, Michael, what was so what did you LA, what were the details that got wrong? Yeah. So the first thing I got wrong was it was sold to voters, I believe, as a mansion tax. And that's how most people want to know voted on it. Yep. And it turns out that it taxes everything above $5 million, not just mansions. And apartment buildings, even modest apartment buildings, even low-income apartment buildings often are valued at above $5 million. There's so many vacant office buildings right now or struggling office buildings in Los Angeles that are really having trouble with their loans and having trouble finding a way to reposition themselves. And it it by taxing those two, it just makes a hard problem impossible. Second thing that got wrong, and this is a subtle point, is it was designed as a cliff rather than as a progressive marginal tax. And what I mean by that is our income tax is marginal. So if you go from one tax bracket to another tax bracket because so you got to raise at work, it's that raise, the higher tax bracket only uh applies to the portion of your income above the cutoff. The part below that cutoff is taxed at the same rate it was before you got the raise. So your raise is always going to be worth it. You're never going to be one of those situations like don't pay me more because I don't want to pay more taxes. That doesn't happen in our tax structure. Right. Measure ULA, unfortunately, is not designed that way. It's designed so if you have a five million dollar property, it's taxed, you know, you don't pay a measure ULA tax at all. If you if it's five million and one dollar, now you're paying $200,000 or something like that. And so what that does is it causes very weird distortions of behavior, lots of avoidance behavior. So that part is not working as designed. The third thing that Measure ULA got wrong is the way the money gets spent is highly, highly prescriptive. And so Measure ULA has has baked into it three requirements for how the money gets spent that are a problem. The first is, and this is very this is very technical. So I'm glad you have a you have a smart, informed, highly nerdy audience. There's something called subordination in lending. And so when you're putting together an affordable housing project and you go get a loan from a commercial bank, and that's gonna be a big part, that's gonna be the you know, the majority of the financing is probably gonna be a loan from a from from a commercial bank. That in the affordable housing world, they call that hard money because it has to get paid back. So if you know Bank of America makes you a loan, they expect to get paid back, and they're not gonna make you a loan if they don't think they're gonna get paid back. Right. And so measured ULA and other city and state sources are what they call soft money. And they're usually smaller chunks. And anybody who's ever done affordable housing knows this and has the trauma of this. You have to often get four, five, six sources of soft money and layer them together. And that's how you make an affordable housing project work. And um usually the hard money that has to get paid back calls the shots, for better or for worse. And because the soft money, uh, the way those are structured, they only get paid back if the project makes an excess of revenue, which usually doesn't happen anyway. So agencies usually feel that they're there are effectively grants that could get paid back, but probably aren't going to get paid back. And so Measure ULA is following a trend that's increasingly prevalent in affordable housing, where they're saying that their affordability covenants, the things that guarantee that the affordability of the units is going to be 30% of area median income or 50% of area median income. Those are going to be in first position on title. It's a good intent, which is if we're going to be investing in public money and affordability, we should be buying the longest period of affordability we can buy. Yep. Up to forever. The challenge is when the affordability, when it's in senior position like that, what most agencies do is they allow for things that are called float-ups. And that's that means that it the assumption is if the project got foreclosed, something about the economics of it wasn't working. That they thought they were gonna make money renting at 30% of area immediately income. And they didn't account for the fact that insurance costs were gonna go up 170% and knock the knock the building into the red. And so when a foreclosure happens, in order to not wipe out the affordability, most agencies say, you know what? We said it was gonna be 30%, but because it's not penciling right now, we'll let you go up to 40% and we'll let you go up to 50%. Still affordable. Nobody in the building gets displaced, just as units turn over, they can rent to another affordability level that's a little bit higher, but still affordable. So the combination of non-subordination, so the affordability requirements are there forever, and no float-ups means that the projects are much riskier when they're ULA projects than when it's from another source. And the and the banks looked at that and said, huh, I don't know if we can make that work. The third issue is that Measure ULA also has a resale restriction. So if your project gets Measure ULA money, you can only sell to a nonprofit forever and ever. There are other categories like community land trusts and other things, but technically all nonprofits. And this is the real deal killer for banks, because the majority owners of deed restricted low-income housing in California are actually for-profit companies. And for-profit companies tend to be better capitalized than nonprofit companies. And so again, the bank is thinking what happens if this project goes bad? What am I going to do? And if somebody says you can't change the affordability restrictions at all, and you can only sell to this very small subset of affordable housing owners who tend to be very poorly capitalized compared to their for-profit cousins, banks have assessed that as being too high risk. And so Measure ULA money has been very difficult to blend with bank money. And this is one of the reasons why, two years in, basically zero projects have been completed under Measure ULA. Only one project was started construction after Measure ULA, and only $1.5 million has flowed from Measure ULA into any project at all. It's because of these compatibility issues with the main financing sources that make affordable housing possible.
SPEAKER_02And there seems to be an emerging consensus, although certainly not a political or legislative one quite yet, but there seems to be an emerging consensus that a piece for folks that that's raising concern is over the multifamily, the apartment buildings, the sales of those. Of the economic financial dynamics you're discussing right now, how much of that is a change in the multifamily market versus how much, which people are concerned about versus a change in the sort of mansion market, for lack of a better term.
SPEAKER_01Yeah. And I would say it's not just the multifamily market, it's the multifamily commercial and industrial markets, all three of those because it's where people live and it's where people work. Yep. And all of those have suffered basically the same. Commercial industrial has gotten hit the worst. Single family does look like it might be recovering slightly. I think about this, I don't have the analysis yet. I don't have the data yet to back up what I'm about to say. But the way I think about it is there's consumer real estate and there's investment real estate. And the single family homes, even though people could buy them as investments, are essentially a consumer product. You buy it because you want this luxury home. Versus apartment buildings and office buildings and manufacturing centers, which are the product of people offering investors the opportunity to create something that's hopefully going to return some profits. And Measure ULA, um, even though it's only a five and a half percent tax above 10 million, cuts the profitability of those investment projects by a third to a half. And this is really why capital has effectively redlined LA right now, which is not good for LA.
SPEAKER_02And one of the other points you made earlier is that one of the problems with ULA, according to you, is that there has been very little affordable housing that has been built as a consequence of it. Or since now, given that this just passed two years ago, there were legal challenges at first, and the city for a while wasn't moving forward because it was afraid it would wind up losing the revenue. And given how long it takes to build housing in Los Angeles, no matter where or what or how it's funded, is it really all that surprising that a lot hasn't been built this soon?
SPEAKER_01I hear what you're saying, and it's there's probably some there's some truth to that, I'm sure. But other funding sources, whether it's HHH or think of any funding source in history, those have been put on the street a lot faster than Measure ULA has. And certain aspects of Measure ULA, like the the eviction defense and the the income assistance and the anti-harassment, that money made it out very quickly, yep, as it should. And there's there's something else happening in the background here that a lot of people aren't yet talking about. And it's it is a crisis in affordable housing that is going to be showing up in the news, I would say, within the next six to 12 months. We all remember Skidrow Housing Trust and how it went bankrupt. I was talking to one community development bank in Los Angeles, a nonprofit bank that has a portfolio of 54 projects, affordable housing projects in the city of LA that have been existing for 10, 20 years, like that. And 22 of them are on the troubled assets list for the bank. 11 of them, because of the increase in costs, again, insurance has gone up 170%, among other things, they can't pay their mortgages. They're making less money than their mortgage payment. These are projects that are bound by similarly inflexible affordability covenants, just like Measure ULA requires. And there's just no way around the banks looking at this situation and saying, we can't put ourselves further at risk. We need that there are fixes for this. And actually, the legislation that is OSB 423, the Tina McKinnon and Alita Gonzalez bill, that included language that would have provided relief for all of those troubled affordable housing projects and allowed the preservation of affordability. It would have provided the same flexibility in Measure ULA because we, the infill builders, among others, would like to see the Measure ULA money unlocked and see it get to work. Creating jobs, creating housing, and doing what it was promised. And that little bit of flexibility would have been enough to accomplish that.
SPEAKER_02Okay. So you mentioned the McKinner Lena Gonzalez bill. So let me pause there and we can hit on that. I just want to give a little context before we get there. Since ULA's passage, there has been a lot of concern, particularly in the real estate industry, over it. Recently, you were the co-author, one of the co-authors of a study that you mentioned a few minutes ago from the UCLA Lewis Center, unintended consequences of ULA. There had been folks trying to get some sort of legislative fix from Sacramento, harder lift than usual, because this was a voter-approved initiative. And things started moving quickly in the past week or 10 days. Very quickly. A week ago, I was hearing the Southern California delegation is telling the legislature, hands off ULA. And then two days later, there's a bill in that's talking about revising it significantly. What do you know about how that came about and how it was determined what the pieces would be of a, I guess it's a amend it, don't end it approach. Exactly right.
SPEAKER_01Exactly right. It's something that that we at the Infil Builders have been calling for quite some time, because again, we would like to see a Measure ULA that works. And right now there are moves afoot from the Howard Jarvis Taxpayers Association and others to launch an initiative in 2026 that would not only repeal Measure ULA, it would potentially repeal 41 other taxes all over the state that were that were approved by a similar mechanism. And the there's I and I and forgive me for being so frank with what I'm about to say, but I think that we've had a little bit of a head in the sand approach to Measure ULA. I think there's been a sense that for those of us who want to keep it, we can't admit there's anything wrong with it. We can't say that it could have been designed better. And I'm telling you, my my belief is it's 85% good. And it just needs a little bit of tweak around the edges to stop hurting commercial and multifamily. It needs just a little tweak so the money can easily be spent and get to work creating affordable housing and jobs. These are not major changes. But there's there's a sense, I think, in some of the advocacy community, that if you acknowledge that there's anything wrong with it, you're basically conceding to the Howard Jarvis Taxpayers Association, you might as well just hang it all up. Right. I have the opposite view that if we don't fully embrace honestly the data that show what it's doing, we're putting a target on its back. The reason why that legislation happened in Sacramento is because I think there was a growing awareness among the legislature that, hey, wait a minute, if LA doesn't fix this, 41 other taxes all over the state worth three and a half billion dollars a year for and these are sources that are paying public employees, these are sources that are paying firefighters, these are sources that are paying for affordable housing in other jurisdictions, those could go away also. And there was a sense that we don't want LA's approach of not really acknowledging the issues to create a problem for the whole state. And I think there was like a light bulb going off for the mayor or for others in the legislature that it was time to fix this and hopefully put the brakes on the Howard Jarvis initiative.
SPEAKER_02And that's the part I find interesting. I I understand the strategic rationale behind it. I get where that comes from. But why did people think that the Howard Jarvis Association, which very ideological hardliners when it comes to taxes, would be persuaded to pull their initiative, even if ULA were completely repealed, why do we think they would back off?
SPEAKER_01It's a great question. And I'm gonna give you a very cynical answer. I hope that's okay.
SPEAKER_02Sure.
SPEAKER_01Which is I think if the Howard Jarvis Association had an unlimited bank account, then they wouldn't pull it. But the people that are gonna fund that campaign, and it's probably gonna be a $30 to $50 million campaign on each side. And I can assure you, nobody in the real estate industry wants to spend $30 to $50 million, and nobody, no, nobody defending public revenue sources wants to spend $30, $50 million. That's the that's where the freight trend is headed right now. And the people who are gonna write the checks to Howard Jarvis are the real estate holders or and builders who can't work right now because Measure ULA is holding them back. And what they're starting to see as well is more and more jurisdictions hearing, hey, Measure UA is great. It's built all this housing, it's created all these jobs, which is not true at this point. I think the legislators from other jurisdictions that are where they're seeing this happen, they understand that only by giving the builders and others who would be writing the checks to Howard Jarvis a better alternative, can we really cut the Howard Jarvis initiative off of the knees?
SPEAKER_02To respond to the cynical interpretation with the cynical interpretation is that it's it's less about the Howard Jarvis Tax Association throwing all 41 of the taxes out than it is the people who are really pissed about ULA would be willing to throw out the 41 other taxes in order to get ULA undone.
SPEAKER_01Yeah, I would say that's mostly correct, with the addition that I think a lot of the same people would view it as a benefit to never see another one. And there are other ones brewing. And so it's a way of hedging their bets and making sure that things don't get worse. And so the idea, the idea of this particular legislation that is now going to be a two-year bill. One of the ideas behind this legislation is it would exempt new construction for multifamily commercial industrial. And that exemption new construction or anything from the past 15 years? Yeah, this is that that's like the new construction financing period. So yes, it's new construction from the past 15 years, which is a relatively small share of the potential ULA revenues, and it's even smaller share of the revenues from other transfer taxes and other jurisdictions. It's in in LA, five percent of the ULA eligible revenues comes from commercial industrial built in the last 15 years. 8% comes from 15-year or newer multifamily. And so it would be something, but it'd still preserve almost 90% of measured ULA's revenues. And again, in other jurisdictions that are much more single family heavy, it's it's an even smaller impact. That little fix, that guardrail that says new construction is not in the crosshairs. This is really about recovering unearned value creation for people who just sat on their properties for a long time, which by the way is most of most of it. That's most of where these transfer tax revenues come from. That's the correction for Prop 13, and it's not a disincentive to build. And so, again, that those guardrails would be enough, I think, to pull a significant portion of the building industry off of the Howard Jarvis initiative.
SPEAKER_02Now, I had heard, I haven't spoken to the housing department directly, so I'm not sure that this is correct, but I'd heard that the housing department was estimating that change would eliminate somewhere between 30 to 35 percent of the ULA revenues.
SPEAKER_01Is that a that's I don't think that's what the housing department said. I think the ULA coalition might have said that. But if you could actually go and I could share the raw data with you if you want. We looked at the data before Measure ULA passed because that's the, you know, that's the most, that's when most of the new construction was happening. Because if we looked at the numbers now, there's been almost no new construction relative to where we were. Yeah. So that it would skew lower. But the most conservative estimate is 13%.
SPEAKER_02So you mentioned that this bill looked like it was on the verge of passage. It was, it was moving fast. It had gotten almost all of the legislative delegation from Los Angeles County behind it. And it seemed like it was moving forward. There was a big pushback from a last-minute pushback from the ULA, pro-ULA crowd in Los Angeles. Suddenly, the mayor and her allies pulled it, but it's not dead because it was turned into a two-year bill, which means it's coming back in the next legislative session where things won't be as rushed. What do you think the prospects are for a compromise?
SPEAKER_01Yeah, I think hopefully they're great. And I don't know that it was a coalition thing. What really happened in Sacramento is this was this bill hit the streets on the day before the last day that you could introduce legislation in this session. And the other jurisdictions that were impacted by it were looking at it for the first time. Yeah. And San Francisco looked at it and said, wait a minute, 15 years from the last certificate of occupancy? What's to stop a builder from abusing that and just getting a C of O for the bathroom remodel and getting out of the tax?
SPEAKER_03Yep.
SPEAKER_01Which is a fair point. And the alleged counsel said, okay, let's change that to the last 15 years from the first certificate of occupancy on the property, which for most properties in LA was like 1904. So it actually would have exempted no projects at all. It would not have, it wouldn't have done anything had they done. And that's what the language said.
SPEAKER_02And so what they would have gotten the other side on board with that.
SPEAKER_01Well, yeah, exactly. And really, what it should say is 15 years from the last C of O for new construction or rehab slash slash adaptive reuse. But that isn't what it said. It's a preferred C of O. It also had a whole bunch of drafting issues. San Jose looked at it and said, we're not happy with this waiver for new construction. We think that it should be consistent with our transfer tax, which is one and a half percent. And we didn't have time, the authors didn't have time to share the analysis of how minuscule buildings built in the last 15 years are in San Jose relative to their tax revenues. But they just said, okay, let's make it a one and a half percent cap. There was inserted some language about Pacific Palisades relief and the way it was drafted, just a drafting error. It actually superseded the entire earlier section of the bill that provided that 15-year waiver anyway. So it was just full of drafting errors. And I'm sorry to say that. The only thing that it would have done right was this covenant relief to save all of the insolvent housing projects in LA and the rest of California right now. And it would have provided that flexibility that would have unlocked the 800 million of Measure ULA money that's basically sitting on the sidelines. So my view is they probably should have passed it just to get that, because that would also help take the target off the back of Measure ULA with respect to the Howard Jarvis Association. And then they could have done technical corrections in in the next session. As it stands right now, the next few months are gonna be very critical because the Howard Jarvis Association needs to get all of its signatures by February.
SPEAKER_03Yeah.
SPEAKER_01And that means that fundraising is gonna start pretty, pretty hard right now. And I know that a lot of people in in the build in the building world were very excited that finally there was some relief on the way and these things that they've been saying for a long time. It seemed like the mayor got it. And all the people are asking for is just look at the facts on the ground, look at the data, and let's make decisions based on the pragmatic realities here. It seemed like that was about to happen. And from my vantage point, what I see is a couple of authors who who do get it. And I see a Southern California delegation that says that oh, that there really are some problems here that need to get fixed, and we better fix them before the whole thing is taken away. And so I'm hopeful that that goodwill continues, and I'm hopeful that people in the in the United House LA coalition are willing to engage in good faith on what the data really say and fix this together. That's my hope.
SPEAKER_02Mott Smith, thanks for joining me on What's Next Los Angeles. Thank you, Mike. Okay, this was a dense policy discussion. If you want to hear more of the insider stuff, the spilled tea, the political machinations in Sacramento, check out the latest episode of LA Podcast, where Alyssa Walker and David Levitis and I get into some of the late developments from the state legislative session on this bill and on some others. We also have a big discussion about the policy and the politics of the very dramatic LA City Council debate over the Convention Center. Check it out where you listen to podcasts. Both LA Podcast and this podcast are brought to you by LA Forward. You can check out its thinkforward.la website for past episodes of both shows, and for some excellent written commentary by some of the best thinkers in LA. That is it for this episode. My thanks to LA Forward for sponsoring, my thanks to Tonya Wisias for producing and editing, and my thanks to you for listening. Until next time, take good care and peace.