The city of Los Angeles recently introduced a new tax on unoccupied or under utilized property, known as the ULA tax, which is expected to have a significant impact on the city's real estate market. The tax is part of an effort to increase the supply of affordable housing and reduce homelessness in the city, and is expected to generate millions of dollars in revenue each year.
The ULA tax applies to properties that are not in use for at least six months out of the year or are not being used to their full potential. The tax rate starts at $1.01 per square foot of unoccupied space, and increases to $2.02 per square foot for properties that have been vacant for more than five years.
The tax is expected to affect a wide range of properties, including commercial buildings, industrial facilities, and residential properties.
One of the biggest impacts of the ULA tax is likely to be on the luxury residential real estate market as some property owners may decide to hold off and wait to sell their properties rather than pay the new tax which will be combined with the current LA city transfer tax. This could result in a decrease of active listings post April 1st as many sellers who don't 'need to sell' will pull their listings off the market which will result in less inventory which the city has already substantially struggling with. As a result, the remaining inventory will likely incorporate the taxes into their sale prices which will increase prices. Currently as the law is written, the tax will be at 4% for properties sales or transfers between 5-10M dollars. The tax then increases to 5.5% for properties over 10M dollars.
The ULA tax is also expected to have an impact on the industrial real estate market, as many property owners in this sector have been holding onto under utilized properties for tax benefits or other reasons. With the new tax in place, these property owners will now have to find ways to make better use of their properties or face significant financial penalties.
Finally, the ULA tax is likely to have a significant impact on the commercial real estate market. Many commercial property owners in Los Angeles have been holding onto vacant properties in the hopes of securing higher rents in the future. However, with the new tax in place, these property owners will now face a significant financial burden if they continue to leave their properties vacant. This is likely to encourage many property owners to lower their rental rates or find tenants quickly, which could result in more affordable commercial real estate options for small businesses and startups.
