Chrishell Stause in Season 7 of Netflix’s “Advertising Sunset.” Courtesy of Netflix
Thank you for reading this post, don't forget to subscribe!The most recent edition of “Advertising Sunset” brings even more tension around extravagant dwellings.
Now, the focus is on the recent property tax in Los Angeles, impacting properties sold for more than $5 million.
The charge is intended to support affordable housing, but it may have drawbacks.
In the newest season of the popular Netflix reality series “Advertising Sunset,” two seasoned real estate brokers are already expressing concern about a new tax on Los Angeles’ wealthiest home buyers, less than 10 minutes into the show.
“This will cause us a lot of problems,” objects experienced real estate agent Mary Fitzgerald. “We’re really upset.”
During the filming of the seventh season, the city’s so-called “mansion tax” was about to be put into effect, adding an additional $1.43 million in taxes on the owner of the $26 million, 13,000-square-foot home that the agents were trying to sell. The new regulation began on April 1, 2023, imposing an additional 4% tax on properties sold for over $5 million and a 5.5% tax on those over $10 million. Anxiety among “Advertising Sunset” agents increased as property owners became cautious of new taxes and rising interest rates, fearing it could lead to a cessation of business.
Agent Nicole Young emphasized, “That’s a substantial amount and I think it’s a significant loss for the entire real estate market.”
Jason Oppenheim, purportedly the head of agents at the Oppenheim Group brokerage conveyed to customers via email that the new tax “defies common sense and basic logic.”
A tax measure rarely becomes a vehicle for reality show drama. Nevertheless, the presence of L.A.’s mansion tax is evident in the seventh season of the real estate reality drama, leading to efforts to sell before its implementation, or engaging in difficult conversations with clients. Oppenheim Brokers, known for promoting luxuriously captivating homes while providing equally sophisticated attire Options, are not alone.
Los Angeles’ new tax was created to raise funds allocated for affordable housing and homelessness prevention, yet some proponents may agree with the concerns raised by the “Advertising Sunset” agents regarding the law’s limitations — although not necessarily for the same reasons.
As high-end real estate professionals worry about their sales, some housing advocates are praising the new tax. According to the Housing Affordability Report, only 16% of Californians can afford a single-family home with the statewide median price surpassing $840,000. California Association of Realtors, In Los Angeles, a minimum income of $198,000 is required for this to be achievable.
“The surging affordable housing crisis is adversely impacting every part of the nation,” revealed Marie Castaldi, director of state housing policy at the non-profit Center on Budget and Policy Priorities to Insider. “This is an extremely fair and equitable approach to amassing resources that can cater to those needs,” he commented on the city’s mansion tax.
However, some of the law’s staunchest supporters acknowledge a notable flaw. Critics argue that the tax is potentially deterring the development of multi-family properties — the same units that could augment the supply of affordable housing.
Unexpected Ramifications of the Mansion Tax
Unified to House LA (UHLA), colloquially dubbed the Mansion Tax, passed with 58% approval in November 2022.
L.A.’s law has garnered a multitude of supporters and vociferous dissenters. Real estate interest groups and others have lodged two lawsuits against the policy, which have been dismissed. The court’s rulings are expected to be appealed, and opponents of the law are devising alternative strategies to undermine it, Nevertheless, for the time being, the tax is enforced and expected to generate about $150 million this year.
L.A. isn’t the sole city relying on high-end property sales to enhance low-income housing initiatives. New York and Washington have statewide mansion taxes. Furthermore, Massachusetts’ governor gave his consent to municipalities wishing to impose a transfer tax on high-value properties. The Chicago City Council recently presented a proposal to heighten levies on properties sold for over $1 million. Recently, Santa Fe Buyers will pay more than $1 million for homes to generate funds for the city’s affordable housing programs.
In L.A., Mayor Karen Bass and the City Council have already allocated this year’s tax revenue. The largest portion – $56.8 million – will be allocated to affordable housing projects. An additional $30.4 million will extend transient support to renters and small homeowners. Lastly, $23 million will be earmarked to provide representation to individuals confronting eviction, as per the LA Times report,
UCLA housing researcher Shane Phillips, whose work inspired L.A.’s mansion tax, is apprehensive about the tax discouraging fresh development, particularly multi-family properties.
He underscored the policy of exempting initial sales within 10 years of construction to prevent developers from being discouraged from selling apartment buildings shortly after their completion.
In L.A., at least 10% of units in multi-family buildings are designated for low-income residents, implying that if many new apartment buildings are not constructed due to the tax, the city could forgo numerous affordable units. These would be units that the government cannot afford to construct or subsidize.
“We’re taxing these new buildings and these new buildings are perhaps only five or ten% of the total revenue, maybe a maximum of $100 million, but we could lose a multitude of privately constructed below-market units, which would cost us $100 million. There needs to be more than a dollar in subsidies,” Phillips commented. “So, it’s like, what are we accomplishing here?”
Phillips stated that the transfer tax is the “third-best real estate-related tax.” He contended that the best type is a land value tax, as it generates revenue and encourages the most optimal utilization of a plot of land.
He argued that property taxes are the second most effective. As these can be collected regularly, not just during property transactions. However, these are politically challenging in California, where property taxes are mainly capped by the state. proposal 13,
Transfer taxes on high-value property sales have a commendable objective: to redistribute some of the funds collected by the real estate industry and homeowners, given the surge in home values in recent years. When designed effectively, they can have minimal impact on the market, while simultaneously amassing substantial resources.
Phillips expressed, “A substantial amount of money has been gained and, to a certain extent, striving to retrieve a small portion of it is a very rational goal, particularly if that money is channeled into aiding individuals grappling with surging expenses.” “The elevated prices have been injurious,” he stated.
In the months leading up to April 1, “Advertising Sunset” agents were not the only ones contending. Property vendors across LA made earnest endeavors to offload their properties prior to the deadline, billy rose, co-founder of high-end real estate firm The Agency conveyed to Insider.
“Upon reviewing the figures, you would undoubtedly discern a spike in activity within the 30, 60, 90 days leading to April 1,” Rose disclosed. Further, he indicated that before its implementation, there were “car offers, substantial commissions, and assorted incentives to spur sales,” albeit he is personally unaware of scenarios where this actually played out.
Rose underscored that the new tax, coupled with elevated interest rates, is contributing to market stagnation: “We’re witnessing a reduced array of available properties for sale.”
However, this cooling effect is likely transitory. Castaldi revealed that the impact thus far has been adverse, with vendors postponing listing their properties to ascertain if the tax will be annulled by impending legal contests.
Phillips is unconcerned about a short-term disruption in the high-end real estate market. On the whole, he believes that proprietors seeking to sell their properties will eventually do so, and transaction rates will revert to normalcy in approximately a year.
Rose mentioned that he “can grasp the reasons behind advocating for taxing millionaires,” but stipulated that the tax “will not sit favorably with affluent individuals.” Instead, he mentioned that it could impact individuals contending with inflation and endeavoring to acquire homes, particularly with a diminished construction activity.
If the city concludes that the mansion tax impedes development and diminishes the stock of affordable and market-rate housing, the City Council could amend the law. Phillips contended that if the law were revised to permit an exemption for initial sales, the mansion tax “undoubtedly would be more beneficial than detrimental.”
“Every tax yields undesirable repercussions,” Phillips conveyed. “This is a particular negative consequence that we truly need to address, yet apart from that, there are relatively confined outcomes from a tax of this nature. And $700 million designated for affordable housing, and rental support, and rightfully, a billion dollars annually—legal representation and initiatives as such—are going to make perfect sense.”
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Source: www.businessinsider.com
