Critique of L.A. Homelessness Tax Initiative

This week, some left-leaning groups in Los Angeles celebrated the implementation of an “apartment tax” aimed at combating homelessness. However, they overlooked a glaring fact: the city hasn’t managed to allocate more than 1% of the $1 billion generated for actual housing projects.

Critics attribute this shortfall to a significant oversight in the planning. While voters approved the tax in 2023, those behind the initiative didn’t incorporate a crucial element—an avenue for providing loans to developers focused on low-income housing.

To remedy this, a new bill would be needed to establish a system for utilizing tax revenue in support of developers.

“I believed what voters were endorsing was housing initiatives,” remarked Mott Smith, an adjunct professor of real estate at USC, referencing the unexpected situation. “Instead, they’ve ended up with a massive fund that remains largely untapped.”

On Tuesday, Councilman Eunice Hernandez—an architect of the tax—spoke at City Hall, highlighting the $1 billion raised from this measure. Nevertheless, she didn’t address the more sobering realities surrounding its actual application.

Rather than channeling funds into new housing facilities or other support structures, much of the spending from Measure ULA has been directed toward administrative costs and safeguarding against legal challenges related to the tax itself.

This includes millions allocated for staffing and hiring consultants and attorneys to navigate lawsuits that have arisen.

The tax imposes a high transfer fee on real estate sales exceeding $5 million, with supporters suggesting it would generate substantial resources for affordable housing development and homelessness prevention, mainly through loans for developers.

Yet, despite the $1.03 billion collected since the tax’s inception, city records indicate that only a mere $93.9 million, or about 9%, has been actually spent. Astonishingly, less than 1%—$9.38 million—has gone to the construction, acquisition, and rehabilitation of affordable housing.

The majority of funds, around $67.9 million (approximately 72.3%), has been directed toward programs aimed at preventing homelessness rather than building new housing. Notably, the largest single expenditure was $30.4 million on emergency rental assistance.

Additionally, administrative costs consumed around $16.6 million, representing 17.7% of total expenditures—which highlights a concerning trend in that more funding has gone toward managing the program than fulfilling the housing promises made to voters.

“They’re celebrating the funds raised,” noted Smith, “but the local economy bears a cost of at least $1 billion, and the actual impact is likely even higher.” He warned that the tax has effectively stymied development citywide.

A study from the UCLA Lewis Center found that real estate transactions above ULA’s threshold have decreased by 30% to 50% in Los Angeles compared to other areas in the county.

Danny Brown, head of luxury real estate at Compass, emphasized the broader economic implications: “The downstream effects of Measure ULA have significantly weakened our real estate market—a critical economic driver for our cities—by over 50%. We’d support ULA wholeheartedly if it were facilitating support for the families in need, as intended.”

Supporters, including Hernandez and various advocacy groups aligned with progressive policies, positioned the tax as a visionary approach to quickly deliver extensive housing solutions.

This initiative also had the backing of the United House of Representatives LA coalition, which includes homeless service providers and labor organizations focused on housing and employment issues.

Governor Gavin Newsom lauded the effort during his campaign, asserting that only “consistent, ambitious, and innovative” funding can truly tackle homelessness statewide.

Moreover, the ULA’s website lists the Los Angeles People’s City Council as an ally—a grassroots coalition criticized for aggressive protests during the pandemic, notably raising substantial funds amid social unrest.

As of now, Hernandez has not responded to requests for further commentary, and neither has Newsom’s office.