Los Angeles Apartment Development Stalls Amid High Costs and Tax Burdens

Los Angeles is experiencing a severe housing shortage, yet new apartment development has slowed considerably. Multifamily property values in L.A. County have plunged nearly 30% over the last five years, with the average sale price per unit dropping from $397,289 in 2022 to $280,591 in 2026, according to Kidder Mathews. This decline is attributed to several factors making projects financially unfeasible.

Developers, including Paul Schon, report that high interest rates, which surged in 2022, significantly tighten margins. Additionally, local policies such as the Measure ULA "mansion tax"—a 4% or 5.5% tax on property sales over $5.4 million—and the lingering effects of pandemic-era tenant protections (rent freezes, eviction moratoriums) are cited as major deterrents. These factors, combined with rising construction costs, have led many builders to pivot towards smaller projects like ADUs or single-family homes.

Construction starts have fallen, with 2,376 new apartment units completed in L.A. County during the first half of the year, a 9% drop from last year. Units under construction also decreased by 15% to 25,636. While Mayor Karen Bass has implemented initiatives like Executive Directive 1 to expedite affordable housing permits, the current economic and regulatory environment continues to make large-scale apartment development challenging for investors and builders in Los Angeles.