Los Angeles Apartment Development Stalls Amid High Rates, Fees, and Mansion Tax

New apartment construction in Los Angeles has significantly slowed, with developers reporting that projects are no longer financially viable. Multifamily property values in L.A. County have dropped nearly 30% since 2021, with the average sale price per unit falling from $397,289 in 2022 to $280,591 in 2026, according to Kidder Mathews. This decline comes despite the city's urgent need for more housing and Mayor Karen Bass's efforts to streamline permitting.

Developers attribute the slowdown to several factors. Elevated interest rates, which rose sharply in 2022, have made financing projects at 7% much less profitable than at 2%. Additionally, pandemic-era tenant protections, though expired, are cited for flattening revenues and creating eviction backlogs. A major concern is Measure ULA, the 2022 "mansion tax" that levies a 4% or 5.5% tax on L.A. property sales over $5.4 million, impacting apartment buildings and eroding potential profits. The City Council recently shelved a proposal to exempt multifamily buildings from this tax for ten years post-construction.

In the first half of the year, L.A. County saw a nearly 9% drop in new apartment unit completions and a 15% decrease in units under construction compared to the previous year. This trend means fewer options for renters and continued challenges for developers looking to build in the region.