In November 2022, voters in Los Angeles approved a new tax on expensive property sales. Nicknamed the “Mansion Tax,” Measure ULA adds a charge of 4 percent on sales between $5 million and $10 million, and 5.5 percent on sales above that, with the money earmarked for affordable housing and tenant assistance. City officials projected it would bring in about $672 million in its first year.
But a new study asks a question that budget projections tend to skip: when a tax discourages people from selling property, does the city quietly lose money somewhere else? The answer, according to research published in the Journal of Public Economics, appears to be yes. The authors estimate that roughly four-fifths of the revenue the mansion tax raises is offset by a decline in future property tax collections.
Two taxes that pull on the same string
To understand the finding, you need to know a bit about how California taxes property. Under Proposition 13, passed in 1978, the assessed value of a property, which is the figure used to calculate annual property taxes, can rise by no more than 2 percent per year as long as the owner holds onto it. Only when a property sells does it get reassessed to its full current market value.
In a place where real estate has appreciated much faster than 2 percent per year, this creates a large gap. A home held for a long time might be taxed on a value far below what it would fetch today. Sales are what close that gap, because each transaction resets the assessed value upward. So the growth of the city’s property tax base depends heavily on how often properties change hands.
Now add a transfer tax that makes selling expensive property more costly. If it discourages sales, it also delays the reassessments that would have raised the property tax base. That is the “fiscal externality” at the heart of the study: a behavioral response to one tax that spills over and shrinks a different tax base. The researchers, Daniel Green of Harvard Business School, Vikram Jambulapati of UC San Diego, and Jack Liebersohn and Tejaswi Velayudhan of UC Irvine, set out to measure how large this spillover is.
How the researchers measured the response
The team assembled a detailed record of property in Los Angeles County, drawing on county assessor records, deed data from CoreLogic, and commercial transaction data from CoStar. After setting aside a couple of cities with their own transfer taxes, the analysis covered about 2.35 million taxable parcels, roughly 788,000 of them inside the City of Los Angeles. Between January 2020 and December 2023, they observed 309,242 arm’s-length sales, of which about 2.5 percent exceeded $5 million.
To isolate the effect of the tax, the authors used a comparison strategy. The mansion tax applies only to high-value sales inside the City of Los Angeles. So they compared those sales to two groups the tax does not touch: lower-value sales inside the city, and high-value sales elsewhere in Los Angeles County. If high-value city sales dropped while the comparison groups held steady, the difference offers evidence of the tax’s effect.
They also separated two time periods. There was an “anticipation” window between the measure’s passage in November 2022 and its start in April 2023, when sellers rushed to close deals before the tax kicked in, and the period afterward, when the tax was in force.
What the numbers showed
Interpreting their comparison as causal, the researchers estimate that Measure ULA reduced the rate of high-value property sales by about 50 percent. That figure sits in the middle of the range found in earlier studies of transfer taxes in places like London, Toronto, and New York.
A natural worry is that the drop simply reflects sales being pulled forward into the anticipation window, which would fade over time. The authors tested this in several ways. When they dropped the first four months after the tax took effect, the estimated decline did not shrink; if anything, it grew. Using the longer commercial-property data that extended into 2024, they again found little sign of a rebound. They read this as evidence that the decline is persistent rather than a short-lived timing shift, though they are careful to note their data cannot prove the effect is permanent.
Not all properties responded the same way. Commercial properties showed the largest drop in sales, while single-family and multifamily housing were somewhat less sensitive. Higher-value properties were also more responsive than lower-value ones.
Adding up the long-run bill
Here is where the accounting gets tricky. The mansion tax collects money in the year a sale happens. But a sale that never occurs reduces property tax revenue in every year the reassessment is delayed. To compare the two, the researchers built a model that translates the drop in sales into a present-value estimate of lost future property taxes, discounting both streams back to today’s dollars.
Their benchmark calculation puts the present value of lost property tax revenue at about $5.6 billion, against roughly $6.9 billion raised by the mansion tax. That leaves a net gain of about $1.4 billion, meaning the property tax loss offsets about 80 percent of what the mansion tax brings in.
The result is sensitive to the assumptions plugged in. Under different but plausible values for how often properties would have sold, how fast prices grow, and how strongly sellers respond, the offset ranges from about 30 percent to more than 100 percent. In some scenarios, the tax loses money on net. The offset tends to be larger when baseline turnover is already low, which the authors note has been the case since interest rates rose in 2022 and locked many owners into their existing mortgages.
One more wrinkle: the two taxes flow to different places. Mansion tax revenue goes to the City of Los Angeles, while property tax revenue is collected countywide and shared among the county, school districts, and special districts. So part of the lost property tax revenue is borne by jurisdictions outside the city that see none of the mansion tax money.
What it suggests for tax design
The authors are describing a mechanism, not just one measure. Their broader argument is that combining an assessment cap like Proposition 13 with a transfer tax compounds the inefficiency of both. Any wedge that slows down sales in a system where reassessment happens at sale will drag down future property tax revenue.
For policymakers, the study points to a few patterns. The externality tends to be larger in states with strict assessment caps, such as Florida and Michigan. Because commercial and high-value properties respond most strongly, exempting commercial property would reduce the spillover. And when transactions are already sluggish, the effect grows. Using their estimates, the researchers calculate that the revenue-maximizing transfer tax rate would be roughly 1.5 percent, well below the statutory 4 percent.
Several caveats apply. The findings rest on the assumption that the mansion tax did not simply push sales into neighboring areas; the authors ran checks and found little evidence of such spillovers, but they acknowledge these tests are imperfect and treat their estimates as an upper bound on that count. Their measure of how much sales fell is a short-run estimate that could shift over time, which is why their model is built to let others substitute a different figure. And they leave out two channels, price effects and reduced investment, that they argue would only make the revenue picture worse. As they put it, the reassessment channel “adds a separate fiscal cost” that stacks on top of the transfer tax’s more familiar downsides.
