It’s an easy political slogan, tax the rich and make them pay their fair share! It was the idea behind a new local Los Angeles tax called Measure ULA, which was proposed in 2022 to address Los Angeles' housing crisis.

Measure ULA was supposed to fund affordable housing by taxing mansions. So, think of it like Robin Hood, but he's hiding in a Beverly Hills spa instead of a forest.

It was approved by 58% of voters and imposes a new land transfer fee on real estate transactions over $5 million. The funds generated are intended for affordable housing, tenant protection, and homelessness prevention.

Although single-family homes represent the largest share of its projected revenue at 38%, the tax applies to most multifamily developments, office buildings, and hotels.

🙋‍♂️ What happens when you put any disincentive on the multifamily market?

🙋‍♀️ Well, you reduce sales volume and supply because smart investors sit on assets or build elsewhere.

🙋‍♂️ What happens when regulations like Measure ULA artificially limit supply?

🙋‍♀️ Rents and prices go up.

Precisely. Initially projected to earn the city over $900 million annually, it has only raised around $142 million since its implementation in April, falling significantly short of expectations.

This is partly due to sellers of all stripes rushing to close deals before the mansion tax hit. Can you blame them?

It's the real estate version of eating all the ice cream before starting a diet on Monday.

And it’s not just LA. Many other cities are also taxing expensive homes to address their housing problems.

As such, the affluent are packing their bags and heading for more friendly pastures, creating economic strain on tax revenue and sales volume. According to Redfin data, San Fransisco, LA, and San Diego appeared on Redfin's latest list of the top 10 areas homebuyers want to leave.

It's not just the script of a reality TV drama; it's the reality. The wealthy are selling sunset, packing their designer bags, and setting their GPS to more tax-friendly destinations. Places like Las Vegas and the shores of Florida are rolling out the red carpet for these wealthy refugees.

The allure? Lower taxes and a chance to keep more of their hard-earned cash.

Measure ULA, despite its rocky start, has its defenders. Advocates argue that even if the tax doesn't rake in the blockbuster revenue, it's a step towards a more equitable city. The script might need some rewrites—maybe carve out more exemptions or recalibrate the tax rates—but the intention remains noble. As the city navigates this narrative, the hope is to balance social responsibility and economic prosperity in this urban epicenter.

While the credits haven't rolled yet on this fiscal feature, the premiere has been less than stellar. Despite the noble intention of addressing LA's housing crisis, the mansion tax has turned the luxury real estate market into a ghost town.

At the end of the day, this measure will never address the root of the housing affordability problem.

Commercial Pain: Cantor Fitzgerald CEO Howard Lutnick predicts a tumultuous period for the real estate market, expecting defaults ranging from $700 billion to $1 trillion by the end of 2024 and throughout 2025. Speaking at the World Economic Forum, Lutnick foresaw a "generational" upheaval due to high-interest rates causing commercial loans to falter. He anticipates a surge in loan sales as property owners may find their buildings' valuations significantly undercut, potentially leading to a "very, very ugly market" in the near future, challenging the prevailing optimism about the Federal Reserve's future rate cuts. (Fox Business)

Major Commercial Pain: Major US banks like Bank of America Corp., Wells Fargo & Co., and JPMorgan Chase & Co. are facing significant financial strain due to the devaluation of US office properties, a situation exacerbated by the shift to remote work and surging interest rates. This has led to increased net charge-offs, particularly in commercial property loans, with a notable 35% drop in office prices since early 2022. For instance, Wells Fargo reported a drastic increase in non-accrual office loans, escalating from $186 million a year ago to $3.4 billion by the end of December. This troubling trend is expected to persist, indicating a challenging phase ahead for the real estate sector and the banks heavily invested in it. (Bloomberg)

Delinquencies Rising: In Q4 2023, the Mortgage Bankers Association reported an uptick in delinquency rates for commercial property-backed mortgages, with office properties and lodging loans experiencing the most significant increases, reaching 6.5% and 6.1%, respectively. Despite a slight decrease in long-term interest rates providing some relief, the sector still confronts challenges such as high rates, uncertain property values, and changing fundamentals. Overall, 96.8% of loan balances were current or marginally late, a decrease from the previous quarter, and delinquencies across various property types and capital sources, like CMBS loans, have risen, indicating a period of financial strain and uncertainty for the commercial real estate market. (MBA)

10%: The week saw a significant 10.4% surge in total mortgage application volume, spurred by a slight dip in 30-year fixed-rate mortgage interest rates to 6.75%. This has invigorated both market sectors: applications for new home purchases climbed 9% while refinancing applications saw an even sharper rise of 11%. (CNBC)

4.6%: This is the amount of retail space that is available, the lowest amount on record. As we strut into 2024, the retail sector's playing field is shrinking, hitting a record squeeze. With new construction on a hiatus and prime spots as rare as a clearance sale at a luxury boutique, the vacancy rate has plummeted to a mere 4.6% nationwide. It's the tightest tango since CoStar started collecting data in 2007. (Globe St)

Chart: In the real estate realm, empty-nest baby boomers reign supreme, owning a whopping 28% of the nation's large homes. Meanwhile, millennials with kiddos in tow are playing catch-up, managing to snag just 14% of these spacious abodes. The tides have turned drastically over the past decade, with young families once matching the empty nesters' hold on large homes. But now, it's a different story, with millennials facing an uphill battle in every corner of the U.S., especially in coastal California. (Redfin)