Ruminations on what’s holding back the luxury market, elections and more resi real estate news
Key Points
- Los Angeles’ luxury residential real estate market is facing a downturn driven by high interest rates, the mansion tax, insurance costs, and election anxiety.
- Local voters are deciding on a tight mayoral race between Karen Bass and Nithya Raman, alongside Measure TE regarding mansion tax exemptions for fire-damaged properties.
- Statewide, Proposition 40 proposes a one-time 5% tax on assets over $1 billion to fund healthcare.
You’re reading this roughly 48 hours from election day in a year that’s been disappointing for business and downright boring from a deal perspective. Whether the outcomes of Tuesday’s races have any bearing on the market remains to be seen.
Sellers are pricing as though it’s still 2024, buyers still aren’t biting, interest rates are high, the mansion tax continues to weigh heavily on deals, the threat of a billionaire’s tax looms and the wealthy in California can’t seem to stand being Californians anymore.
“You’re dealing with situations that have not been on top of one another like this in my recollection, and I’ve been doing this since the late 70s,” Westside Estate Agency co-founder Stephen Shapiro said. “I’ve seen high interest rates. I’ve seen El Niños. I’ve seen fires. I’ve never seen everything happen at one time.”
He pointed to the city of Los Angeles’ Measure United to House L.A., or mansion tax; a lag in rebuilding efforts in the Pacific Palisades and Malibu post-Palisades Fire that’s pressuring the broader market; insurance costs; and the warmer-than-average conditions brought on by El Niño climate patterns that have pressured real estate.
The brokerage head said his greatest challenge running a business in a market like today’s is “trying to get sellers to understand reality.”
Too many agents willing to take on any listing price, whether reasonable or not, are muddying the market, he added.
“The reality is different from the PR that various people are putting out,” Shapiro said.
Decisions, decisions
Voters face many choices come Tuesday.
Locally, there’s the mayoral race between incumbent Karen Bass and 4th District Councilmember Nithya Raman.
A poll from the University of California at Berkley Institute of Governmental Studies and Los Angeles Times showed Raman and Bass tied among likely voters, with each nabbing 40 percent. About 41 percent of former mayoral hopeful Spencer Pratt’s supporters indicated they would cast their vote in favor of Bass in that same poll. That’s up from 22 percent in September.
Then there’s the mansion tax. Initial efforts earlier this year by Raman to create carveouts for new commercial and multifamily development, in addition to those impacted by natural disasters, have been significantly watered down. Measure TE asks voters in Los Angeles to decide whether residential properties damaged or destroyed in the Palisades Fire should be exempt from the tax if sold within five years.
Statewide, Proposition 40 – or the “billionaire tax” for short — would levy a one-time, 5 percent tax on those with assets of more than $1 billion. Those funds would be funneled toward health care spending.
By the way…
You didn’t need the official statement from Rick Caruso to deduce his tilt to Bass. However, in case you missed it, the Palisades Village and Grove developer made it official this past week when he confirmed his vote will go to the incumbent.
He noted disagreements with the mayor in the past but said she’s “learning from her mistakes.”
Seems Raman’s comments about firing Los Angeles Police Department Chief Jim McDonnell really struck a nerve. Caruso called Raman’s comments “reckless and dangerous” on top of pointing to what he called her “lack of executive experience.”
Bass expressed honor for the support. TRD reached out to Raman’s camp earlier this week for comment and has not yet received a response.