LA’s ‘mansion tax’ shows that earmarked levies on high-value property can fund affordable housing, but poor design can distort supply—offering a cautionary template for Indian cities
A few years ago, Los Angeles (LA), the United States’ (US) second-largest city, enacted a new tax, United to House LA (Measure ULA), popularly nicknamed the ‘Mansion Tax’. Approved by the City Council in November 2022 with 58 percent in favour and 42 percent against, and effective from 1 April 2023, Measure ULA levies an additional tax on property transactions valued at more than US$ 5 million. It imposes a 4 percent tax on property sales priced between US$ 5 million and US$ 10 million, and a 5.5 percent tax on sales priced at US$ 10 million or more. This ‘Mansion Tax’ is in addition to the 0.45 percent tax that LA already charges on all real estate transactions and applies to all types of real estate within the city, including single-family residences, commercial and office buildings, soundstages (soundproofed studio buildings), and hotels. It is typically paid by the seller and is not a tax on profit; rather, it is based entirely on the sale price.
The ‘mansion tax’ has a broad social objective: to reduce homelessness and increase Los Angeles’s affordable housing stock.
The ‘mansion tax’ has a broad social objective: to reduce homelessness and increase Los Angeles’s affordable housing stock. This move was necessitated by rising homelessness, making LA the city with the largest street-dweller population in the United States. The tax is designed to allocate 70 percent of the revenue collected to fund the construction, rehabilitation, and preservation of affordable housing. The remaining 30 percent is devoted to an ambitious ‘homelessness prevention programme’, aimed at stabilising lower-income tenants, primarily older persons and people with disabilities, and preventing their displacement from their homes. This portion primarily subsidises tenants at risk of homelessness.
The tax was challenged in court by the Howard Jarvis Taxpayers Association (HJTA) and others, who argued that it violated both the state constitution and the city’s charter. The judiciary, however, rejected HJTA’s arguments, holding that voters had the constitutional authority to enact property transfer taxes. “In the published portion of this opinion,” the judgment stated, “we conclude the passage of Measure ULA pursuant to a majority vote of the city’s electorate was a valid exercise of the people’s initiative power.”
The Mansion Tax has proved an effective tool for addressing homelessness. By December 2025, the LA Housing Department reported collections of US$ 1.03 billion. The Council recently approved more than US$ 300 million for affordable housing projects, including the construction of 1,700 units, and for homelessness prevention, including an emergency rental assistance programme that helped them remain in their homes. The income support programme also provided US$ 20,000 in cash assistance to approximately 500 qualifying households, primarily rent-burdened seniors and people with disabilities at risk of eviction. Figures released by the Los Angeles Homeless Services Authority showed that, before the Mansion Tax, homelessness had risen by 4.1 percent since 2020. In February 2022, Los Angeles County recorded 69,144 people experiencing homelessness. The city also saw an 8.7 percent increase in its sheltered population from 2020 levels, reaching 13,522 individuals in temporary housing. In 2025, there were 43,699 homeless people in LA, 25,445 fewer than in 2022. Chronic long-term homelessness dropped by 22 percent.
Despite the gains, the Mansion Tax has come under severe criticism for what opponents describe as its adverse impact on LA’s real estate market. Overall construction across residential types has declined since its imposition.
Despite the gains, the Mansion Tax has come under severe criticism for what opponents describe as its adverse impact on LA’s real estate market. Overall construction across residential types has declined since its imposition. The tax has also led luxury homeowners to opt for remodelling rather than selling, reducing turnover and exacerbating supply constraints. Compared to 2018–2019 levels, construction of affordable housing units fell by 70 percent. Construction permits for multifamily projects—the primary source of affordable housing in LA—have also declined by 27 percent, indicating waning developer interest.
Overall, the real estate sector experienced a 40 percent decline. Reports indicate that LA may be foregoing the construction of about 1,900 units per year, including at least 160 affordable. The scenario has also negatively affected property tax collection in the city, with the City Council estimated to incur an annual revenue loss of US$ 25 million. Moreover, the Mansion Tax has not generated the expected revenue. By the end of 2024, it had raised US$ 480 million, falling well below the expected range of US$ 600 million to US$ 1.1 billion.
To stimulate the depressed housing market, several councillors proposed a substantial amendment to the Mansion Tax, introducing a 15-year exemption for new construction and hardship relief for victims of the 2025 Palisades wildfire. The Palisades wildfire destroyed 6,845 structures and damaged 975 others; 12 people lost their lives. The amendment was hotly debated but ultimately failed to pass in the City Council, resulting in continued political acrimony over the Mansion Tax.
In India, it is evident that such a tax cannot be levied by cities. Unlike US cities, which are empowered to legislate through city councils, Indian cities have no authority to devise or impose new taxes; this power rests with the states. Moreover, property transactions in India are already heavily taxed. Stamp duty is levied on property transactions at varying rates across the country, typically ranging between 5 and 7 percent of the total consideration. All property transactions are also subject to a registration charge of approximately 1 percent.
A ring-fenced tax on high-value property sales, directed entirely towards affordable housing in Indian cities, appears to be the need of the hour.
However, the money collected through stamp duty is not ring-fenced for affordable housing, nor is it collected with that objective in mind. Indian cities, like others around the world, therefore face an ‘affordable housing problem’, likely more acute than in developed countries due to the sheer scale of demand. Moreover, as housing is a ‘state subject’ under the Constitution of India, states are directly responsible for its provision. States, however, have fared poorly on this front. According to the Economic Survey 2025–26, the share of affordable housing units priced below INR 5 million declined in India’s top eight cities from 52.4 percent in 2018 to 17 percent by 2025. On the other hand, demand for such housing is estimated to reach 30 million units by 2030. A CII–Knight Frank report put the figure at 31.2 million units by 2030, up from 10.1 million units currently.
It is evident that if the creation of affordable housing is left to market forces, production in this high-volume, low-profit sector will not occur at scale. The government would have to step in. The Government of India’s PMAY (Pradhan Mantri Awas Yojana) has achieved significant success in villages and smaller urban areas. However, land constraints have prevented PMAY-U (Pradhan Mantri Awas Yojana-Urban) from succeeding in metros, where most of the affordable housing shortage is concentrated, as evident from the backlog reports cited above.
The situation strongly indicates the need for spatial re-engineering, combined with soft loans and strong coordination among the Government of India, state governments, parastatals, and urban local bodies (ULBs) to address this critical urban deficit. A ring-fenced tax on high-value property sales, directed entirely towards affordable housing in Indian cities, appears to be the need of the hour.
Ramanath Jha is a Distinguished Fellow at Observer Research Foundation.
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Dr. Ramanath Jha is Distinguished Fellow at Observer Research Foundation, Mumbai. He works on urbanisation — urban sustainability, urban governance and urban planning. Dr. Jha belongs ...
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