The state legislature has blocked the city’s luxury real estate transfer tax for nearly four years.
Housing shortages are common explanations for the extraordinary increases in both rental and housing prices across all major U.S. cities. The solution then is straightforward: expand the housing stock and prices will fall and reach equilibrium.
Yet a new report, “The Vacancy Report,” published by the Strategic Actions for a Just Economy, Anti Eviction Mapping Project, and the UCLA Community Economic Development Law Clinic, reveals this not to be the case. Not only are there over 93,000 vacancies in Los Angeles, but the city itself is experiencing a boom in housing construction with no downward effects on price.
Which raises the obvious question: why?
The report demonstrates how great wealth has captured the housing market in Los Angeles. The production of new luxury housing developments has accelerated at the expense of much-needed affordable housing.
An examination of housing construction in downtown Los Angeles illustrates this point. There is extensive construction currently underway, but the vast majority of the units being produced are classified as super-luxury, with an average rent of $2,800 per month – well beyond the reach of the median income-earner in Los Angeles.
This is the logical result of treating housing as a commodity: homes and buildings are not used to satisfy a social need, i.e. providing shelter to individuals and families, but utilized by corporate entities and investors as assets in their portfolios.
The real issue, therefore, is not scarcity, but that housing is being built for high net worth individuals and corporations, who purchase and hold the property off-market for speculative purposes. As a result, thousands of housing units sit empty while the city experiences an unprecedented housing crisis that may be aggravated by a looming wave of evictions due to the Covid-19 pandemic.
To shift the focus towards combating speculative vacancy, the report recommends a city-wide vacancy tax on residences that have been unoccupied for more than 90 days. The city could allocate the revenue collected from a vacancy tax to three vital social initiatives: (a) the construction of much-needed affordable housing; (b) the deliverance of resources and services to people currently unhoused; and (c) a fund that seeks to provide housing security to those at risk of displacement and eviction.
These social initiatives could be bolstered by a progressive real estate transfer tax. San Francisco provides a blueprint: the city levies a 2.25% real estate transfer tax on all “properties sold for $5 million to $10 million; 2.75% for properties sold between $10 million to $25 million; and 3% for properties sold for above $25 million.”
A popular axiom is when there is a demand, markets will provide a supply in order to meet that demand – this has not been the case when it comes to affordable housing. It is time for the democratic state to take action and ensure dignified and affordable housing for all.
Read the full report here.