mottsmith.bsky.social
Co-Founder of Amped Kitchens (http://ampedkitchens.com). Board Chair, Council of Infill Builders. Vice Chair, LA City Small Business Comm. Adjunct prof of Real Estate Dev, USC's Price School. Personal account. Posts are solely mine. Follow ≠ endorsement.
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It really is.
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Other fixes are needed too, but this is very low-hanging fruit.
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This is a much easier way to get to the same result. By offering self-cert on simple, low-risk projects, we free up plan checker bandwidth for the complex projects that demand their attention.
It would be like driving in L.A. on a Sunday when traffic is light--you'll fly.
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Whenever we talk about expediting important projects, like multifamily, homeless shelters or 2028 Olympics facilites, someone inevtiably says, "we can't do that until we triple the number of plan checkers at the City."
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Today, 59% of all plan checks at City of L.A. are for Single Famliy Home additions and new builds. Another 27% are for commercial, a significant portion of which is TI. A large portion of single family and commercial plan checks are excellent candidates for self-cert.
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So, for relatively simple projects like single family homes, small commercial buildings or tenant improvements, self-certification saves builders time and money, and lightens the load on city staff, who are freed to focus on the more complex projects that really need them.
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The principle is this: Plan check is important for complex projects. But for simple ones it can be redundant. Licensed architects should know the code, and inspectors enforce code during construction--often going beyond what's shown on the plans or verified in plan check.
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What is self-certification?
It's a voluntary option some cities offer to licensed architects & engineers to skip plan check and go straight to building permits for certain types of projects.
NYC, Chi, Phx, San Diego all have programs, as does
the So Cal City of Bellflower.
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Thank you
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I strongly endorse this post.
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I looked at Measure GS. The challenge is, I can count on one hand the number of >$8mm transactions in any given quarter in Santa Monica, so it's very difficult to see trends as they show up in the much bigger L.A. market.
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Wow.
Next you're going to tell me that artificial intelligence is surprisingly stupid at times . . .
🤣
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There is a chance, yes. Fingers crossed.
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I have the same fear. It will take a lot more care and creativity to get us out of this mess than it took to get in!
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Working on that question as we speak. Hope to have an answer in the coming weeks.
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Thanks! Voters had no idea what they were saying "yes" to.
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Again, HUGE thanks to Sara Soudani and Jill Wright at Commonwealth Title, who generously provided the megabytes of transactional data to support this analysis.
/end
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It's not clear how we'll be able to fix Measure ULA & get the market back on functional ground. But it is clear that if we don't, it will be nearly impossible to meet our housing production goals or keep LA from bleeding jobs & manufacturing. We must find a fix.
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Also, Measure RE exempts the 1st sale of new multifamily, and all affordable housing. It thus preserves multifamily project feasibility--whether market-rate or low-income. (Note: It's missing an exemption for new commercial/industrial, but there's not a lot of that in CC. Bigger issue in LA.)
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Another difference: Measure RE imposes lower overall rates than ULA (1.5-4% versus 4-5.5%), but it applies to less expensive sales (starting at $1.5mm vs. $5mm).
This, combined with its marginal structure, seems to help RE preserve the incentive to sell much better than ULA does.
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(Side note: Measure ULA thresholds were raised slightly on June 30, 2024. The 4% rate now kicks in at $5,150,000 and the 5.5% rate starts at $10,300,000.)
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Measure ULA was designed baffingly with a "cliff" starting at $5mm, and another at $10mm.
A $4,999,999 sale in LA pays 0.45% or $22,500 in trasnfer tax.
A $5mm sale pays 0.45% + 4% = $222,500. That's 10X more(!) So a $5mm sale in LA is now worth ~$200K LESS than a $4.9mm one. That's just dumb.
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So even if the transfer tax rate increases with property price in Culver City, a higher sale price still always means more revenues to the seller under Measure RE.
Shockingly, this is not the case for Measure ULA.
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Why is Measure RE be working so much better than ULA?
Most importantly, RE is marginal. (Early hypothesis to be confirmed)
RE's higher tax rate starts above $1,499,999. So w/a $1.5mm sale, the higher rate only applies to $1.00 of that sale. The remaining $1,499,999 is taxed at the lower rate.
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While Culver City's market has gone up and & down, the quarterly volume of property sales subject to Measure RE doesn't change much in comparison to property sales that aren't subject to Measure RE.
Culver City's transfer tax doesn't appear to be creating drag on the market. (Unlike ULA)
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More specifically, Measure RE successfully raised assessments on high-value real estate sales but didn't significantly reduce transaction volume, as far as we can see. (Again, look at the orange line.)
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ULA's damage to the LA market is clear. But does that mean transfer taxes are bad per se?
Not necessarily.
ULA was just designed very badly.
By contrast, Culver City's Measure RE transfer tax, which took effect in 4/21, appears to be working without causing damage to the market.
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For commercial/industrial properties--centers for jobs and manufacturing--the ULA-induced chill is even worse: a 79% drop in transactions year-over-year following ULA's effective date.
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Looking at multifamily properties specifically, ULA's effect is pronounced. 75% fewer multifamily transactions closed per quarter in the year following ULA's effective date than in the year prior. (Again, note the orange line.)
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Measure ULA has devastated sales of properties >$5 million since it took effect in 4/23. Average quarterly sales volume has dropped by 70%. (orange line)
How do we know it's b/c of ULA? By looking at properties NOT subject to ULA (<$5mm or outside city of LA). Those sales have gone up.
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Let's dive into the details.
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And b/c Measure ULA appears to have caused sales to plummet on high-value commercial, industrial, multifamily & single-family parcels in LA, it's taken away the primary mechanism by which assessed prop tax valuations climb to market levels. Billions of potential public revenues, gone.
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On the other hand, the one that's deeply dysfunctional, Measure ULA, is like oil on Prop 13's fire.
If Prop 13 gives owners an incentive not to sell, Measure ULA has almost made it a requirement.
It's also created an unfortunate penalty for investing in development or other improvements.
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The one that works, Culver City's Measure RE transfer tax, is providing some corrective to Prop 13, It's capturing some of the unearned value gains when long-held properties finally sell. And it does not appear to be discouraging such sales.
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It's "a tale of two transfer taxes" -- one that works and another that's deeply dysfunctional.