Building Permits for Housing in Los Angeles Drops by 57%
New housing construction in Los Angeles has plunged, a trend that is likely to even worsen as a perfect storm of high interest rates, tariffs and economic uncertainty make it increasingly difficult for developers to move ahead with projects.
The city approved permits for 1,325 new homes during the first three months of the year, a drop of nearly 57% from the number of permits issued during Q1 2024, according to a report from Hilgard Analytics.
The steep drop in the first quarter continues a downward trend that began last year, according to Hilgard, which analyzes data from the Los Angeles Department of Building and Safety, including permits for new single-family and multifamily buildings.
Citywide permits were down 23% in 2024 compared to the total for 2023. Permits declined in the first quarter in most areas of the city, with some of the steepest drops in northeast portions of the San Fernando Valley, as well as South Los Angeles.
A study released earlier this month by UCLA and Rand said Measure ULA, a voter-approved property transfer tax that went into effect in 2023, has contributed to a drop-off in apartment construction in the city. Measure ULA applies a 4% levy to all property sales in the city over $5M and a 5.5% charge to sales above $10M.
The UCLA and Rand researchers estimated that ULA caused a reduction of at least 1,910 housing units per year. The report said land sales in the city of Los Angeles have dropped much more than in other areas in the county, where transfer taxes were not increased.
Proponents of Measure ULA, which was enacted to generate revenue for a fund addressing the city’s housing and homelessness crisis, have suggested that declining property sales may be attributed to some investors waiting out litigation aiming to overturn ULA in federal and state courts.
The transfer tax has raised nearly $633M during the past two years, funding rental assistance for an estimated 11,000 Los Angeles residents and contributing to the construction of 795 affordable homes.
Last month, Mayor Karen Bass confirmed that suspension of Measure ULA is under consideration as part of the effort to quickly rebuild areas of the city destroyed by the January wildfires. At a press conference, Bass said that she has asked the city attorney to determine whether Measure ULA can be suspended without putting the question to voters in a new referendum.
According to a report in the Los Angeles Times, the Trump administration’s tariffs have made it difficult for home builders and other real estate developers to pencil in costs for new construction throughout Southern California.
Uncertainty about potential cost increases in construction materials and appliances in the months ahead due to tariffs is forcing some contractors to make quick purchasing decisions, especially for windows, doors, plumbing, lighting fixtures and other materials made or manufactured in China, which, as of now, are subject to duties of 145%.
A general contractor working on 10 rebuilding projects for properties destroyed in the Pacific Palisades wildfire is upping project budgets to account for “market volatility,” the LA Times reported.
“We’re padding a 5% to 10% contingency for what we’re calling ‘market volatility’ into the budget,” contractor Cory Singer told the newspaper, adding that a tile supplier told him if he didn’t place an order immediately, the new price would be 10% higher.
Singer said some of his clients are considering putting containers on their properties so they can buy materials over the next few weeks and store them until they’re needed.
Source: GlobeSt/ALM