Miami is Calling | Measure ULA and the Impact on the Los Angeles Real Estate Market

Will Angelenos relocate to Miami in light of the new Measure ULA?

Measure ULA aka the LA Mansion Tax

In this podcast, I speak with Los Angeles real estate agent Juliette Hohnen about Measure ULA and its effect on the LA luxury real estate market. Measure ULA or the LA mansion tax is a new law that will come into effect on April 1, 2023. This law imposes an additional tax on luxury homeowners when they sell their property. Owners selling a $5M-$10M home will receive a 4% tax bill over the sales price, and properties above $10M will get taxed an additional 5.5%. 

Some of our Los Angeles partners have already expressed concern for the market. This is the largest tax hike in the history of LA. California already has the highest income tax in the US, and residents are fed up with being overtaxed.

Bad Timing

Local agents such as Juliette Hohnen are concerned, as talks of a recession, inflation, rising interest rates, increasing building costs, and now this new mansion tax might slow down the market and result in another exodus to low-tax states such as Florida. In the last two quarters of 2022, the Los Angeles market has been slow. Buyers are on the sidelines, and it is hard to get deals done. As a result, prices per SF are down, and days on the market are up. 

Owners thinking of selling will be more inclined to sell before the mansion tax goes into effect. With buyers holding off, this will push down the prices. If you wait longer, your comps will be lower, and it will be harder to appraise your property. It will be harder to get top dollar at the top end of the market.

The Effects of Measure ULA

While the Los Angeles Mansion Tax was meant to tax the rich, the consequences of this new Mansion Tax will be much more widespread. In addition, this measure applies to anyone who sells a $5M+ home, even if you are selling at a loss. 

Measure ULA and the Impact on the Middle Class and rental markets

The new measure will affect both residential and commercial real estate. Developers and real estate funds will notice this extra tax in their bottom line. To cover their losses, they will have to get that money elsewhere. Rents will likely be increasing to cover the shrinking profits of these investors. Imagine a developer buying land. The owner of the land will mark up the price to recover the extra taxes, consequently, the developer will add a margin to absorb the taxes as well. In the end, it is the renter who will pay for all this. This tax law will not just affect the wealthy, it will also impact middle and lower-class families.

Measure ULA and the effect on the General Demand for the LA property Market

With increasing Los Angeles taxes, foreign investors will choose another city within the US to invest their funds. Los Angeles is a transient city, much like Miami was several years ago. People are looking to make it big and are constantly trading up. When they hit the ceiling, they move out looking for the next best thing that provides them with better opportunities. 

Los Angeles to See more People leave due to Measure ULA

Los Angeles is already seeing a high rate of outbound moves, being second in the country after San Francisco. Reasons for this exodus are the cost of living and housing prices that continue to balloon. According to a report from Redfin. homeowners flee to less expensive cities in the USA. Angelenos are flocking to places like Phoenix, Las Vegas, San Diego, San Antonio, and Dallas.

In a post-pandemic world, we changed the way we work, and many jobs are remote. Important industries like tech and hedge funds do not have to be in LA so they can leave and move to cities with a more tax-friendly climate. Developers and HNWI might be looking for better opportunities in other states as the price of doing business in LA is getting too high.

Why would you Move from Los Angeles to Miami?

Why would someone move to Miami from Los Angeles instead of Texas or Nevada? Unlike popular belief, it is much more than just taxes. I am aware of Miami’s charm, but I always figured Californians and New Yorkers were attracted by Florida’s low taxes. After helping 45 families move into Miami in less than 18 months, I realized there is so much more to it. I got to know the families, their struggles, and what attracted them to Miami. People move from California to Miami for several reasons such as the quality of life, the excellent schools, the cleanliness, the safety, and of course, our climate. Miami also scores high on entrepreneurial spirit and our local government is appreciated for creating a highly favorable business climate. One of the more hidden reasons is that many people came to Miami as they felt their home state did not spend the tax money well. Furthermore, families like personal freedom in Miami and do not always feel the same in other states.

In addition, Miami is now hosting many social events such as the boat show, Art Basel, and the F1 Grand Prix. So while people originally came here for the climate or the taxes, they stayed for the lifestyle and possibilities.  

Measure ULA | The Impact of the LA Mansion tax and the potential new wave of relocations to Miami. Miami vs LA by two local agents.

A Beautiful mansion in Malibu. Those who consider selling in LA, should do this before measure ULA will come into effect.

The Miami Luxury markets

The Miami housing market went up 56% in the luxury sector, while the luxury condo market went up by a little over 40%. Our market is now more neck-to-neck with the luxury markets from LA. While for Miami standards we are seeing very high prices per SF, new residents from California or New York find our prices still very reasonable. As the Miami luxury market has dried up during the pandemic, the luxury rental market also saw a hike in its prices (35%). One of Juliette’s clients took advantage of that opportunity and bought two luxury homes in Miami, which were put up for rent for a very good return on investment.

Companies and families are still moving into Miami, a good example is Citadel. Hedge fund citadel is moving 350 families into Miami. Many of these first want to rent to get to know the market. They will eventually buy into Miami’s luxury real estate market. 

What Neighborhoods in Miami to Consider when you Move to Miami

Miami is far more compact than Los Angeles. It is a much smaller city and also less busy. In Los Angeles, you ‘move up’ from the East to the West. The west is closer to the water and this is where the good schools are. In Miami, you move from North to South. The North is more affordable and ‘young’ and the south is desired by families that want to be close to the top schools.

We compared several parts of Miami to similar neighborhoods in Los Angeles. In our follow-up article, we will discuss this further.

Downtown Los Angeles vs. the Arts and Wynwood District in Miami

Think of cool arts, shops, cantina trucks, and great restaurants. Miami’s Arts and Design District, however, is more commercial and offers less residential real estate. 

Silverlake (LA) vs Shenandoah and the Roads (Miami)

Silverlake is superhip, young, and upcoming. This can best be compared to the Roads and Shenandoah area in Miami. It is a younger crowd that still likes to live near the busy core of Brickell and cannot afford yet to move more towards the south into more exclusive areas such as Coral Gables and Ponce Davis.

Venice Beach (LA) vs. Coconut Grove (Miami)

Coconut Grove is a cool, edgy, and unique place in Miami. It is the most organic neighborhood in Miami and is known for its understated chicness. In recent years it got really expensive and real estate in this small area of Miami is super desired. Coconut Grove is most similar to Venice Beach. 

Brentwood, Santa Monica, and Pacific Palisades (LA) vs Coral Gables and Ponce Davis (Miami) 

Ponce Davis and Coral Gables are the top neighborhoods for wealthy families looking for trophy real estate near top schools. Those who want large yards and privacy come to these areas. Houses in this area are valued between $6M and $15M and are owned by financiers, attorneys, doctors, entrepreneurs, and successful realtors. All the good private schools are within a 20 min radius of these two areas. These areas are comparable to Pacific Palisades, Santa Monica, and Brentwood. 

We will cover more on the different Miami and LA areas soon.

Measure ULA | The Impact of the LA Mansion tax and the potential new wave of relocations to Miami. Miami vs LA by two local agents.

Coral Gables is one of Miami’s most desired residential areas much like Pacific Palisades, Brentwood or Beverly Hills

The Effects of Climate Change on both Cities

In Miami we do notice climate change, but there are a lot of measures you can take to protect yourself. There is some flooding indeed, especially in dense, concrete areas where water cannot go anywhere. Miami is spending lots of money to fight this, and building codes are constantly updated. Some areas are prone to flooding and the owners of real estate in these areas will pay higher insurance premiums. There are flood areas like Brickell and Miami Beach where you will see much flooding, but 1.5 miles further, it is dry. A good realtor will tell you to buy out of the flood zone in case of hurricanes or heavy rain.

The immediate effect, however, is the insurance and its premiums. Insurances are going up, especially when you own an older home. In Miami, if you build under the latest code, your insurance premium is much lower. It all depends on the age of your property, the elevation levels, and whether you have impact doors and windows. Insurances are going up. It is like the fire insurance in LA. There are homes in LA that pay $100K to insurance companies, and as Juliette mentions in the interview, her insurance went up from $16K to $36K per year. 

It is all about knowing what to prepare for. You need to audit your existing real estate situation. What are you spending? What are your plans? Do not react when it is too late or when your back is against the wall. What are your insurance premiums? What are your costs when selling? Many people don’t deal with it until it is too late. You have to do your numbers and see what works best for you. 

Forecasting 2023

We have all heard the news, but we also need to admit that the news is very polarizing. It is never a middle-of-the-road kind of information and is always extreme. Yes, there are some signs of a recession and people will start feeling something. Not everyone will feel it, and not everyone will feel it to the same extent. We are now dealing with very negative mass psychology, but you need to understand the specifics of each niche market. You can’t verbalize the entire economy and what everyone will feel.

The way each market will be affected and what to do depends on the market you are in. The Miami real estate market is very different from real estate markets in the rest of the country.

When it comes to LA, however, if this mansion tax is going to hit in April it makes more sense to sell now than after April. The 4% or 5% additional tax rate will kick in and prices might take a hit because people will need to sell before. There is a common interest of developers and buyers to sell or buy a shell home early on in the process. The buyers can customize the home as wished and the seller can sell it before the new tax law starts.

New Condo developments

LA is typically more of a single-family home market, although lately, the condo market is becoming more desired. The LA condo market, however, offers smaller condos and caters more to a buyer looking for a second or third property. The Residences at 8899 Beverly is an example of a new luxury condo in the Los Angeles real estate market. The Miami condo market is more diverse and caters increasingly to primary residents. 

When it comes to condos, I recommend staying away from generic products. With a generic product, I refer to condos that are not unique and often used for the rental market. These tend to get crushed at the first signs of an economic downturn. Many condos in Miami have performed excellently over time, these are mostly the ultra-luxury condos that are used all year round by end users. If you want to know which ones these are, give me a call or click here.

In recent years there has been a change in appetite for ultra-luxury condos. The Miami condo market is changing and is becoming more primary. There is a lot of demand for this market, and it keeps breaking records. Four Seasons in Surfside, for example, is selling for over $6,000 per SF now, and a brand new luxury project on the beach will be asking $7,500 per SF. Of course, we are talking about well-fished, well-designed condos with functional and large floor plans that can substitute a home. There is a massive market for that, and they keep breaking records.

Takeaways

If you are considering selling in LA or buying in Miami or in case you want to know more about the LA or Miami real estate market, please call Juliette or me. We work together as trusted partners in our respective areas, and we will be able to provide you with information on the best neighborhoods, best schools, property values, and much more. As two well-respected agents in our local markets we can help you to find the exact same lifestyle in your new city! The whole is greater than the sum of its parts

David Siddons | +1 (305) 508-0899
Juliette Wohnen | +1 (323) 422-7147

FAQ

These are the most commonly asked Google Real Estate Related questions

1. What are the Current Best New Condos in Miami?

If you want to hear in more details our opinions on the best new Miami new construction condos. Please read this article:Best New Construction Condos 2022-2023

2. What is the best New Construction Condo in Fort Lauderdale?

In our opinion, the Residences at Pier Sixty-six are certainly the most interesting and unique. Already well underway this 32 Acre project will be home to the first of its kind Marina where owners will be able to anchor up vessels up to a staggering 400 ft! For specifics of this project see our independent review of this project.

3. How can I compare the new luxury construction Condos to the best existing Luxury Condos in Miami? 

Our Best Luxury Condos in Miami article will prove to be very useful to those looking to compare the existing to the new. You may also want to watch this video which shows the performance of the best Condos in Miami over the last 15 years!

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We have only superlatives to describe how wonderful Cris Buzolin was throughout the process of selling our townhouse in Coral Gables. We were away in the UK while the transaction was taking place and Cris handled everything-from clearing out our house, selling contents when she could, arranging the moving and storage and dealing with some very difficult problems which arose. Always patient and very willing to help in every way, Cris is a consummate professional who really cares about her clients and worked extremely hard to get the price we had asked for and make things for us as easy as she could. Nothing was too much for her to handle.Cris and Marianela (who provided additional very helpful assistance to us during the transaction) are part of the team that David Siddons has assembled.When we decided to sell our property, we contacted David and he established the framework for the transaction and ensured that everything proceeded smoothly and in accordance with our wishes. In sum, David Siddons and his team are extremely competent and professional and we are totally satisfied with the service they provided. To repeat, Cris Buzolin in particular, went way beyond what one would expect from a real estate agent. The David Siddons Group has our highest recommendation!
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