March 26, 2026
Report: ULA tax break would be ineffective
A new report issued by the real estate advisory consultancy BAE Urban Economics–an award-winning urban economics and real estate advisory consultancy–shows that ULA waivers or exemptions like those recently proposed by members of the LA City Council wouldn’t work.
The report demonstrates that, while development is very difficult in Los Angeles for many different types of buildings, these challenges have little to do with Measure ULA. Under ULA, already feasible projects moved forward and those that were not feasible before ULA remained unprofitable. When ULA does impact a project, it tends to involve a small universe of developments with high-rent units designed to be quickly flipped.
BAE finds that the proposal before the City Council to waive ULA’s tax for any construction newer than 15 years would make very few additional projects feasible. Instead, a ULA waiver would simply subsidize projects that are already feasible. Most of those projects would be built to flip and rent to higher-income residents. That’s a waste of funds that would otherwise go toward preventing homelessness and building affordable housing.
Penciling Out
When developers look at the potential for profitability, they consider whether a project will “pencil out.” They use financial models called “pro formas” to calculate the long-term profitability of the development.
By using pro formas typical of the kinds of multifamily housing being built in Los Angeles during the time that ULA has been in effect, the report concludes that while factors like plateauing rents in LA, lending costs, and rising capitalization rates make it challenging for most projects to pencil out, the ULA tax is a not much of a concern. For commercial developments, ULA is not a factor at all.
Compare these two charts from the report. In the first one, paying their full share of ULA under current conditions, projects that charge high rents start to pencil out at year 8 (in green), but no others do. Projects with short holding periods (length of ownership) will never pencil out, regardless of what would-be flippers might wish.
The second chart shows something similar: projects charging average or slightly-above average rents are still infeasible. Some projects with high rents become profitable sooner—but those projects eventually pencil out regardless of the ULA tax.
This report provides an important corrective to misinformation that has been circulating recently that tries to blame ULA for the state of a real estate market that is always shifting for many different reasons.
In fact, the vast majority of ULA multifamily transactions do not even apply to new construction. The BAE report examines nearly three years of transactions that were subject to Measure ULA, including both multifamily and commercial property sales. In both cases, the vast majority of transactions were more than 7 years old. As mentioned above, properties held for longer than 7 years do not need a ULA tax exemption to be financially feasible upon sale. In other words, the financial math for the vast majority of projects makes them profitable for developers.
Even if we just look at the sliver of development sold at 7 years old or less in Figure 1, it turns out that the value of waiving the ULA tax generally does not change whether or not a project is financially feasible.
Ted Chandler, Senior Advisor to the AFL-CIO Housing Investment Trust, with a career spanning forty years of financing apartment construction, summed it up like this:
“ULA is simply not a factor in whether to proceed with providing construction financing for an apartment building. Not only is it not a material consideration, it’s not even part of the pro forma… Developers respond emotionally to a new tax the way the rest of us respond to the death of a loved one. Some investors and developers are going through the seven stages of grief… Finally, there is acceptance.”
The real estate lobby misled the public regarding ULA’s impact because they had trouble accepting the fact that it is the law and it isn’t going anywhere. It’s time to correct the record.
A Compromise for Nothing
If ULA waivers don’t really impact new development, why are elected officials going out of their way to reduce funding for fighting evictions and building affordable housing just to get nothing in return?
As Joe Donlin, executive director of United to House LA, put it, “Before policymakers start weakening or cutting ULA based on complaints from the real estate industry and loose correlations, they should see how the numbers add up. This report shows that waiving ULA won’t make infeasible projects magically feasible—but it will hand money over to developers whose projects are already feasible.”
The BAE report confirms that we shouldn’t water down ULA. Not only would waivers or exemptions deplete much-needed revenue that keeps people housed, such a move wouldn’t even help get new housing built.
We don’t need useless deals that hurt working people.
We need ULA.
Read the BAE report here.
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This newsletter is produced by the United to House LA (UHLA) Coalition that includes over 240 local nonprofit social service providers, community and tenant organizations, labor unions, affordable housing developers, faith-based organizations, and other groups that came together to craft Measure ULA and who have stayed together to make sure that its implementation is carried out effectively and efficiently by the City government.
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