Los Angeles Multifamily Development Stalls Amid Market Downturn and Policy Hurdles

Multifamily housing development in Los Angeles has significantly slowed, with developers reporting that new projects are no longer financially viable. According to commercial real estate firm Kidder Mathews, the average sale price per unit in L.A. County's multifamily buildings plummeted from $397,289 in 2022 to $280,591 in 2026, a nearly 30% decline. This downturn is attributed to several factors, including persistently high interest rates, increased development fees, and the city's Measure ULA, which levies a 4% to 5.5% tax on property sales exceeding $5.4 million.

Developers like Paul Schon, who repurchased a Hollywood apartment building for $1.75 million less than he sold it for five years prior, highlight the challenging market. Construction activity has decreased, with 2,376 new apartment units completed in L.A. County during the first half of the year, a 9% drop from the previous year. Units under construction also fell by 15% to 25,636. While Mayor Karen Bass has implemented initiatives like Executive Directive 1 and faster permitting to boost housing production, developers remain hesitant. The combination of tightened margins from high borrowing costs, lingering effects of pandemic-era tenant protections on revenues, and the significant impact of Measure ULA on profits makes new apartment construction a tough sell for investors. For developers and financiers, the current environment in Los Angeles necessitates a re-evaluation of project feasibility and risk.