In the general election of 2022 voters passed Measure GS, which created a third tier tax rate of $56 per every $1000 in value for any residential and commercial real estate sales on $8 million and above. This was an approximate 833% tax increase, making the Santa Monica real estate transfer tax on sales between 8–25 million the highest tax rate of any city in California. Now when a property sells for $10 million, the seller pays the City of Santa Monica a real estate transfer tax of $560,000. Prior to the passage of Measure GS, a $10 million sale would have resulted in the seller paying a real estate transfer tax rate of $6 per every $1000 or $60,000.
The stated goal of Measure GS was to generate an estimated $50 million annually to fund public schools and homelessness prevention — the first $10 million would go to public schools, the next $40 million to the homelessness prevention. The money would be used to subsidize rent burdened, low-income households; the City would also acquire and rehabilitate existing rental properties as deed restricted affordable housing for extremely low-income households etc.
On the face of it, who would be against that?
It’s been one year since Measure GS was enacted, so what happened?
I did my own search on the MLS, and I also consulted with two title companies, in order to get an approximate idea of the total residential, multifamily and commercials sales since the implementation of Measure GS. The total transactions vary slightly depending on the source, but here are my approximate results:
Real estate transactions at $8 million and above:
March 1, 2022 – March 1, 2023
The count for all of Santa Monica Residential sales is 32
The count for all of Santa Monica Commercial sales is 18
Real estate transactions at $8 million and above:
March 1, 2023 – March 1, 2024
The count for all of Santa Monica Residential sales is 15
The count for all of Santa Monica Commercial sales is 5
There are a variety of factors that make a market, one the one hand we experienced rising interest rates this past year, on the other hand, the stock market is within 1% of it’s all-time highs (the wealth effect is a real factor) and the economy just posted its 27th straight month of sub 4% unemployment.
Nevertheless, it appears that Measure GS contributed to a 53% reduction in residential real estate sales and 72% reduction in commercial sales since the implementation of Measure GS. Meanwhile, sales in the sub-$8 million price point during these same time frames were only down 19%.
The unintended consequences of this tax increase are enormous: Contractors, electricians, plumbers, roofers, painters, realtors, loan officers, escrow officers, title reps, appraisers, designers, stagers, photographers — every person who makes a living in the real estate industry, just saw a 60% reduction in business opportunities at this price point. That’s real, working-class people, who live, work and pay taxes in Santa Monica.
The public was led to believe that Measure GS would generate $50 million annually — that figure was not even close. I look forward to the City of Santa Monica stating exactly how much revenue Measure GS generated this past year and how it was distributed between the two programs it was meant to fund. It would also be fair to weigh that revenue against the millions of dollars in lost wages for working class people in this industry — there are a lot of people who lost out on a lot of wages and work because of Measure GS.
You’ll recall Measure SM, passed in 2020, doubled the real estate Transfer taxes on homes valued at $5 million from $3,00 per $1000 of home valuation to $6 per $1000 in home valuation. That new tax was earmarked for homelessness, parks and beaches maintenance, public safety, emergency response, senior and tenant protections, libraries, small businesses, food for the hungry and youth programs. Have you noticed an improvement with regards to homelessness, crime or management of affordable housing since then?
Santa Monica is one of the most heavily taxed cities in CA, with seemingly the least amount of return to show for it, meanwhile new tax schemes in the name of addressing homelessness destroy businesses and end up costing working class people real wages. Taxing “the rich” to help “the poor” is a popular rallying cry, but in this case, it clearly hurt the overlooked middle class. Perhaps this explains the frustration that vast majorities of people have with the governing class, whether it be on the federal, state or in this case, the local level.
-Robert Maschio
(Shoot me an email anytime if you have thoughts to share on this topic & thanks for reading.)
robert.maschio@compass.com
