Inside Los Angeles’ Luxury Real Estate Market: Adapting to Change and What’s Ahead

Real Estate partner Jill Jones provides an insider perspective on the current state of Los Angeles’ luxury real estate market, discussing the challenges, trends and opportunities shaping the industry. From the impact of the mansion tax to the effects of devastating wildfires, Jill offers insights into what’s driving the luxury market and the broader rebuilding of Los Angeles.

Tell us about your practice and the type of real estate matters you generally handle.

I maintain a broad general real estate practice. I handle all elements of development, from purchase and sale agreements to negotiating construction contracts and advising on the entitlement and permit processes. I work with a number of sectors, including the luxury residential market, leasing and acquisitions of industrial and commercial sites, schools, retail centers, art studios, hotels, affordable housing and government redevelopment projects.

Can you give us an overview of the current luxury real estate market in Los Angeles?

I began working at Loeb & Loeb just prior to the onset of the pandemic. I was undergoing a period of “cooling off” from my development work in Los Angeles as a result of my former employment with a government entity. The timing was serendipitous, as I was able to shift my energy to the residential luxury real estate market. We closed on over $300 million in residential homes throughout California during the pandemic years. 

Since that time, several factors have created a chill in the market. The first was the city of Los Angeles’ passage of the “mansion tax” in 2023. This is a misnomer, and post-polling has shown that few voters understood the implications of this tax. Despite multiple challenges, the tax stands today. It imposes an additional 4% documentary transfer sales tax on properties valued over $5 million and a 5.5% additional tax on properties valued over $10 million. The baseline increases incrementally each year. There are many issues with the tax, including the fact that multifamily buildings and commercial properties are also subject to it. By some accounts, the sale of homes over $5 million has dropped by 70% since the tax came into effect in 2023. 

Then Los Angeles suffered the devastation of the recent wildfires, including the Palisades Fire. Many fire victims have found their homes were either underinsured or altogether uninsured due to recent trends in the insurance market. This has left many with tough questions about whether to rebuild. Over $29.7 billion in housing stock was lost in the Palisades Fire.

Yet Los Angeles continues to be a dynamic city and cultural hub with enviable weather, so there remains a vibrant luxury market. It has just been a challenging time.

What trends are you seeing in the Los Angeles luxury real estate market?

Due to the immediate devastation from the wildfires, the luxury rental market is in extremely high demand right now. There simply isn’t enough housing stock in Los Angeles to accommodate all who lost their homes. There have also been ever-changing rules from the governor and the mayor on price-gouging statutes that have often confused would-be landlords and agents about what pricing can be charged for new properties on the market. These emergency orders were extended on March 7. Because of the confluence of challenging factors in Los Angeles right now, many high-net-worth individuals are looking to other markets in Central and Northern California, as well as outside California.

Given these insights, where do you see the luxury real estate market in Los Angeles heading?

Los Angeles will rebuild, but the communities that were lost to the wildfires were developed over 100 years. These homes had character and a mix of architectural styles. In order to rebuild more efficiently, it’s likely that master builders will come into play, coordinating truck routes, grading, permit processing and so forth. This has some concerned that the feel and soul of the communities burned may be compromised. However, given the number of people who are underinsured and will not be able to afford to build again where they previously lived, it’s likely the rebuilt Los Angeles will be different—even if just the materials used to build the next generation of houses change. 

Yet, neighborhoods that were not directly affected by the wildfires have seen values increase because of the scarcity effect. Neighborhoods such as Beverly Hills and Malibu do not have a mansion tax in effect. There have been pleas from real estate professionals to the legislature to suspend that tax as Los Angeles works to rebuild, but to date, there is no indication that the law will be overturned. 

The Olympics are slated to come to Los Angeles in 2028. There is still hope that hosting this event will provide opportunities for the city’s leadership to continue investing in infrastructure and to address Los Angeles’ unhoused population. If the city can leverage the investment in the Olympics and make lasting improvements, it will help encourage high-net-worth individuals to invest in rebuilding Los Angeles.

Despite these challenges, Los Angeles’ luxury real estate market will continue to evolve. As the city rebuilds, opportunities remain for those ready to invest in its future.