Living a life of luxury in Los Angeles (LA) remains challenging for mansion owners, who are still struggling to sell their high-end properties. Despite some signs of recovery in the broader housing market earlier this year, the luxury segment continues to lag, burdened by mansion taxes, rising interest rates, and lingering economic uncertainties. Many millionaires in LA have increasingly turned to renting out their opulent homes for massive sums — a trend that has only intensified over the summer months after appearing last year.
This shift towards renting rather than selling is driven by several factors, including the desire to maintain cash flow and preserve property value while waiting for more favorable market conditions. Data from the California Association of Realtors (C.A.R.) shows that Los Angeles experienced a significant decline in home sales, with figures dropping 13.8% month-over-month (MTM) and 15.5% year-over-year (YOY) as of June 2024. This decline, reflective of broader market conditions, has particularly impacted the luxury market, where homes valued at $13 million or more are languishing on the market.
One prominent example is Rob DeSantis, co-founder of the software company Ariba, who was renting his sprawling 13,000-square-foot Manhattan Beach waterfront mansion for a staggering $150,000 per month. DeSantis’s decision reflected a broader trend among luxury homeowners who preferred to hold onto their properties rather than risk selling at a loss since 2023.
Rising interest rates have further complicated the situation, making it more difficult for potential buyers to finance high-end properties. As borrowing costs increase, many are opting to delay purchases, leading to a more cautious buyer pool. This has left luxury homes on the market for extended periods, contributing to a growing preference for rentals as a temporary solution.
The shortage of available inventory in Los Angeles has also played a critical role in sustaining elevated home prices despite the slowdown in sales. With a 3.1-month supply of inventory, the market remains tight, pushing prices higher even as transactions decrease. However, this tight inventory also means that luxury properties, which typically take longer to sell, are even harder to move in the current market conditions.
The so-called “mansion tax,” officially known as Measure ULA, continues to exacerbate the situation. The tax imposes a 4% levy on real estate transactions over $5 million and a 5.5% tax on sales exceeding $10 million. These additional costs have further dissuaded potential sellers, who now face the prospect of hefty taxes on top of already challenging market conditions.
As a result, the rental market for luxury homes in LA has become increasingly competitive this summer, with potential renters facing steep prices and limited availability. Despite these challenges, the luxury market remains resilient, supported by a mix of high demand from renters and a steady influx of wealth into the city.
Looking ahead to the remainder of 2024, it remains to be seen whether the luxury real estate market in LA will experience a significant rebound or if the current trend toward renting will solidify as the new norm. For now, mansion owners and real estate investors are closely monitoring the market, prepared to adapt to whatever comes next.