Fires, Interest Rates, and Taxes Contribute to Decline
Housing development in Los Angeles has taken a significant hit in early 2025, with new construction activity dropping nearly 57% compared to the same period last year. A report released by Hilgard Analytics paints a sobering picture for the city’s already strained housing market, underscoring rising challenges for developers and potential long-term effects on housing affordability.
Just 1,325 New Homes Approved in Q1
During the first quarter of 2025, the City of Los Angeles issued permits for only 1,325 new housing units. This includes both single-family homes and multifamily buildings, excluding accessory dwelling units (ADUs). The steep decline is attributed to several compounding factors—most notably, rising interest rates, increased construction costs due to tariffs, and economic uncertainty.
One of the more impactful local hurdles has been Measure ULA, a transfer tax applied to high-value property sales in Los Angeles. Developers argue that this added cost is cutting into profits and forcing them to abandon or delay projects, particularly in high-density areas.
The Aftershock of January Wildfires
In addition to financial barriers, the January wildfires that swept through parts of the region disrupted local business operations and likely contributed to the slowdown. According to Joshua Baum, principal at Hilgard Analytics, the fires exacerbated an already declining trend in construction that began in 2024. Last year alone, housing permits fell 23% citywide compared to 2023.
Areas Most Affected
The sharpest reductions were seen in council districts covering the western and northeastern San Fernando Valley and South Los Angeles—regions historically significant for multifamily housing growth. A decline in these districts could limit future rental inventory and increase competition among buyers and renters alike.
Long-Term Impact: Higher Prices and Reduced Revenue
Economists consistently stress the importance of adding new housing supply to control long-term rent and home price growth. A persistent drop in development could worsen the affordability crisis, while also affecting the city’s revenue.
Los Angeles is already facing financial pressure on multiple fronts. Just this week, Mayor Karen Bass announced over 2,700 city job cuts to help close a $1 billion budget deficit—further highlighting the importance of economic activity generated by real estate development.
Not Just an L.A. Problem
While the situation in Los Angeles is dire, it reflects a broader national slowdown. Developers across the country are pulling back due to elevated interest rates and tariffs. However, the added layer of local taxes like Measure ULA is making Los Angeles especially vulnerable.
A joint study by UCLA and the Rand Corporation supports this, finding a steeper drop in sales for development-friendly properties within the city compared to the rest of L.A. County.
Conclusion
The construction decline in Los Angeles is more than just a temporary setback—it signals deeper systemic issues that could intensify the city’s housing shortage and affordability crisis in the years ahead. Without meaningful policy changes and strategic investment, L.A. may face higher home prices, tighter rental markets, and continued budgetary strain.