In a market where finding development opportunities is often described as “searching for a needle in a haystack” and existing political frameworks can burden developers, it is not surprising that real estate development in Los Angeles has become increasingly cost-intensive and scarce. Expanding the supply of multifamily properties is expensive, arduous, and complex, also due to rising construction and labour costs, regulatory hurdles such as the “Measure ULA” transfer tax, and ongoing financing difficulties.
This year, only 8,500 housing units are expected to be added in the greater Los Angeles area, and rents are likely to increase by just 1 percent, according to a recent report by Marcus & Millichap. These are not promising prospects for larger multifamily investments. Despite this apparent stagnation in the housing sector, however, there are signs of recovery and significant gains in certain types of multifamily sales.
While the quarterly sales volume of multifamily properties by dollar value peaked in mid-2025 and plunged by 50 percent in Q1 2026 compared to Q4 2025 (CBRE), sales volume and the number of units sold in selected key categories have recently increased. According to the Marcus & Millichap report, transaction flow in the greater L.A. area improved by 25 percent year-to-date through March, with particular growth in Class C properties that sold for $1 million to $5 million.
Private investors are occupying this niche, explained John Chang, Senior Vice President and Chief Intelligence and Analytics Officer at Marcus & Millichap. They were responsible for 66 percent of multifamily sales volume. Joshua Baum, Founding Partner of Hilgard Economics, noted that there will always be high demand for housing in Los Angeles and the economics of acquiring an existing property are vastly different from new construction. Investors recognise an opportunity to profit by purchasing more affordable multifamily properties.
Another research report by NAI Capital found that multifamily sales volume increased by more than 25 percent in the second quarter, with the number of units sold rising by 39 percent. Sales of properties over $10 million, in particular, saw the fastest growth last quarter, according to J.C. Casillas, Managing Director of Research at NAI. There is strong market momentum. Prime Residential, for example, acquired a 132-unit complex in L.A.'s Miracle Mile for $51.3 million at the end of June, equating to a price of $388,000 per unit – a significant improvement on the current average price per unit of approximately $300,000 (CBRE).
However, these developments must be viewed with important caveats. The increase in sales in the relatively affordable property segment can be directly linked to “Measure ULA” – the so-called “Mansion Tax” – which came into effect in April 2023 and has adversely affected the sales market, according to recent research. The levies started at 4 percent for sales from $5 million, but an integrated inflation adjustment has since raised the threshold to $5.4 million, which explains the increase in more affordable sales below this threshold. These politically induced thresholds motivate investors to focus more on smaller buildings, explained Samuel Maury-Holmes, founder of Zenith Economics.
He added that investors would be particularly interested in properties far enough below the $5.4 million threshold to make capital improvements and potentially add accessory dwelling units (ADUs) without the threat of ULA. According to Marcus & Millichap, sales above the higher ULA threshold declined by 50 percent year-to-date through March compared to the long-term average before the measure's introduction. Stable employment and a dwindling exodus from Los Angeles contribute to the recovery, even though financing has tightened.
