Slow and Steady

Despite politicians touting progress, Los Angeles has only issued three permits for wildfire rebuilds and debris removal is expected to drag on for many months.

Happy Tuesday and welcome to another edition of Rent Free. This week's stories include:

• The devastating unintended consequences of Los Angeles' "mansion tax" on commercial and multifamily housing development.
• The devastating (possibly intended) consequences of the White House's new tariffs on homebuilders.

But first, our lead story on the slow progress of rebuilding efforts in fire-stricken Los Angeles.

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Slow and Steady

Monday marked the three-month anniversary of the outbreak of the devastating wildfires in the Los Angeles area.

Los Angeles Mayor Karen Bass marked the occasion by touting a disaster recovery effort that, thanks to expeditious local, state, and federal actions, is the "fastest in modern California history."

In a press release, Bass said that hazardous debris removal and the restoration of water and electricity services are moving faster than they did after the 2018 Camp Fire in Northern California.

The mayor also cited her own use of emergency executive orders that "cut through red tape" to allow for faster rebuilds of homes, businesses, and schools.

As fast as government officials are moving, there remains much work to be done and the successes touted by the mayor also come with a number of asterisks.

As of about two weeks ago, the number of building permits issued for wildfire rebuilds remains in the low single digits.

Cleaning Up

In late February, the federal Environmental Protection Agency (EPA) announced that it had completed "Phase 1" debris removal—which involves the removal of hazardous waste like propane tanks, electric vehicle batteries, and asbestos.

Yet while the EPA was touting a 100 percent completed Phase 1, the Los Angeles Times reported that the removal of Phase 1 hazardous materials had been deferred to the Phase 2 stage of operations on some 4,000 destroyed properties (or a third of all properties destroyed in the Eaton and Palisades fires).

The EPA says physical hazards like unstable structures and blocked access are responsible for the deferred Phase 1 activities. The agency's debris removal status map shows hundreds of properties still require deferred Phase 1 debris to be removed.

Once Phase 1 debris removal is complete, contractors hired either by the U.S. Army Corps of Engineers (USACE)—which provides free debris removal—or property owners themselves can perform Phase 2 clearances of remaining debris. Once that's done, reconstruction can begin.

Bass' Monday press release says that 260 properties in the city have had debris completely removed. But some 4,000 properties were destroyed in the Palisades fire alone, meaning the vast majority of properties still require clearance.

Only 12 percent of parcels affected by the Eaton and Palisades fires that are eligible for USACE debris removal have been cleared. USACE estimates that debris removal will take a full year to complete.

Expedited Rebuilds?

Bass issued her first rebuilding streamlining order on January 13. It was later modified and expanded by an amended order issued on March 18.

Both called for initial permit reviews for qualifying wildfire rebuilds to be completed within 30 days and for the city departments to establish a one-stop permitting center that would conduct reviews of all needed city permits sequentially.

Despite that expedited schedule, only a handful of permits have been issued thus far. Two weeks ago, the Los Angeles Times reported that only three permits had been issued for full wildfire rebuilds, out of 72 applications filed.

Some builders have also complained that even simple projects that should be easy to approve have languished in the city bureaucracy.

"It's the same process as before the fires. One fee was waived but otherwise, it was the exact process before the fires," says Alexis Rivas, CEO of homebuilding company Cover.

Back in February, Rivas' company applied for a permit to build a 570-foot accessory dwelling unit (ADU) for its client, an elderly woman who'd lost her Los Angeles home in the Palisades fire.

Rivas says his company has built this exact ADU in the city before. The client's property was a nice flat lot that didn't pose any particular engineering challenges. The unit itself would be built in Cover's Gardena factory, which was recently profiled in the Times as the kind of facility that could quickly pump out prefabricated units.

Despite the promise of a 30-day expedited process, it took 52 days for the city's online application portal to deem the project approved.

Getting even that provisional approval required calls and follow-ups with multiple city departments. At one point, the city's Department of Water and Power lost their application, requiring them to refile.

The whole process took longer than a similar project Cover did before the fires, says Rivas.

And while the city's online portal shows their permit status as approval, the company can't get permission to actually build until their lot is cleared.

Rivas says he's waiting to hear back from USACE on when they'll be able to clear the lot.

"If we had the permit in hand and the lot cleared, we'd be done in 45 to 60 days—foundation in two weeks to a month, then another month to build the ADU," he tells Reason.

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A Misnamed Mansion Tax

While a sluggish city approval process delays project approvals, a new report highlights how the city's so-called mansion tax is damaging the economics of multifamily development.

In 2022, 58 percent of Los Angeles voters approved the United to House Los Angeles (ULA) initiative, colloquially referred to by supporters as the "mansion tax," which levied a minimum 4 percent tax on real estate transactions of $5 million or more. Real estate transactions of $10 million or more are subject to a 5.5 percent tax.

ULA revenue is earmarked for affordable housing and homelessness programs.

Supporters of the tax pitched it as a way of "making sure that those raking in profits at the very top of our real estate market are contributing their fair share to supporting the needs of everyone else."

But a new report from the University of California, Los Angeles' (UCLA) Lewis Center for Regional Policy Studies argues the tax's burden has fallen most heavily not on luxury single-family homes, but rather commercial and multifamily properties.

"The big surprise in ULA is that it turned out not to be a mansion tax. It turned out to be an apartment, commercial, industrial, and everything else tax as well," says Mott Smith, a Los Angeles–area builder and UCLA professor who co-authored the ULA report with UCLA professor Michael Manville.

Their analysis finds that the tax has resulted in a 30–55 percent decline in the number of commercial, industrial, and multifamily transactions. That reduction in transaction volume in turn means a $25 million annual loss in property tax revenue and a reduction in the construction of new commercial space and multifamily units.

The idea behind the "mansion tax" was to reclaim property owners' "unearned" value from ever-rising land prices.

Manville and Smith's report argues that the effect of the ULA tax falls most heavily on real estate buyers who purchase a property with the intent of redeveloping it into a more valuable project.

A developer who purchases an older multifamily building and redevelops it into a larger, much more valuable apartment complex will face a 4–5.5 percent ULA tax when they sell the completed project.

Because typical profit margins on such a development are in the 20 percent range, a 4–5.5 percent tax on the value of the property takes a huge bite out of any potential upside.

The UCLA report says that developers will respond to the costs of the tax by lowering their initial offers for the property. That makes their bids uncompetitive when compared to buyers who are looking to purchase a commercial or multifamily property and just collect rent from whatever business is already there.

Manville and Smith's report argues that the tax also makes it more difficult to finance redevelopment projects, even for buyers who intend to hold on to the land.

Lenders and investors, they explain, will look to the resale value of the property before financing any development on it. Since ULA takes a huge bite out of the resale value, they're less willing to invest.

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Tariffs Hike Homebuilding Costs

The White House has offered a range of explanations for President Donald Trump's latest round of tariffs on U.S. trading partners. One justification is that they'll bring manufacturing businesses back to the U.S.

Yet the tariffs can be expected to hit the one manufacturing business that can't be offshored particularly hard: homebuilding.

According to the National Association of Home Builders (NAHB), 7.3 percent of all goods used in U.S. homebuilding are imported. Canadian softwood lumber used in home construction accounts for a quarter of U.S. supply. Another 71 percent of lime and gypsum imports (used for making plaster and drywall) are imported from Mexico.

With the caveat that the impacts of the latest tariffs are hard to precisely calculate, the NAHB estimates that the import duties will raise building material costs by $9,000 per home on average.

The good news (or at least less bad news) is that Canada and Mexico are exempt from Trump's "liberation day" tariffs on the rest of the world—though Canadian lumber is already subject to a 14.5 percent tariff, and ongoing federal antidumping and national security investigations could see those tariffs increased substantially.

A quarter of all goods used in U.S. home construction also come from China, which was initially hit with 34 percent tariffs under Trump's "liberation day" announcement. On Monday, the president said that China would be subject to an additional 50 percent tariff rate as punishment for the country's reciprocal 34 percent tariffs on U.S. goods.

Global supply chains are complex and the tariff rates imposed by Trump and being imposed on the U.S. in response are constantly in flux. One thing that we can say for sure is that the price of imported building materials isn't going down anytime soon.

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Quick Links

• In Washington, a bill to cap rent increases advances in the state Senate.
• The games politicians play to avoid expediting housing construction.

This is one of those stories that could only happen in California:

1. Mayor of Los Angeles issues an executive directive making it fast & easy to build 100% affordable housing.

2. She doesn't include any new public money in the order, so it's supposed to just be a fake… pic.twitter.com/2O53ZaErBx

— Alec Stapp (@AlecStapp) April 8, 2025

• The town council of Johnston, Rhode Island, voted again to eminent domain a vacant property slated for affordable housing construction. The town had already tried to secretly seize the land, but a federal judge ordered them to return it to its original owners.
• Sen. Mike Lee (R–Utah) introduces the Local Zoning Decisions Protection Act to defund the implementation of the Affirmatively Furthering Fair Housing rule. The Trump administration has already scrapped the rule, which in past iterations had required recipients of federal funds to produce long reports on obstacles to fair housing.
• The mayor of Toms River, New Jersey, is blaming a pop-up soup kitchen run by musician Jon Bon Jovi for importing homeless people to the town.