For decades, Los Angeles County stood as one of the most desirable places to live, attracting residents, developers, and investors from around the world. With its sunny climate, vibrant economy, and unmatched cultural appeal, LA was the epicenter of luxury living and real estate development. However, a growing number of policy changes, including the controversial mansion tax, skyrocketing construction costs, increasing insurance expenses, and local rent control laws are making it increasingly difficult for homeowners, investors, and developers to justify staying in the market.

The Palisades Fire Aftermath: A Developer’s Perspective

In the aftermath of recent wildfires, land in prime areas like the Pacific Palisades is coming onto the market as homeowners who lost their properties choose not to rebuild. Many simply cannot afford to, while others do not want to endure the arduous and expensive process. One example is a new listing in a great location priced at $3,250,000 for just under half an acre. At first glance, this seems like an attractive opportunity, but let’s examine the numbers from a developer’s perspective.

The previous home on the lot was approximately 5,146 square feet. Under the city’s Fire Victims Fast Track program, developers can rebuild up to 10% larger, meaning a new home could be around 5,660 square feet, with an option to add an accessory dwelling unit (ADU). With construction costs conservatively estimated at $600 per square foot—excluding high-end finishes, the total development cost, including land acquisition, would reach approximately $6,646,000. Adding in carrying costs at 8% per year, this project would ultimately cost around $7,650,000.

If the new home were to sell at a market rate of $1,200 per square foot, the total sale price would be roughly $6,800,000. However, LA County’s new mansion tax would subtract over $250,000 before accounting for real estate commissions, escrow, title, and other fees. In the end, a developer could face a loss of over $1.5 million.

The Impact of Restrictive Policies

The financial reality of this scenario highlights a much larger issue. LA’s prohibitive policies are discouraging new development—not just for luxury homes but also for large-scale multifamily housing projects. The costs of construction, insurance, and compliance with regulations are already high, and the additional burden of the mansion tax further disincentivizes investment in the region.

Multifamily developers, who are essential for increasing housing supply and keeping rental markets stable, are now reevaluating whether LA remains a viable location for new projects. When development slows, rental housing supply tightens, driving up rents and exacerbating the housing crisis rather than alleviating it.

A Migration Away from LA

With these challenges in mind, many homeowners, investors, and developers are shifting their focus elsewhere. While Orange County, Ventura County, and Palm Springs are attractive alternatives, many are looking beyond California altogether. States like Texas, Florida, and Arizona, with lower taxes and fewer regulatory hurdles, are becoming increasingly appealing for both individuals and businesses.

This shift is a warning sign for LA County. If policies continue to discourage development and investment, the very qualities that once made LA the center of the world for real estate could diminish, leading to long-term economic consequences for the region.

The Ripple Effect on Orange County Real Estate

As developers and investors move away from Los Angeles, Orange County is already seeing the benefit, particularly in the luxury home and multifamily investment sectors. High-net-worth buyers seeking prime coastal properties are increasingly turning to areas like Newport Beach, Laguna Beach, and Huntington Beach, where they can still find exclusivity without the additional tax burdens imposed by LA. At the same time, multifamily investors are shifting their attention to OC cities such as Costa Mesa, Fullerton and Anaheim, where rental demand remains strong and local policies are much more favorable. This increased interest is driving up property values and competition, making Orange County a prime market for those looking to escape LA’s restrictive environment while still investing in Southern California real estate.

Conclusion: The Need for Policy Reform

Los Angeles has long been a desirable city for luxury living and real estate investment, but current policies are making it an increasingly difficult place to build, invest, and even reside. If local leaders want to preserve LA’s reputation as a world-class destination, and attract rental housing development, they must reconsider laws that are driving developers and multifamily investors away. Otherwise, the trend of migration and stalled development will continue, reshaping the future of the city in ways that could be difficult to reverse.

Mercedes Shaffer is a multifamily broker with REAL, and If you have questions about buying, selling or doing a 1031 exchange, her team serves LA and Orange County and can be reached at 714.330.9999, InvestingInTheOC@gmail.com, or you can visit their website at InvestingInTheOC.com  BRE 02114448