Lessons from Los Angeles: How housing policies can deter new development – a cautionary tale for London

Los Angeles has seemingly infinite demand for housing, yet development has slowed to a crawl. A recent investigation by the Los Angeles Times, summarised by Planetizen, identifies three main factors: soaring interest rates, lingering effects of pandemic-era tenant protections, and a “mansion tax” that penalises high-value sales. Developers are telling the Times that they are deliberately building smaller projects to stay below the tax threshold, forgoing the dense apartment blocks the city desperately needs.

For London, where annual housing delivery has repeatedly missed official targets and the planning system is under constant pressure to speed up approvals, the LA story is a relevant case study. It shows how fiscal and regulatory tools intended to raise revenue or protect tenants can distort development decisions and actually reduce supply.

The LA story in detail

During the pandemic, the City of Los Angeles and Los Angeles County enacted rent freezes and eviction moratoriums that lasted for years. These measures were vital for renters facing sudden income loss, but developers claim they flattened revenues by keeping rents below market rates and created a huge backlog of eviction cases. Even after the protections expired, high construction costs and elevated interest rates continued to squeeze project viability.

The most striking disincentive is the so-called “mansion tax” – officially a 4 per cent or 5.5 per cent levy on property sales above $5.4 million. Developer Yoni Chriqui told the LA Times: “People are building two or three stories on parcels that could hold six or seven stories.” By keeping the building value below the tax trigger, developers avoid the levy – but they also deliver far fewer homes than the zoning allows.

The result is a paradox: a city with huge unmet housing need sees new projects that are smaller and less dense than what the land could support, precisely because the tax structure penalises scale.

Parallels with London’s policy landscape

London does not have a direct equivalent of LA’s mansion tax, but it has its own set of fiscal and regulatory constraints that affect development viability. The highest rate of Stamp Duty Land Tax (SDLT) on residential properties is 5 per cent above £1.5 million, rising to 12 per cent for additional homes. While SDLT is paid by the buyer, not the seller, it still dampens demand at the top end and can influence developer decisions about unit mix and size.

More significant for everyday housing delivery are the combination of Section 106 obligations, the Community Infrastructure Levy (CIL), affordable housing requirements, and rising build costs. Developers regularly argue that these requirements make many schemes marginal or unviable, especially on smaller sites. The Mayor of London’s Affordable Housing Programme and the new London Plan have sought to increase the share of genuinely affordable homes, but the trade-off is that some schemes are stalled or scaled back.

The LA example highlights a specific mechanism: when a tax is triggered by transaction value, developers can respond by building less. In London, similar behavioural effects can be seen in the way developers reduce the number of affordable homes or lower the overall unit count to keep the scheme within a viability assessment.

Rent protections also have a recent London history. During the COVID-19 pandemic, the UK government introduced a temporary ban on evictions and a freeze on possession proceedings. Unlike LA, London did not enforce a formal rent freeze, but the eviction moratorium created a backlog in the courts and some landlords and developers cite that as a factor in their investment decisions. The current Renters’ Rights Bill, which abolishes no-fault evictions and introduces a Decent Homes Standard, is seen by some in the industry as another layer of regulation that could dampen supply, although tenant advocates say it is essential for security.

Policy takeaways for London

The central lesson from Los Angeles is that housing policies must be designed with an understanding of developer behaviour. A tax or regulation that appears sensible on paper can produce the opposite of its intended effect if it creates an incentive to build less volume.

London’s planning system already faces criticism for being slow, expensive and unpredictable. Adding further costs or restrictions without careful viability modelling risks making matters worse. The LA case shows that when developers face a hard tax threshold, they will optimise around it – and the outcome can be fewer homes, not more.

The new mayoral administration under Sadiq Khan (re-elected in 2024) is currently reviewing housing delivery targets and the implementation of the London Plan. There have been calls for a more streamlined system that reduces the burden of CIL and Section 106 on small sites, and for clearer guidance on what constitutes a viable scheme. The LA story suggests that any future tax or levy tied to property value or project size should be tested against potential supply-side responses.

What to watch in the coming months

London will soon see the outcome of several planning reform pilots, including the “Planning for the Future” programme, which aims to digitise applications and speed up decisions. The Mayor’s Housing Strategy is also expected to be updated later this year. Observers should pay close attention to how viability assessments are handled: if they become more flexible, it may encourage larger and denser schemes. Conversely, if new taxes or stricter affordable housing targets are introduced without offsetting reductions in other costs, developers may behave like their Los Angeles counterparts and build smaller than the city needs.

The LA experience is not a perfect parallel – London’s housing market, land values and political context are different – but the behavioural principle is universal. When the financial penalty for building at scale increases, developers will find ways to avoid it.

Key facts

Source: Based on report by Jack Flemming for the Los Angeles Times, summarised by Planetizen (Why L.A. developers aren’t building more apartments, despite epic housing short…). Full article at https://www.planetizen.com/news/2026/09/138480-la-housing-policies-making-developers-turn-away-city