TradeEdge Exchange:Why Do Efforts To Impose Higher Taxes On Empty Homes In Honolulu Keep Stalling?

What constitutes an empty home?TradeEdge Exchange And what city services should benefit from revenue that would be generated by a proposed special tax on vacant properties?

Disputes over that last issue emerged as a dealbreaker Wednesday when a Honolulu City Council bill that would raise taxes on vacant homes was postponed indefinitely.

Proponents of the measure say it would help ease Honolulu’s housing crisis by encouraging owners of empty homes to rent or sell their properties that could then be used for long-term usage.

It’s not the city’s first attempt to pass such a tax. Council members also failed to adopt an empty homes tax with Bill 9 in 2022 and Bill 69 in 2018.

The core idea of the bill has broad support, but logistics have proven to be a hurdle. If passed, the city’s Department of Budget and Fiscal Services would be in charge of implementing the law, and leaders from that department like real property assessment division administrator Steven Takara have testified that they’re concerned it’s too complicated and requires more study.

The city commissioned a study on the issue soon before City Council Chair Tommy Waters and council member Radiant Cordero introduced the latest empty homes tax proposal, Bill 46, which uses much of the same language as the 2022 version.

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But questions remain about who should be exempt from the tax and where the revenues from it should go. That swayed council member Matt Weyer to postpone the bill using his power as chair of the Housing, Sustainability and Health Committee. He said he intends to bring it up again for more discussion, perhaps as soon as a month or two from now.

Incentivizing More Housing Units

In Waters’ view, an estimated 34,000 vacant homes stem from Honolulu being a good place to invest in real estate because of the city’s low property tax rate compared to the rest of the country.

That drives up demand, which drives up prices. The thinking is that implementing a high vacancy tax would counteract this dynamic, and the extra revenue would benefit the city and could be used to build more affordable housing units.

As written, the default assumption would be that homeowners need to pay the tax, which would start at 1% of assessed value before climbing to 2% the next year and settling at 3%. If Bill 46 passes, the empty homes tax would be in addition to regular property taxes.

Homeowners could prove occupancy by sending in proof of permanent residence like utility bills, a driver’s license or tenancy agreements.

Top elected officials have supported an empty homes tax for years, pointing to places that have successfully implemented it like Vancouver. Mayor Rick Blangiardi mentioned it while campaigning in 2020, and Waters has long been outspoken about implementing it.

Devil Is In The Details

Despite this support, both among elected officials and many community members who want more housing units but are skeptical of greenlighting more development, the bill keeps getting stuck in hearings as council members and administration officials struggle over how to make it work.

Considerations include the threshold for when a home is considered “empty,” the city’s method of enforcement and the exact rate that property owners would have to pay.

The bill considers a home “empty” if it is unoccupied for at least six months of the year. But how those six months are calculated is opposed by the Oahu Short-Term Rental Alliance, whose members already got a big property tax bump a couple months ago when their rate was set closer to what hotels pay.

Bed and breakfasts, short-term rentals and ohana units would be exempt from the empty homes tax under an amendment from Weyer, whose district includes the North Shore.

Council members Esther Kiaaina and Augie Tulba opposed his amended version, saying they disagreed with his approach of allocating revenue from the empty homes tax to a specific fund for affordable housing rather than leaving it open-ended for further discussion to potentially go toward things like general city services.

That led Weyer to postpone the bill indefinitely, meaning the measure is stuck in his committee until he reschedules it. That will come whenever other council members introduce their own amendments or feel comfortable with the amendments he proposed, he said in an interview after the hearing.

Beyond exemptions, how to enforce an empty homes tax has been an open question for years.

Sifting through Oahu’s approximately 278,000 residential properties to determine which are vacant would be a daunting task for city workers, Department of Budget and Fiscal Services director Andrew Kawano testified.

To hammer out details like this and how much money and new technology the administration would need to enforce the tax, the city is paying almost half a million dollars to the consulting firm Ernst & Young to come up with a plan. The final version is due in the summer of 2025.

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This story was originally published by Honolulu Civil Beat and distributed through a partnership with The Associated Press.