- Special Projects
By day, Howard Hughes Corporation’s Ward Village in Kakaako is a bustling hub of trendy restaurants and boutiques anchored by gleaming luxury condo towers, a multiplex movie theater and a two-story natural foods store.
At night, however, the neighborhood has a different atmosphere. The street life dwindles, and the high-rises become dark monoliths.
The buildings are so dark, in fact, they’ve inspired jokes by local business owners, says Tomas Kloosterboer, co-owner of Off the Wall, a hip craft beer and wine bar on Auahi Street.
“We were laughing,” he said, after someone commented, “‘Dude, there’s a power outage at the building.’”
Despite the jokes, the nighttime slowdown is no laughing matter for businesses that invested in the area assuming the party would go on when the sun goes down.
City officials, meanwhile, must deal with vast swaths of vacant residences at a time when Honolulu is suffering from a severe housing shortage. Mayor Kirk Caldwell has proposed a new tax on residential properties left vacant for more than six months in an effort to encourage owners to occupy or rent out the spaces.
At the time of the announcement, Caldwell’s chief of staff, Gary Kurokawa, pointed to Kakaako.
“If you drive by Kakaako at night, most of the units are dark,” Kurokawa said. “Those are probably the units we’re looking at.”
Kakaako is hardly the only place where investors buy properties that they rarely live in. In fact, across Oahu, approximately 5.3% of the long-term housing inventory is vacant, the city reported last month in its Oahu Resiliency Strategy report. It describes the proposed tax as a way to encourage people to rent out properties or, alternatively, to raise money to pay for affordable housing units.
According to the report, foreign investment in expensive vacation homes has doubled to approximately $1 billion annually in 2016 and 2017 from about $500 annually in 2008 to 2015. Mainland investors buy another $4 to 5 billion annually, the city reported.
“While this investment brings economic benefits and drives topline growth,” the report said, “these benefits need to be weighed against the costs associated with price inflation and limited supply of affordable housing for permanent residents, not only for vulnerable or low- to moderate-income residents, but also for middle class workers who support Oahu’s top industry: tourism.”
In Kakaako, Caldwell’s proposal could have benefits beyond housing. For places like Off the Wall and dozens of other small, mostly local businesses, a wave of people actually living in Ward Village could mean a healthier bottom line.
Caldwell’s proposal came a month after Melissa Bow, the owner of Via Gelato, went public with a series of Instagram posts chronicling her struggles with Howard Hughes, the commercial landlord and developer of Ward Village. She runs a successful store in Kaimuki, but said she couldn’t afford the rent in Kakaako.
Among other factors, Bow said, the hordes of residents expected to be living at Ward Village hadn’t shown up. She predicted other businesses would soon be leaving.
“Why is a good business, with a strong following, great customer service, rated 4.5 stars or higher, why are we going out of business?” Bow wrote. “The answer is our rent at Via Ward is so expensive we cannot even break even using ALL of our profits at Via Kaimuki to pay for it.”
Just how many of Ward Village’s condos are actually occupied isn’t clear. For the past five years, Howard Hughes, a Dallas-based real estate investment trust, has been redeveloping Kakaako at an astounding pace. As of March, the company had either opened or was planning just under 2,700 condominiums in its master-planned Ward Village project at the east end of Kakaako.
It’s a massive redevelopment: The estimated cost so far is approaching $2 billion, and the company reported profits of $726 million in its report to shareholders for 2018.
Todd Apo, Howard Hughes’ senior vice president for community development, declined to say how many units are actually occupied or comment on the vacancy tax proposal. Caldwell’s office also did not respond to a request for comment.
Neighborhood business owners welcome the idea of a vacancy tax designed to encourage more people to actually live in the residences. Among them is Brian Chan, owner of Scratch Kitchen and Meatery. After running the successful Scratch Kitchen and Bakeshop in Chinatown, Chan relocated to Ward Village in 2017.
At the time, Chan said, he believed it would be a vibrant center with thousands of residents living in the nearby condo towers.
“That’s the main reason we got in there,” he said. “We didn’t expect them all to be vacant.”
During daytime, Chan’s restaurant is often hopping, full of diners eating comfort foods like cider braised pork belly and shrimp and grits.
“At night, it’s a ghost town down here,” he said.
Ward Centre is a shopping mall around the corner from the restaurant. On a recent evening, a dozen or so people milled around tables at Goma Tei ramen shop, and a half dozen men were doing Jiu-Jitsu on the floor in the window of the Kekoa Collective, a lifestyle brand store. But the mall’s corridor was empty, as were most of the shops.
The consensus among the store owners and clerks was that efforts to bring more people to the neighborhood would be good.
Among them was Herman Piikea Clark, who opened a high-end clothing and housewares store, Pili Pacific, in Ward Centre late last year. Clark said the goal is not just to sell clothes to tourists, but to connect with the new residents.
“That’s our aspiration,” said Clark. “To be able to work with that new community of people moving here to make Kakaako their home.”
Kakaako isn’t a complete ghost town at night. On a recent evening Piggy Smalls restaurant was bustling and Agu ramen shop had a cluster of people outside reading the menu. The block-sized Whole Foods Market on Kamakee Street was a crowded, well-lit counterpoint to the darker condo towers nearby.
Whether Caldwell’s proposal would brighten the nightlife around other parts of Ward Village remains to be seen. For one thing, the City Council would have to approve the vacancy tax. Then there’s the practical question of whether a 1% tax on property value would be enough to discourage people from buying multimillion-dollar properties and leaving them vacant.
The Caldwell administration estimates a 1% tax could free up 10,000 housing units or contribute $60 million to the county’s general fund.
If a similar law adopted in Vancouver, British Columbia, is any indication, a Honolulu vacancy tax would be more likely to raise money than to open up condos for rent. According to a February report to the Vancouver City Council, the Canadian city generated $38 million during the tax’s first year, but the tax didn’t do much to increase occupancy rates.
“Given the number of property owners that chose to pay the tax instead of renting their property, it is possible that the current tax rate is not enough of an incentive to rent,” the Vancouver report said.
Kloosterboer, the craft beer purveyor, said a 1% tax simply isn’t high enough to faze investors buying condos in buildings like Waiea, where a one-bedroom, 1,139-square foot unit is currently listed for just less than $2 million and three-bedroom condos started at about $3.5 million.
“One percent to those people, it’s like tickling them,” he said.
“Hawaii’s Changing Economy” series is supported by a grant from the Hawaii Community Foundation as part of its CHANGE Framework project.
While asking for your support is something we don’t like to do, the simple fact is that our reporters, our journalism, and our impact rely on it. Since lifting our paywall and becoming a nonprofit in mid-2016, our local newsroom has benefitted from a stream of charitable support from people who want our type of journalism to survive. People like you who understand that our work is essential to a better-informed community. If you value the work of our journalists, show us with your tax-deductible support.