When Honolulu Mayor Kirk Caldwell proposed a 1% tax on vacant residential properties to encourage owners to rent them out, the city was estimating a housing vacancy rate of 3% to 5% for Oahu.
But data from the U.S. Census Bureau suggest an even bigger share of Oahu’s residences — more like 10% — are vacant, which means a tax to motivate people to occupy vacant properties could have an even bigger impact.
The census’ most recent American Community Survey, covering 2013 to 2017, estimates Oahu had approximately 346,000 housing units, and just under 35,000 were vacant. And many more condo units have been built since then.
Caldwell’s idea is to place an additional 1% tax on such properties if they stay vacant for six months or more. The goal is to encourage owners to rent out the properties, or else raise money for public affordable housing programs.
The mayor unveiled the proposal last month as part of a new strategy for Oahu.
“This is just something we’re starting to get more serious about,” said Marc Alexander, executive director of Honolulu’s Office of Housing.
Honolulu and Hawaii in general are facing a significant housing problem. According to a 2017 report by the Aloha United Way, nearly half of Hawaii’s working households are struggling financially, and the cost of housing is a major factor.
As a general rule, the U.S. Department of Housing and Urban Development says the most households can afford to pay for housing and still afford other necessities is 30 percent of their income. On average in 2015, according to the United Way report, “57 percent of Hawaii renters paid more than 30 percent of their household income on rent, and 30 percent of owners paid more than 30 percent of their income on monthly owner costs, which included their mortgage.”
Caldwell’s proposal would try to address the issue by bringing more housing onto the market.
But figuring out how many units are actually vacant isn’t as easy as it might seem. The census estimate is based on all vacant residences.
Alexander’s office is taking a hard look at a subset of vacant units, which the census describes as “for seasonal, recreational, or occasional use.” Those numbered 11,810 in 2015, according to a 2016 housing study.
Another factor: Honolulu has thousands of new condo units that the census hasn’t counted.
“Remember, this is all pre-Kakaako and all of those developments that have come on line,” Alexander said.
Regardless of what the vacancy rate actually is, some housing advocates are welcoming Caldwell’s proposal.
“The proposal in general makes a whole lot of sense,” said Gavin Thornton, executive director of the Hawaii Appleseed Center for Law & Economic Justice.
Hawaii’s property taxes are among the nation’s lowest, he said, which creates an incentive for people to buy Honolulu real estate as an investment – even if the properties sit vacant most of the time.
“It doesn’t make sense, given the housing crisis we have, to allow this inefficiency to exist in the housing market,” Thornton said.
“I think the only people who are going to have a problem with this are the people who want to see housing prices go up,” he said of the proposed tax.
Another question is how many property owners would merely pay the tax instead of renting out their properties. A similar law adopted in Vancouver, British Columbia, did more to raise revenue 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 fill vacant condos.
“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.
“Hawaii’s Changing Economy” series is supported by a grant from the Hawaii Community Foundation as part of its CHANGE Framework project.
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