City officials are preparing a request for proposals for a study that would examine why so many houses are vacant, whether and how to implement a special tax on them and and how much it would cost officials to enforce it.
The proposal is in the “final review process,” Andrew Kawano, director of the city’s Department of Budget and Fiscal Services, told the City Council at a special budget meeting on Tuesday. The study will be funded using money from the federal pandemic relief package intended for local fiscal recovery.
The hope is that the prospect of higher taxes might encourage owners of vacant properties to open them up for rental and that a higher tax will generate more cash for strapped city coffers from out-of-state investors.
Many local housing advocates have enthusiastically backed the plan but others are already opposing it.
“Hundreds of condo units are dark every night in some of the highest demand areas of our city,” wrote Ellen Godbey Carson, former president of the Institute for Human Services and the Hawaii State Bar Association. “A blighted house near me on Pensacola Street is a constant health and safety hazard. Beach areas are filled with empty homes for vacationers. These are all empty homes. They all hurt Honolulu.”
Several people told the council that they believe that many real estate speculators buy homes on the island, essentially parking their money as a safe investment haven, removing essential housing stock, they said.
“These empty units drive up rental and sales costs for everyone; the median family home price is $1 million, which is unaffordable to most working people,” wrote Betty Lou Larson, testifying for Partners in Care, an advocacy group for homeless people.
Council member Esther Kiaaina also had strong words for some investors, who she said use Hawaii as their “playground.”
The conservative-leaning Grassroot Institute of Hawaii, on the other hand, recently published a report that said that while the proposed surtax might boost revenue, it would likely have little effect on the island’s available housing stock or home prices.
“It has become common practice in Hawaii to blame scapegoats such as foreign or mainland buyers for the state’s disastrous housing crisis,” said Kelii Akina, president and chief executive officer of the Grassroot Institute, in the report. He said that surtax would not have the desired effect.
Instead, Akina said, the city should ease regulatory barriers to housing, which would lead to increased construction.
One reason that the island is attractive to investors is that Honolulu’s property taxes, while onerous by local standards, are the lowest in the nation, mostly because school expenses are paid by the state rather than the city. That means that many out-of-state buyers consider them a bargain and people from other countries view properties here as a safe haven for flight capital with low incremental costs.
“Hawaii is a very politically stable place to park an investment,” said real estate agent Choon James at the city hearing.
The idea has been circulating in the state legislature as well but has not gone forward. House Bill 440 would have imposed a surcharge on the state conveyance tax to “disincentivize the residential property speculation that makes the housing market so challenging for residents.”
How It Works In Other Cities
Honolulu is not alone among cities considering taxing empty houses.
“A lot of cities, from San Francisco to Buffalo, are looking at different variations of vacancy taxes,” said Anthony Flint, a senior fellow at the Lincoln Institute of Land Policy. The idea, he said, is to encourage property owners to keep homes and vacant developable land in active use.
Vancouver officials considered raising the rate to 5% this year but decided not to do so in the face of concerns about enforcing the law. Critics said the law unfairly penalized owners of recently built homes that had not yet sold, houses damaged by floods or other disasters and where the owners had moved elsewhere temporarily for medical treatment.
Property owners in Vancouver are now required to submit a declaration annually to determine if their property is subject to the tax and can revise the declarations for up to five years.
Even advocates of the concept, including Will Caron of the Hawaii Appleseed Center for Law and Economic Justice, say that any such measure here would need to be “carefully calibrated” to be effective at boosting housing stock, and also fair and equitable to owners.
Several City Council members urged the city administration to move as quickly as possible to get the vacant-house tax study launched.
Kawano said the proposal should be completed by June 30 and posted for solicitation of contracts by July 15. If all goes according to plan, he said, the study could be completed by the end of the year, and he would press for a quick turnaround.
“We know you have expectations on timing,” he told the council. “We understand there is a lot of interest.”
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A Kailua girl, Kirstin Downey is a reporter for Civil Beat. A long-time reporter for The Washington Post, she is the author of “The Woman Behind the New Deal,” “Isabella the Warrior Queen” and an upcoming biography of King Kaumualii of Kauai. You can reach her by email at email@example.com.