Every year, thousands of bills go through our state and local legislative processes. Most get little attention in the busy lives of everyday people.
But a handful of bills — those that promise big change on the issues that folks are feeling burdened by the most — can dominate headlines and find their way into everyday conversations.
One such proposal is working its way through the Honolulu City Council: to create an empty homes tax for the City and County of Honolulu.
The idea is simple: Tax homes sitting vacant at an annual 3% rate of their assessed value.
This tax could encourage some owners to fill their vacant homes to avoid paying the tax. Other owners that choose to pay the tax instead would contribute an estimated $183.4 million annually toward new affordable housing initiatives.
This policy has the potential to bring much-needed assistance to a housing market that’s become out of reach for many. More than six in 10 renters in Honolulu are now cost burdened, spending at least 30% of their income on housing costs. In 2023, only 20% of local households could afford a mortgage on the median-priced single-family home.
But will this proposal actually deliver?
Vancouver, Canada’s, successful implementation of a similar tax shows it’s possible. Since its implementation, Vancouver has reported a 54% reduction in vacant homes, and over $142 million in net revenue generated from the tax, all of which has been allocated to support affordable housing initiatives in the city.
But even the most noble-minded proposal can see its potential for real impact slip away when watered down, weakened, or poorly enforced. That’s why the specifics of Honolulu’s empty homes tax — how it’s structured, enforced and funded — are critical to its success. With the final budget committee hearing this Thursday, time is running out to craft an effective bill.
Devil In The Details
Since its original introduction, Bill 46 has undergone significant changes. The current version of the bill (CD1) exempts legal short-term rentals — a concession added in response to intense lobbying by the STR industry.
If the goal of the empty homes tax is to discourage speculative investments that leave homes vacant, exempting STRs — which exacerbate the housing shortage — takes us in the wrong direction.
Another change threatened to remove the requirement that homes be a principal residence to qualify as “occupied.” This loophole would have allowed owners to evade the tax by stacking transient stays back-to-back, incentivizing homeowners to prioritize STRs over housing for local residents.
While this proposal has been removed in the latest drafts, the risk of its reintroduction remains a concern.
Some changes have also been helpful. The CD1 version now allocates 50% of revenue from the proposed tax to affordable housing.
This is a critical improvement from earlier drafts that would have allowed revenue to be diverted into the general fund instead. Yet, even this is a step backward from a 2019 version of the proposal that had earmarked 100% of revenues for affordable housing.
Leading up to Thursday’s hearing, four competing drafts have been introduced by various councilmembers. Currently, advocates are concerned about the following proposed amendments:
- Reducing revenue allocations for affordable housing initiatives from from 50% to 20%, without mechanisms to ensure proper use, opening the door for diversion of funds to non-housing purposes.
- Excessive and broad exemptions that reduce the tax base for revenue generation and enable indefinite evasion of the tax to properties that remain vacant or underutilized.
- Removal of specified tax rates that risk failing to generate enough revenue for the policy to be effective.
- Regressive tax features that cap the tax at a flat rate instead of accounting for a percentage of the assessed value, disproportionately benefiting wealthier property owners and undermining the deterrent effect of the tax.
- Implementation changes that risk indefinite delays, weaken accountability, and significantly undermine enforcement.
This wouldn’t be the first time we’ve seen a well-intentioned bill chipped away until it’s ineffective. Some compromise is necessary in a democracy, but not at the expense of the intent of the proposal itself.
If we weaken the bill to placate special interests, we’ll end up with nothing but another headline touting change without real results. The community deserves better.
As deliberations continue, councilmembers must focus on strengthening the bill’s provisions and eliminating loopholes. Without careful attention to these threats, the empty homes tax risks failure to deliver meaningful benefits. Failure means allowing our housing and homelessness crises to deepen.
We need a tax that works to expand Oahu’s affordable housing supply by generating revenue to invest in new affordable housing development, and by discouraging owners from using our limited housing supply for non-housing purposes.
It’s time for lawmakers to prioritize Hawaii’s people and make meaningful changes to our housing ecosystem to meet Hawaii’s needs.
