The Honolulu City Council has deferred a controversial measure to implement a tax on empty homes on Oʻahu.
On Wednesday the council agreed not to vote on the measure, which would have established a new property tax category for Honolulu residential properties that are unoccupied for more than half the year.
Bill 46 has received significant opposition from the public since it was introduced in the city council in August, and that has continued despite a slew of amendments added to protect local homeowners.
Ultimately, it was Council Chair Tommy Waters, co-introducer of the bill, who suggested that the council defer the measure, which was scheduled to pass its third — and last — council reading on Wednesday.
The bill is Waters’ third attempt to pass an empty homes tax.
What's next for Bill 46
Waters said the measure will stay alive, but the council will take it up again once a study on the feasibility of an empty home tax is completed by consulting group Ernst and Young — something that some councilmembers and the public have requested.
The initial results of that study could be released in January, and a final report could be published later in the year.
“There is a lot made about waiting for the study to be completed, and I'm going to recommend that we do exactly that — that we defer this until this study is completed. The bill will stay alive. We'll be debating this another day. We'll be taking testimony another day,” Waters said.
The bill notes data from the 2020 U.S. Census showing that there are about 34,300 unoccupied housing units on Oʻahu.
Supporters of an empty homes tax said it would encourage homeowners to rent out their units to residents, which would help address the affordable housing crisis not just on the island but throughout the state.
Until recently the bill included a tax rate that would grow from 1% to 3% of a home’s value — a far higher rate than the 0.35% for residential properties in Honolulu. That language was removed in a recent amendment to the bill, which now says the City and County of Honolulu administration will determine that rate.
Before Waters’ suggestion to defer, the council was split on the measure. Councilmembers Andria Tupola, Augie Tulba, Val Okimoto and Esther Kiaʻāina indicated they would oppose the current version of Bill 46.
Their concerns included the proposed tax’s legality, effectiveness, and even the city’s ability to implement and enforce it.
“Any increase to property taxes can displace local families from Hawaiʻi, which I am against,” Tupola said. “Fees and taxes are supposed to be used to provide related public services and not as a punishment. While the intentions behind this bill may be well-meaning, it is based on flawed data, it will create tremendous administrative burden and it poses legal constitutional issues.”
An empty homes tax was recently struck down in San Francisco after a judge deemed it unconstitutional. Waters said that recent changes to the bill would get it around the legal issues faced by the San Francisco measure.
Exemptions for the empty homes tax
There were worries that the proposed tax would unfairly burden local homeowners who have empty homes for financial security, for future generations, or other reasons. The council then added 17 exemptions to cover local homeowners and various circumstances.
Exemptions include properties with home exemptions, ʻohana units and second dwellings. They also exempt homeowners who are receiving medical care and deployed service members, as well as properties that are under construction or even owned by nonprofit organizations.
The exemptions are meant to focus the bill on out-of-state investors who buy homes on Oʻahu to sell at a higher price later — but never actually live in the property themselves.
But proponents of an empty homes tax said the exemptions diluted the bill too much, and they didn’t appear to appease opponents, who include local homeowners worried that they could face higher taxes, or be forced to become a landlord or sell their properties.
Alternative solutions
Another way Bill 46 would have tried to address the affordable housing shortage is by allocating a portion of the collected taxes to affordable housing projects.
But Kiaʻāina and Councilmember Tyler Dos Santos-Tam, who said he would have voted to pass the measure, both agreed that the council might be better off considering changes to the existing Residential A property tax class that most single-family homes fall into — instead of creating a new tax class for similar homes that are vacant.
Kiaʻāina suggested that one way to increase those funds would be to simply tax more expensive homes at a higher rate.
“It is not strategically targeting those who are more well-off, which is, I feel, the target of this bill. What we need to do is tax them accordingly,” she said.
There are two Residential A property tax tiers: one for homes valued at less than $1 million, and another for those valued at a higher price. Kiaʻāina said another rate should be included for homes valued at more than $3.5 million.
Kiaʻāina also preferred providing tax incentives to homeowners to use their units as long-term rentals, instead of penalizing those who decide against it.
The bill's proponents wanted to pass the measure and deal with any issues afterward. If it had passed on Wednesday, Bill 46 wouldn’t have gone into effect until about two years from now.
“ I think there's more than enough time to address the concerns about the exemptions, and I don't think anything would stop us from setting the Residential E rate as the same as Residential A for as long as it takes to clean it up,” said Councilmember Matt Weyer, who supported the measure. “ I think as a community, when we're looking at home access in particular, that's the crisis, that's the imbalance, and it's getting worse. And I think this is just one of those steps we need to take.”
