The state Legislature is considering significant changes to the conveyance taxes that are levied on a property when it’s sold. Lawmakers aim to use the increased revenue to fund housing near public transportation and to provide the Department of Hawaiian Home Lands with its first permanent stream of state funding.
“One of the interesting exercises for me as I went through this was realizing how incredibly low Hawaiʻi conveyance taxes are,” said Rep. Luke Evslin, who chairs the Housing Committee.
“We have rates between like 0.1% and 0.4% on the transaction of property, where if you look at other places — Washington state and California and New York, they go from 3%, 4% or 5%, even 6%, which is honestly like a 10-time increase compared to a lot of our rates.”
He introduced a measure that would restructure conveyance taxes with the intention of not impacting average home sellers in the state, but charge high-value property sales significantly more.
Currently, Hawaiʻi’s conveyance taxes are levied on total property values — creating a cliff where as soon as the value of a home crosses into another bracket, the entire value of the home is charged at a higher rate.
That means if you’re buying a $1.99 million home, the conveyance tax rate is 0.3%. But if that home value tips over to $2 million – that tax rate jumps up to 0.5%.
Evslin’s bill would change this to a marginal rate — similar to how income taxes are structured.
“You're only getting taxed on the amount over the bracket, so it smooths out those cliffs,” he said. “The idea is to keep the median home at a very low conveyance tax, but adopt things more comparable to other locations for higher values.”
The exact tax rates that will be levied for each bracket of property value are left blank in both the House and Senate bills. It’s a practice long-used by the Legislature to make discussion between the chambers easier during the Conference committee, one of the last stages of the legislative process.
However, previous versions of Evslin’s bill didn’t implement increases on conveyance taxes for homes under $1.5 million — and in some cases decreased taxes for lower value homes.
For example, an average single-family home valued at $1.2 million currently would entail $3,600 in conveyance taxes. The bill would make it $600 less.
There are also lower rates for owner-occupied homes, and a mandated cost-of-living adjustment for the property value brackets.
Some lawmakers, like Senate Housing Committee Chair Stanley Chang, who voted yes with reservations on the measure, were concerned that middle-income families would be impacted by the tax increase.
“We have very high home values here in Hawaiʻi. By starting the escalations as low as $2 million — I mean, that's a teardown in many of our communities frankly, and we would be hitting middle-class buyers in a way that I think we probably don't want to do,” he said during the bill hearing.
“You did note that you'd be looking at increasing the thresholds as this bill moves forward, and I think that's an important discussion to have.”
The Hawaiʻi Association of Realtors submitted testimony against the measure, echoing those concerns.
“Given Hawaiʻi’s current housing market, where median home prices have steadily risen, as well as the State’s need to increase housing supply, the $2 million threshold may capture a broader segment of Hawaiʻi residents, including multigenerational households,” wrote Lyndsey Garcia, its director of advocacy. “Adjusting the threshold to a higher amount would help mitigate these impacts on Hawaiʻi homeowners.”
While the Senate and House bills differ in some of the uses of the increased revenue from the restructured conveyance tax, the two main allocations remain the same: the dwelling unit revolving fund for housing and infrastructure in areas near public transportation and the Department of Hawaiian Home Lands.
DHHL could receive between $40 million and $60 million a year from the increased tax revenue. It would be the only permanent stream of state funding for the department.
The department comes to the Legislature to ask for funds each year with varying success. It received $600 million from the Legislature in 2022, which is being used to fund its phase 1 of development. Most of the funds are being used to build infrastructure.
DHHL Director Kali Watson explained that it’s one of the most important bills this session because the consistent revenue from the conveyance tax can be used in tandem with other housing funds.
“It really helps in the sense that you can continue the construction. … If we have that funding source, and we know we can not only stack it, but put it in play early on, then the contractor or the developer is able to continue the construction,” Watson said.
“It was passed and incorporated into our constitution with the understanding that the state would take care of the beneficiaries. … This is one step in the right direction.”
The measures have been scheduled for hearings before the money committees in both chambers.
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