An empty-homes tax meant to penalize real-property owners who leave their Oahu residences vacant for extended periods of time continues to receive wider public scrutiny.
If adopted by the Honolulu City Council, Bill 46 would tax vacant real property by as much as 3%. That means a home valued at $1 million could receive a $30,000 tax bill each year it remains empty. As drafted, the bill currently provides a list of 15 exemptions, which owners would need to declare.
Introduced in August by Council members Tommy Waters and Radiant Cordero, the measure could see full Council adoption by December.
On Monday a member of the University of Hawaii Economic Research Organization, or UHERO, offered more insights over the potential ramifications of an implemented empty homes tax, or EHT, on Oahu.
Justin Tyndall, an associate professor with UHERO, authored a blog released Monday titled “A Honolulu Empty Homes Tax: Impacts on Housing Supply and County Revenue.”
In it he asserts if a new tax is adopted, it could free up 14,000 housing units, and bring in an additional $144 million in revenue to the city and county annually.
“The idea of the bill is to have a new tax class on empty homes,” Tyndall said during a virtual news conference with local media. “And I think the two big effects on this would be to encourage people to fill vacant units that would provide more housing for local families.”
And on the other side, he added, “to provide revenue for the county.”
Tyndall noted Bill 46’s proposed tax rate would be phased in, with 1% assessed the first year the property is vacant, 2% the following year and 3% for years thereafter.
“It’s very similar to a policy that was enacted in Vancouver, Canada, with a similar policy aim: to try to free up homes that were sitting empty,” he said.
The Vancouver policy resulted in a 54% reduction in that city’s vacancy rate, and in 2023 the Vancouver empty homes tax brought about $35 million in U.S. dollars from properties that remained vacant, according to Tyndall.
With respect to an EHT in Honolulu, Tyndall said he “is trying to estimate what would be the effect on the number of units of housing that would be generated by this policy.”
“And how much revenue would the county generate,” he said.
Still, he noted there’s much “uncertainty” over the proposed tax.
“And we don’t know exactly how much housing and how much revenue it would generate,” he said, “but the effects seem pretty large regardless of what assumptions we have.”
In particular, he said, “We don’t actually know what the vacancy rate is” on Oahu.
“So we have estimates from the Census Bureau, which is cited in the bill” as 9.2%, with 34,253 housing units unoccupied for 2020, he added.
But Tyndall said UHERO has determined about a quarter of the stated vacancies are from homes that are listed for sale or for rent, which would be exempt from the tax.
“We get an estimate of 6% to 7% of properties in Honolulu are vacant,” he said.
He also noted the approximate locations of these vacant properties.
“Basically, every residential neighborhood in Honolulu has vacant units, but they are pretty concentrated in places that are popular among second-home owners,” he said. “So Waikiki, in particular, has a ton of vacant units, according to the Census Bureau.”
How property owners respond to an EHT is also unknown, he added.
“So they could either just pay the tax, or they could rent out their unit or sell their unit, so it ends up not being vacant anymore,” he said. “But we don’t really know the percentage of people who would make that choice.”
He noted a trade-off of imposing an EHT.
“The more people who fill their units, the more housing we generate; the fewer people that fill their units, the more revenue the program would generate for the county,” Tyndall said. “And a lot of that revenue is going to come from second-home owners, and particularly out-of-county and out-of-state owners. So, in that sense, it’s not putting too much of a burden on local households.”
A third source of uncertainty also exists.
“We don’t really know how long most units are kept vacant,” he said. “Because this tax is phased in over the first three years, it will raise a lot less revenue if homes are vacant for one year at a time and churning over.”
And he noted, “There actually is quite a bit of churn,” according to the Census Bureau.
“A typical unit that’s kept vacant is only kept vacant for a year,” he said. “It only faced a 1% tax, then it might fall into ‘occupied,’ and then when it gets back into the vacant pool, it would be assessed 1% again.”
“But we don’t exactly know how many units are vacant for how long, and that’s going to have a big impact on the amount of revenue the policy generates,” he said.
Tyndall notes while Bill 46 might discourage investors from holding vacant homes on Oahu, it could potentially redirect investment pressures to the neighbor islands.
The bill in its current form also applies only to empty housing units and not to vacant land in residential areas.
Honolulu, according to property tax records, has over 2,000 vacant residential lots sitting empty, each with the potential to provide multiple units of housing.
Extending the tax to cover empty lots could provide more housing and revenue beyond the current estimates, Tyndall said.
Others are eyeing Bill 46, too.
The Hawaii Appleseed Center for Law &Economic Justice recommends the city implement a 3%-to-5% EHT.
The group says such a tax — levied on properties left vacant for more than six months each year — could generate $183 million to $305 million for the city annually.
But Grassroot Institute of Hawaii President and CEO Keli‘i Akina recommends the Council pause its EHT proposal.
“Twice in the past few years, bills to impose such a tax have been introduced at the Honolulu City Council, and twice those bills failed to gain traction,” Akina told the Honolulu Star-Advertiser. “But the idea keeps coming back, so today I’m here to say that I hope the third time won’t be the charm for this deceptively attractive idea.”
He said his group’s May 2023 study — “The ‘empty homes’ theory of Hawaii’s housing crisis” — makes clear that “there is a chance that an (EHT) might increase rental occupancies and generate taxes, but not without a cost.”
In a letter to Waters in October, the organization wrote, “Grassroot believes that an empty homes tax would be difficult to administer, create substantial paperwork problems for Honolulu residents — to the extent even of comprising an invasion of privacy — and is not the best way to increase the housing supply.”
“Moreover, the evidence in favor of an (EHT) continues to erode,” Akina told the Star-Advertiser. “Proponents like to point to Vancouver as proof that an (EHT) works, but they ignore the fact that there is not enough post-pandemic data to make a full determination.”
He pointed to concerns raised by city Budget and Fiscal Services Director Andy Kawano, who asked the Council to proceed slowly on Bill 46.
During the Council’s Budget Committee meeting Nov. 21, Kawano noted that Ernst &Young LLP, the city’s consultant in this matter, is being paid nearly $500,000 to study the implications of Bill 46. He added that the consultant’s work involved two phases.
“Phase 1 is a feasibility phase,” Kawano told the panel. “Phase 2 will be the execution phase: to put the measure into operation and provide guidance on doing that.”
Saying the first phase would be completed by the end of January, Kawano asked that the Council “slow down and not go to third reading until we have a report back from the consultants on the feasibility of the bill.”
But on a split vote the Budget Committee pushed Bill 46 toward a final Council vote.
Akina said the Council has put “the cart before the horse.”
“The point of the study is to figure out if an empty-homes tax would work for Honolulu, and if so, what would be the best way to implement it,” he said. “This seems like useful information to have before moving forward with such a bill.”
