LIHU‘E — The Kaua‘i County Council passed a bill Wednesday that introducers view as a step toward equity and balance within the Kaua‘i property tax system.
Bill No. 2872 divides vacation rentals and residential investment properties into three tiers: those valued at up to $1 million; those valued between $1 million and $3 million dollars; and those valued at more than $3 million.
The bill does not set tax rates for the new tiers — that will be addressed in the fiscal year budgeting process next year — but, it sets the stage for the council to tax higher value properties more significantly than less expensive properties.
Councilmember Luke Evslin introduced the bill with Council Vice Chair Mason Chock. He said the legislation could help ensure high-value properties potentially owned by off-island mainland investors are “paying their fair share.”
“We have low property tax rates compared to the mainland, so it incentivizes mainland investors to park their money in Kaua‘i real estate and make lots of money over appreciated value while paying minimal money in property taxes,” said Evslin at Wednesday’s council meeting. “It’s a contributor to our housing crisis.”
Using current assessed values, there are a total of 549 parcels that would qualify for the tier three tax rate, according to the county Finance Department. Of these, 309 are Residential Investor properties and 240 are vacation rentals. A majority of these properties (332) are located north of Moloa‘a.
Introducers hope that the bill will incentivize some of these property owners to turn vacant homes and transient vacation rentals into long-term rentals, alleviating the housing crisis.
The 2020 U.S. Census found that there were 5,445 vacant homes on Kaua’i, accounting for nearly one in five homes on the island.
Kaua‘i is the last county in the state to institute some form of tiered taxes.
On Maui, non-owner-occupied properties are taxed at $5.85 per $1,000 of assessed value if worth less than $1 million; $8 if worth between $1 and $4.5 million; and $12.50 if more than $4.5 million.
On O‘ahu, residential properties without a home exemption have two tiers — those valued at less than $1 million and greater than $1 million — taxed at $4.50 and $10.5 per $1,000 of assessed value respectively.
Proponents of the measure also hope it could be used to reduce a sharp bump in tax rates for properties passing the current $1.3 million threshold for residential investors.
Rather than a dramatic increase for properties valued above the $1.3 million threshold, the first million dollars of a property will now be taxed at one rate, the next two million at another rate, and any value above that at a third rate.
Councilmember Felicia Cowden voiced concerns about potential fallout from the bill, comparing the bill to a gun, and the new property tax rates to bullets.
“It like that sharp bump out if someone hits the threshold,” said Cowden on Wednesday. “But I am really cautious that this will be used for what is intended to be a good purpose that might end up having people fall through the cracks.”
The bill was approved in a 5-0 vote, with Council Chair Arryl Kaneshiro and Councilmember Billy DeCosta absent.
All council members should be required to take a college level Economics class before they are allowed to vote on issues. This bill will have little to no impact on the housing crisis. Luxury home owners, who can afford to let their homes sit empty most of the year are not going to give up the use of their vacation home to a long-term tenant because of a few more dollars in property taxes. And for those few who will rent long-term, how many local residents are going to be able to afford to rent a $3 million home ? If the council is really serious about increasing the supply of long-term rental housing they need to change the zoning laws to allow signficantly more rental housing to be built.
This is just another money grab (by the County) from property owners who do not vote. IF the county really wanted to create a more quittable tier system, ALL of the categories would be reassessed. Further, IF these elected officials really wanted to incentify owners to long-term rent, they would be creating a new “Long-Term Rental” tier that would result in a drastic reduction of the property tax levied. As is, the current requirements to qualify a property as a long-term rental–at the Residential Rate–are a disincentive. Just my two-cents.
This is just another money grab (by the County) from property owners who do not vote. IF the county really wanted to create a more equitable tier system, ALL of the categories would be reassessed. Further, IF these elected officials really wanted to incentify owners to long-term rent, they would be creating a new “Long-Term Rental” tier that would result in a drastic reduction of the property tax levied. As is, the current requirements to qualify a property as a long-term rental–at the Residential Rate–are a disincentive. Just my two-cents.
Edited: This is just another money grab (by the County) from property owners who do not vote. IF the county really wanted to create a more equitable tier system, ALL of the categories would be reassessed. Further, IF these elected officials really wanted to incentivize owners to long-term rent, they would be creating a new “Long-Term Rental” category that would result in a drastic reduction of the property tax levied. As is, the current requirements to qualify a property as a long-term rental–at the Residential Rate–are a disincentive. Just my two-cents.
The premise that houses assessed over $3 million will suddenly become long term rentals for island residents is ridiculous.
The system implemented this tax year is harsh and unthinking.
If home #1 is assessed at $1.299,999, that tax rate would be $6.05 per $1000 assessed value or a tax bill of $7864.99/year. While home #2 is assessed at $1.300,001, that tax rate would be $9.40/1000 assessed value or a tax bill of $12,220.01
Why doesn’t the lower rate apply to the first $1.3 million and the higher rate to the excess?
Answer that question as well as where will the windfall of revenue be spent?
Let’s look at some economics of house prices and rent prices. Start with the homes that now have a $3M evaluation.
Assume the house was bought 10 years ago and was likely priced 1.5M – 2M.
The mortgage on the house $8k/month on a 30 year loan.
Assume 1% home value is maintenance costs annually or $1,250 month.
Assume home owners insurance is $600 month
Assume if the owner owns the house he must pay income tax on the rent.
Assume the owner is now taxed at lower rate to in incentivize them to rent the house.
What would the rent be? Our rough calculations is that it would be over $10k/month. Is that affordable to an average family?
So what will likely happen is that the owner would sell the house, likely at a depreciated value. The value will not depreciate to the medium rent price though.
This tax change is a fool’s errand. It makes one feel good but will never accomplish the goals it sets out to do.
If the county really wants to lower the rates, it needs to consider tiered tax rates of affordable rental prices instead of a single cutoff price based on the annual medium income and number of bedrooms.