An empty-homes tax meant to penalize real property owners who leave their Oahu residences vacant for extended periods of time has been deliberated at Honolulu Hale for years.
But on Thursday the Honolulu City Council’s Budget Committee voted 3-2, with Esther Kia‘aina and Augie Tulba dissenting, to advance the second of three readings of Bill 46, which could tax a vacant real property by as much as 3 percent.
That means a home valued at $1 million could receive a $30,000 tax bill each year it remains empty.
The measure, introduced in August by City Council members Tommy Waters and Radiant Cordero, could now see full Council adoption, possibly by December.
As amended, Bill 46 now states it will pursue EHT as its own real property tax classification, rather than a supplemental tax, in order to help address the city’s “dual crises of homelessness and a lack of affordable housing that arise from inadequate housing supply and inadequate funding to address these problems.”
The measure proposes the EHT be levied, assessed and collected for each tax year — from July 1 to June 30 — for every parcel on which an empty home is situated.
If approved, the EHT would start on July 1, 2026.
As drafted, the bill states the tax rate for an empty home is 3 percent of the tax-assessed value of the residential property for the applicable tax year, provided that:
• For the first tax year in which the empty homes tax is assessed, the tax rate for an empty home is 1 percent of the tax assessed value of the residential property for that tax year.
• For the second tax year, the tax rate for an empty home is 2 percent of the tax-assessed value of the residential property for that tax year.
The EHT also could tax properties with multiple dwelling units.
Moreover, the measure states EHT revenues “must be earmarked,” with at least 20 percent to be deposited into the city’s affordable housing fund.
Revenues not deposited into the affordable housing fund shall be deposited into the general fund.
At least 20 percent shall be used to increase the city’s supply of affordable housing for persons earning 140 percent or less of the area median income as determined by the U.S. Department of Housing and Urban Development, as adjusted for household size. At least 10 percent of the revenues shall be used to address homelessness, the bill states.
Meanwhile, up to 5 percent of the revenues from the empty homes tax may be used to support the administrative costs of implementing and enforcing this program, including the costs of additional staff.
To administer the program, the city must notify residential property owners of the EHT.
The city would then mail “to each owner of residential property, at the owner’s address appearing on the real property tax roll, either a property status declaration form or instructions on how and when to make a property status declaration online. The mailing is deemed to have been received by the owner five days after mailing,” the bill states.
Currently, there about 15 exemptions, according to the bill. They include:
• The dwelling unit is the principal residence of one or more of the owners of the property for at least six months in the tax year.
• The dwelling unit is the principal residence of a renter or other permitted occupant of the property for at least six months in the tax year. Multiple rental or occupancy periods may be aggregated for the calculation of the six-month period.
Under Bill 46, an EHT could help ease housing problems by encouraging existing owners to rent or sell vacant housing stock for use as homes for local residents; increase the city’s supply of homes to better meet demand and reduce market pressures that cause high and unaffordable housing prices; and raise funds for affordable housing and homelessness solutions.
Conversely, Honolulu has one of the nation’s highest housing costs, with the median cost for a single-family home exceeding $1 million as of December, the measure states.
“The 2020 U.S. Census reports that the city has a housing vacancy rate of 9.2 percent, with 34,253 housing units unoccupied,” the bill states.
On Thursday, Council members either offered more Bill 46 amendments — many gleaned from the public — or withdrew them outright.
But as amendments to the bill were being offered, city Budget and Fiscal Services Director Andy Kawano asked the Council to proceed slowly.
Kawano noted 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,” he said. “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.”
“My concern is due to Council members listening to feedback from the public, the number of exemptions that have been added to the bill, that I believe could extremely water down the amount of homes that are ‘empty,’ based on what we can actually validate and what can actually be supported,” he said.
Kawano also said his department was too understaffed to oversee implementation of this new law.
However, Waters said he wanted the city to “fight to get” Bill 46 adopted. He added that the measure, if approved, would not take effect until fiscal year 2027.
“So there’s time between today, 2024, and 2027 to figure out how you’re going to implement this bill, right?” Waters queried.
Kawano replied, “There is time, but it’s going to be extremely tight even with the 2027 fiscal year.”
He said the city would need more staff and then have to reorganize “to figure out where to put this new unit.”
During the budget meeting, the public spoke for and against Bill 46.
Ronda Ching Day op- posed the bill’s numerous exemptions as well as the required paperwork to present to the city. “It could be very burdensome,” she added.
Referring to the pending Ernst & Young study, Donna Kohls said, “It sounds like we’re trying to pass a bill and we don’t know what’s in it.”
Suzanne Young, CEO of the Honolulu Board of Realtors, opposed Bill 46, too.
“We know firsthand that we have an affordable housing issue, and if we thought the empty-homes tax bill was going to help, we would support it,” Young said.
She said legal challenges over a similar EHT in San Francisco prevented her group’s support.
But several University of Hawaii at Manoa students — many of whom appeared at a news conference attended by Council Chair Waters outside Honolulu Hale prior to the meeting — supported passage of Bill 46.
Among them, Albany Coate, a UH senior, said, “This bill is important.”
“Real people are experiencing real issues with housing right now,” she said. “That’s why we need to pass this bill as soon as possible, so we can start feeling the impacts of it as soon as possible.”
Piper Neri, a UH student, agreed.
“Too many local families are being priced out of their own neighborhoods while homes sit empty, owned by absentee investors or reserved as second homes for occasional visits,” she said. “Bill 46 is a practical solution that encourages these vacant properties to be used for what they should be: homes for people, not financial assets.”
Others, like the Hawaii Appleseed Center for Law & Economic Justice, recommends the city implement a 3 percent to 5 percent 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.
Prior to the committee’s vote on Bill 46, Tulba said he remained opposed to the measure.
He suggested waiting for the Ernst & Young study to be completed, and also highlighted prior legal challenges against similar EHTs in places like California.
“And I don’t want to put us in a position to face the same challenges,” Tulba said. “And until we have more assurance that this is not a violation of the Constitution, I think we should tread lightly.”
