Testimony: ‘Empty homes’ tax resolution has good intentions, but that’s all

from Grassroot Institute of Hawaii

The following testimony was submitted by the Grassroot Institute of Hawaii for consideration April 5, 2022, by the Honolulu County Committee on Finance.
_______________

To: Committee on Finance
      Rep. Sylvia Luke, Chair
      Rep. Kyle T. Yamashita, Vice Chair

From: Grassroot Institute of Hawaii
           Joe Kent, Executive Vice President

RE: HCR170/HR170 — URGING THE COUNTIES TO UTILIZE AN EMPTY HOMES TAX AS A MEANS OF ADDRESSING AFFORDABLE HOUSING IN THE STATE

Dear Committee Members,

The Grassroot Institute of Hawaii appreciates the opportunity to offer comments on HCR170 and HR170, both of which would urge the counties to impose an “empty homes” tax in the hopes of increasing the stock of affordable housing in the state.

The proposal has the admirable aim of opening up additional housing for Hawaii residents. However, empty homes taxes are a poor vehicle for that purpose. Rather than improve the supply of housing in this state, an empty homes tax would have the effect of penalizing homeowners, driving up already sky-high taxes, implementing privacy-invasive and severe enforcement measures and providing little to benefit to residents in need of affordable housing.

Here are some points to consider:

>> “Empty homes” taxes do not free up affordable housing.

The purported goal of an empty-homes tax is to encourage existing homeowners to rent or sell vacant housing to local residents. However, the homes these taxes target — generally those owned by wealthy mainland individuals — are often not homes that average Oahu residents can afford.

Kam Napier, editor-in-chief of Pacific Business News, addressed this point when a similar measure was proposed in 2019. He wrote that “all it would do is put some luxury Kakaako apartments into the rental pool, renting for $5,000, $6,000 or even $8,000 a month. I don’t think that satisfies anyone’s desire for more affordable housing.”1

Thomas Davidoff, a real estate finance professor at the University of British Columbia, wrote in 2018: “Foreign-buying, and especially empty-home owning, is concentrated at the high end.”2

>> ‘Empty homes” taxes have been tried before with several unintended consequences. Vancouver, Canada, imposed an empty-house tax in 2017 with little success.

In 2018, Canada’s CBC News reported that “in its first year of implementation, the tax appears to be doing little to achieve its stated goal.”3

In 2021, the Vancouver Sun noted that the tax’s effect on rental availability was hard to determine amidst other taxes, housing regulation and broader economic changes.4

In February, 2022, Quartz reporter Camille Squires wrote, “Even where successful, vacancy taxes haven’t been enough to meaningfully bring down prices across a city. To meet demand, cities need more new construction.”5

>> Hawaii’s property tax is high enough already.

Many people have tried to support the idea of an empty-homes tax by pointing out that Hawaii has among the lowest property tax rates in the nation. While technically true, this statistic is misleading. Why? Because those low rates are offset by the high value of the property involved.

For example, the median cost for a single-family home on Oahu exceeds $1 million as of August 2021, leaving Hawaii homeowners paying property taxes of $3,333 in actual dollars, which is on par with the national average of $3,719.6

As stated by housing information site Bungalow, “Hawaii has the lowest effective property tax rate in the country, but it does cost to live in paradise. It is one of the most expensive states to live in and has the highest median home value, which means that the actual dollar amount homeowners spend is on the high side.”7

>> Vacancy taxes require an invasive enforcement mechanism.

In order to determine whether a house has been vacant long enough to qualify for the proposed tax, the county would need to set up some sort of monitoring system. Not only would this add to the workload of existing county employees, or require additional employees to be hired, it also would authorize the county to demand from the homeowners proof of occupancy, such as:

>> Vehicle registration, government-issued personal identification, driver’s license, utilities records and mailing address used for personal bank and credit accounts.

>> Tenancy agreements, occupancy agreements, and proof of income and general excise taxes paid for rental income.

>> Proof of receiving or providing medical care by the owner or tenant that precluded occupancy of the property.

>> Proof of sale or transfer of ownership, sale activity efforts and listing in the multiple listing service for the property.

>> Death certificates.

>> Court orders and proceedings.

>> Proof of military orders of deployment.

>> Building permits and applications.

How invasive this scheme would be would depend on its implementation, but there is little doubt that this process would create headaches and privacy worries for homeowners.

>> An empty-homes tax acknowledges the existence of Hawaii’s housing shortage, but does nothing to address them.

If there ever was a proposal that attempts to address the symptoms of a problem instead of the causes, it is an empty-homes tax. Such a tax would do nothing to remove the barriers to housing development, such as zoning and regulation, and would only create more expense and regulation in the housing market.

As you might already know, the Grassroot Institute of Hawaii has issued several publications analyzing how zoning and other regulations throttle the growth of housing on Oahu and throughout Hawaii.

One was our policy report “Reform the Hawaii LUC to encourage more housing,” which recommends giving the counties more authority to make decisions, thus reducing the amount of bureaucracy and preventing the state Land Use Commission from becoming a de facto state zoning commission.

Another was “Build up or build out? How to make housing more affordable,” which recommends “increasing the area of urbanized land and building marketable densities outside of the existing urban footprint,” which currently is about only 5% of all land in the state. For example, an increase of only 1 or 2 percentage points in Hawaii’s urban-designated land would be equivalent to a 20% to 40% increase, respectively, in lands available for more housing.

In addition, the institute has made available a zoning-reform toolkit, “How to Build Affordable, Thriving Neighborhoods,” which explores ways to increase housing supply and improve affordability by reforming state and local zoning restrictions.

We summarized many proposals from the toolkit in a commentary published in The Maui News, ”50 ways — at least — to update Maui’s zoning code.”

In short, the best way Hawaii’s affordable housing shortage would be to address the underlying causes: the high cost of construction, barriers caused by regulation and zoning restrictions, and the lack of available land for development.

Thank you for your time and consideration.

Sincerely,

Joe Kent
Executive Vice President
Grassroot Institute of Hawaii

Link: Footnotes