Counties should not profit from Hawaii's housing crisis

by Keli'i Akina, Ph.D., President / CEO, Grassroot Institute of Hawaii

Hawaii property taxes are going up, and that’s not cool.

The Honolulu Star-Advertiser reported this week that the latest property value assessments of all real property on Oahu went up by 12.4% compared with the previous year. And that’s just the average. 

On the North Shore, residential property values went up by 20.4%. East Honolulu properties increased by 10.1%. And properties classified as “Residential A” — such as vacant land, condos, and properties that don’t get the “home” or owner-occupied exemption — went up by 39.9%.

Neighbor island residents are likely to see similar increases in assessed property values, as all islands are affected by the same economic forces. Those include inflation, which is close to spiraling out of control, and Hawaii’s housing crunch, since the state’s shameful lack of housing growth helps drive up home prices. 

Some people have mistakenly blamed wealthy mainlanders for the higher property values, but as explained in the Grassroot Institute of Hawaii’s recent report on “The ‘outsider’ theory of Hawaii’s housing crisis,” there is no statistically significant correlation between “outside buyers” and home prices.

What is certain is that higher home values translate to higher property taxes for Hawaii’s homeowners. Combined with inflation and the weak economy, this is another blow for taxpayers already having a difficult year. For retirees and others on fixed incomes, this could push them out into the streets. 

And it won’t affect only homeowners. Renters also will likely have to pay more as landlords pass on some or all of their additional required tax payments.

Unless, of course, our county lawmakers lower our property tax rates or find ways to trim their spending.

Even before this happened, I had been saying that now is the perfect time for the state to cut taxes, and the same goes for the counties. The outlook for both state and county revenues is healthy, and lawmakers at both levels could easily give their constituents a break.

But wait a minute, some will say. Aren’t Hawaii’s property tax rates low already? Well, technically, yes. One reason is that Hawaii is the only state in the nation where public education is funded almost wholly at the state level, instead of by the counties or school districts. 

In any case, Hawaii property values are the highest in the nation, so in terms of actual property tax payments, Hawaii homeowners still pay close to the national average.

Meanwhile, Hawaii residents also pay some of the highest income tax rates in the nation, and our so-called state sales tax, actually a general excise tax, is widely regarded as regressive — falling heaviest on the poor. 

In other words, Hawaii residents have every right to complain about their property taxes going up, especially since it’s an increase built into the system over which they have little or no control. 

For county lawmakers, the higher property valuations will produce windfall tax revenues they didn’t even have to vote for. It’s a gift from Big Government heaven — but not one they should accept.

Can we count on our county lawmakers to offset the higher property tax assessments with tax rate or spending cuts? 

Kauai and Hawaii counties have mechanisms to protect homeowners from spikes in property values. On Kauai, owners who have a home exemption or a beneficial tax rate due to a long-term rental cannot see more than a 3% increase or decrease in market value. Hawaii County has a similar cap. 

Several counties offer tax credits for property taxes owed over a certain amount of household income, usually 2% to 3%. And there are exemptions available in some cases, such as for the elderly, disabled veterans and other groups. Obviously, because property taxes are the sole domain of the counties, the property tax schemes, rates and exemptions can vary.

The simplest response would be to just reduce property tax rates across the board. 

Or county lawmakers could increase the homeowner exemptions, or increase the value of the county’s real property tax credit for state income tax purposes.

The one thing they should not do is allow the higher assessments to translate into a massive tax hike for Hawaii residents. This might be a boon for county revenues, but it would be devastating to residents.

We are in a strange place when it comes to state and local budgets versus our own pocketbooks. While the state and counties are raking in revenues, the average Hawaii family is struggling. Homelessness is rampant; many residents are leaving the state because they just can’t afford to live here anymore.

Counties should not be profiting from the housing crisis and its soaring home values. In the long term, county officials should embrace policies that will increase Hawaii’s housing stock and help bring down home prices. 

For now, they should look for ways to give taxpayers a break and keep Hawaii’s cost of living from soaring even higher.

E hana kākou! (Let’s work together!)