Do you want distractions or solutions?

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

At its core, the high cost of homes in Hawaii is a supply problem. We simply don't have enough homes to keep up with demand, which drives up the prices of existing homes.

The bottom line is there is no other solution than to build more homes. 

To do that, we need to remove the barriers to homebuilding — such as the multiple bureaucratic permissions that homebuilders must obtain and the many land-use and zoning restrictions that limit where and what kinds of homes can be built.

Unfortunately, many people would rather look for scapegoats than address the real cause of the problem. One is “outsiders” — people from the mainland or anywhere else in the world who want to buy property in Hawaii.

The Grassroot Institute of Hawaii produced a report last August that found no meaningful relationship between outsiders and housing prices in Hawaii — or anywhere else, for that matter. But that didn’t end the search for scapegoats. 

The newest talk of the town is so-called empty homes — homes that are vacant for some arbitrarily determined amount of time — which some lawmakers would like to see taxed in an effort to alleviate Hawaii’s housing crisis.

The main idea is that a punitive tax would induce owners of “empty” homes to either rent or sell their homes to people who would be full-time occupants. Other goals include generating tax revenues, increasing housing supply and lowering home prices.

Now, sure, an empty homes tax could generate some tax revenues or have a minor effect on reducing vacancies. But increasing taxes on anyone can come with its own set of problems, such as discouraging work, savings, investment and innovation, or diverting money to less efficient uses. For example, why spend tax dollars on government housing programs when private homebuilders can build homes quicker and more efficiently — if we would just let them?

Freeing up a few homes for rentals is no doubt desirable, but not if it means interfering with the rights of homeowners who for whatever reason might not want to make their homes available for such use. 

As for lowering Hawaii’s high home prices, that is the goal least likely to be achieved. I can say that with confidence because the Grassroot Institute issued a report just last month that analyzed neighborhood-level census data for the entire state of Hawaii to see whether there is any meaningful relationship between empty homes and housing prices. We found that there isn’t any. 

And let’s remember, enforcing a vacant homes tax would not necessarily be easy or cost-free. As I already mentioned, the term “empty home” is arbitrary, and every city that has a vacancy tax has had to create a long list of exemptions to account for cases where there is supposedly a good reason for a home to be empty. 

In addition, some lawmakers already have recognized that an empty homes tax would be difficult to enforce, requiring more government protocols, paperwork, penalties and, of course, inspectors and other new expensive government employees.

Supporters of the empty homes tax idea often point to Vancouver in Canada and Oakland in California as examples of how such a tax could benefit Hawaii. 

Yes, both cities have been successful in generating tax revenues — what politician doesn’t like that? But as far as reducing rental vacancies, it is too soon to tell. Both cities have had the tax for only a few years, and the COVID-19 crisis took place during that period as well, so current statistical conclusions for those jurisdictions are not reliable.

Other cities with empty homes taxes also have yet to establish that they are effective in addressing vacancies, and no one has been able to demonstrate that such taxes increase housing stock.

Ultimately, the debate about vacant homes — much like the debate about outside buyers — is a distraction, a misplaced focus on the demand-side of the housing market.

Until we can let go of these distractions and focus on ways to increase housing supply, Hawaii’s housing crisis will continue.

E hana kākou! (Let’s work together!)