'Empty homes' tax unlikely to ease housing crisis, new report concludes

An analysis from the Grassroot Institute of Hawaii finds no meaningful correlation between so-called empty homes and housing or rental prices

News Release from Grassroot Institute, May 17, 2023

HONOLULU, May 17, 2023 >> The Grassroot Institute of Hawaii released a new policy brief today challenging the belief that imposing an "empty homes" tax will alleviate the state’s ongoing housing availability and affordability crisis.

The report, “The ‘empty homes’ theory of Hawaii’s housing crisis,” by Grassroot Institute staffers Jensen Ahokovi and Mark Coleman, concludes that a tax on empty homes might increase rental occupancies and generate tax revenues, but is unlikely to increase the state’s housing supply or reduce housing or rental prices.

“In general, Hawaii policymakers should be cautious about blaming so-called empty homes for the state’s lack of affordable housing and high home prices and rents, especially since the research contained in this report shows no meaningful correlation between the two in Hawaii or throughout the nation,” the report says.

The new study notes that supporters of an empty homes tax believe that such a tax will motivate owners of vacant properties to make their units available to renters or sell them to others who will live in them full-time, thus increasing the housing supply and reducing Hawaii’s record-high home prices and rents.

However, says the report, “If vacancies are as significant a driver of home prices as proponents of an empty homes tax claim they are, our research should have revealed a positive correlation between home prices and vacancies across the states. It did not. If anything, it’s the other way around."

For example, according to U.S. Census Bureau’s estimates, four of the five states with the lowest percentage of vacant units in 2020 had median home prices above the national average of $244,604.

In contrast, four of the five states with the highest median home prices in 2020 had vacancy percentages below the national average of 12.8%.

Hawaii was the exception — its median home price of $636,400 was the nation’s highest, while its “empty homes” rate was slightly above the national average, at 14.4%.

Keli'i Akina, Grassroot Institute president and CEO, writes in the policy brief's preface that a tax on empty homes “would likely do little or nothing to add to Hawaii’s housing stock, the lack of which is why we have a housing crisis in the first place. In other words, like punitive legislation aimed at ‘outsiders,’ a vacant homes tax would be just tinkering at the margins, unlikely to be the silver-bullet fix for Hawaii’s housing crisis that people are hoping for.”

“As the scholarly research almost unanimously shows," Akina writes, "the key to increasing housing stock and affordability in Hawaii is to reduce the state’s many regulatory barriers to homebuilding. The longer we focus on scapegoats, the longer it will take to address the real causes of our housing crisis and do something constructive about it.”

In addition to analyzing comprehensive data from the U.S. Census Bureau, the report takes a detailed look at vacant homes taxes across the nation and around the world — many of which were enacted only recently.

Due to the relatively new concept of taxing empty homes in general, the report cautions that “lawmakers should also remember that tax increases come with unintended, often negative, economic consequences.”

To download video soundbites about the report featuring Jensen Ahokovi, Grassroot Institute of Hawaii research associate, go here or click on the button below. Or go here, which includes a transcript of his comments.

Selected tables and figures from the report can be downloaded here.

Copies of the report can be downloaded free from the Grassroot Institute of Hawaii website here or by clicking on the button below.

Printed copies can be purchased from Amazon.com here.

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