Study the Empty Homes Tax Again?

by Tom Yamachika, President, Tax Foundation Hawaii

One concept that has popped up again, more often than the little animals in a Whack-a-Mole game, is the prospect of an “Empty Homes Tax.”

Simply put, if someone owns property here but doesn’t live in it for, say, six months out of the year, then we charge that someone a hefty real property tax surcharge. Why?  Because that someone has removed a housing unit from circulation in a place where we really, really need housing units.  Just last year, for example, the Honolulu City Council was considering a bill (Bill 9 of 2022) that would have set the tax at 3% of the property value, per year.

Last year, when we wrote about this development, we pointed out that there would be lots of devils in the details.  How does one hope to enforce such a tax without running roughshod over people’s privacy (which is constitutionally protected in this State)?  Do we simply require everyone to file a form, every year, saying that “1234 Aloha Drive is my home, and I have lived in it for more than six months this year,” assume that the folks who haven’t sent the form in have vacant property, and then throw them to the wolves in the City’s tax collection agency?  How would we deal with the resulting flood of people who (1) never heard about the new law, form, or tax, (2) figured out that there was a tax and a form, but for whatever reason filed the form too late, or (3) had good reasons for not living in the house, such as being hospitalized for a substantial part of the year?

This year, the City & County of Honolulu is trying again.  They are on the path toward commissioning a study, projected to go out for bid in August, that seeks to determine “why so many homes are vacant, and how a vacant homes tax could benefit Honolulu’s many residents who lack suitable housing.  Benefits to be explored should include contributions to a housing fund, discouraging the ‘hoarding’ of empty properties and encouraging owners to rent these properties to Hawaii households.”  The Star-Advertiser appears to be on board with this idea, as it stated in an editorial on July 14th.  City officials say that the study will be paid for with federal pandemic relief money, so residents don’t have to worry about its cost.

First, am I the only one wondering what in the world a vacant homes tax has to do with the COVID-19 pandemic so as to justify funding this study with pandemic relief funds?  Second, what about the study done by the UCLA Luskin School of Public Affairs that the City had done in 2021?  Is this new study going to cover the same ground, and if it does, why are we taxpayers getting hit for another one?  So that two independent consultants, when the City asks, “Can we, pretty please, impose this tax?”, reply with, “Yeah, we suppose so”?

If we can’t get out of that second study, we should at least have it address new developments, such as a paper put out by the Grassroot Institute saying, in effect, “Vacant homes don’t cause obscene housing prices, but a screwed-up building permitting system sure does!”

Folks on the Neighbor Islands:  Don’t laugh. You might be next!