More on the Empty Homes Tax

by Tom Yamachika, President Tax Foundation Hawaii

Our Honolulu City Council has once again taken up the idea of the “empty homes tax.”  Versions of this tax were considered in Bill 6 (2020) and Bill 9 (2022).  Bill 46 (2024) is the current version moving forward in the Council.

The idea behind an empty homes tax is to impose an outrageously high cost on residential property that is unoccupied, to encourage owners to either live in the property or rent it out.  The theory is that this would alleviate the housing shortage here in Honolulu.  The current version of the bill would impose tax at 3% when fully phased in, or $30.00 per $1,000 of taxable value.  Compare that to the residential property tax rate of $3.50 per $1,000 of taxable value.

As we have written before, however, the devil is going to be in the details.  How does one define an “empty home,” and how does one enforce the law?  The current drafts of Bill 46 define an empty home as any residential property not meeting any one of 15 or so exemptions.  The exemptions include that the owner lives on the property or rents it out; litigation over title to the property; death of the owner (but this exemption only lasts for the year of death and the following five tax years); that the owner is undergoing medical care or providing medical care as a caregiver, “requiring” the owner’s absence from the property for longer than six months; that the owner is deployed outside the city with the armed forces of the United States; that the dwelling on the property is not fit to live in, but the owner must have an application pending for a building permit under which the dwelling would be rebuilt or renovated to be lawfully occupiable; the owner is making “active efforts” to sell or rent the property, but the sale exemption can only be claimed for one year in a five-year period; or there is renovation work ongoing that “reasonably requires” the owner to reside elsewhere.  The terms in quotes, of course, could be open to interpretation.

The exemptions seem straightforward enough, but how is a property owner to prove them up?  Is it sufficient that the owner have a homeowner’s exemption with respect to the property, or is other documentation going to be required?  Or, for a rental, is an open-ended rental agreement going to be enough?

And, on the other side of the table, what is it going to take from the City & County’s perspective to enforce this new tax?  The City’s Department of Budget and Fiscal Services, part of which is the Real Property Assessment Division that administers current property tax law, has had misgivings for several years now that it will not be able to manage this additional tax with its current complement of people.  Earlier this year, the Department testified that it had concerns because the bill “may not fully recognize the required staffing, resources and timetable to properly implement this type of program.”  It pointed out that it had awarded a half-million-dollar contract to the international accounting and consulting firm Ernst & Young to have them figure out a defensible structure for the tax and how to enforce it.  Their report isn’t completed yet.  It’s due in June 2025. 

So, why are we plowing ahead, expending high-level public resources, and getting the populace edgy with thrashing out an empty homes tax at the same time we are paying big bucks for a consultant to do the same thing?

Perhaps it’s because some people, or some groups of people, don’t want to wait and are demanding action NOW.

There are, of course, down sides for running ahead with half-baked ideas.  We hope that those at the forefront of this effort are ready for them.