Hill excoriates empty homes tax, rent control as policies to avoid

Grassroot’s Malia Hill discusses with Johnny Miro why the key to resolving Hawaii’s housing crisis is simply to build more homes

from Grassroot Institute of Hawaii, October 17, 2024

As the Honolulu City Council’s latest proposal to create a supplemental property tax for so-called vacant homes picks up steam, Grassroot Institute of Hawaii Policy Director Malia Hill joined H. Hawaii Media radio host Johnny Miro earlier this month to discuss why such a tax is unlikely to meet its intended goal of boosting the county’s housing stock. 

“The core problem that you have to deal with when you come up with an idea like this,” Hill said, is defining what an empty home is, and “right now, the bill says that — quote — a dwelling unit on residential property is an empty home unless it qualifies for any of the following exemptions.”

Further, determining whether a home qualifies for one of the bill’s 14 listed exemptions ”“all lands in the lap of the Honolulu Department of Budget and Fiscal Services.”  

Hill said “just dealing with that practicality is going to cost the county money, and so you have to weigh that against how much you’re bringing in from the tax.” 

Hill said unintended consequences of the tax could be that some landlords increase rent to absorb the cost of the vacancy tax, or that so-called empty homes simply wind up getting sold to someone who can better absorb that vacancy fee.

According to the limited number of studies available, Hill said — including this one from the Grassroot Institute — “there’s really no reason to believe that an empty home tax will do anything to help the housing crisis in terms of filling those empty units.”

Hill also discussed with Miro the recent push from certain groups for the Maui County Council to institute some form of rent control. 

“I can see why it’s such an attractive idea,” Hill said. “But the data is pretty clear on this: Rent control ends up hurting people more than it helps. It basically causes scarcity and higher rent prices. Makes things worse, in short.”

She said implementing a property tax surcharge for empty homes and rent control measures are similar in that “It’s the government saying that they’re gonna use their powers … to just kind of force into existence more affordable rental housing.” 

But neither idea “actually physically builds any housing,” she said, “and more housing, more actual units, is what you need to bring down housing prices.” 

TRANSCRIPT

10-6-24 Maila Hill interviewed by Johnny Miro on the H. Hawaii Media radio network

Johnny Miro: Good Sunday morning to you, I’m Johnny Miro. Once again, it’s time for our H. Hawaii Media public access programming here Sundays at 9 a.m. [on] our five Oahu radio stations and our five Kauai radio stations. Hawaii Stream FM and Live365, another way to pick us up. 

Another important topic, and this was brought to light by Councilmember Tommy Waters; just had an article out [on] khon2.com.

He says, “To me, we’re in a housing crisis. We can’t build our way out of this.” So Councilmember, Council Chair Tommy Waters says he’s thinking out of the box, pushing for a supplemental vacant house tax on Oahu. 

So we have to, of course, reach out to the people who would know how to peruse through the intricacies of this, so what it would all entail, at Grassroot Institute.

So, I just mentioned the City Council’s currently considering this bill that would increase property taxes on so-called empty homes. Now, supporters say that the tax will help create more housing. Opponents, however, warned that it won’t result in more homes and may end up being another burden for over-taxed Hawaii residents.

Now we have Malia Hill on the line. She’s the policy director at the Grassroot Institute of Hawaii, and she joins me to discuss the empty homes tax and other recent proposals tied to promises of more affordable housing. Good Sunday morning to you, Malia.

Malia Hill: Good morning. Thanks for having me.

Miro: And here we go again with the potential of creating more taxes, this time’s a much-discussed topic: empty homes. Can you tell us more about the bill to tax these empty homes? How much is the tax and how exactly would it work?

Hill: Yeah, this is Bill 46. As you mentioned, it’s at the Honolulu City Council. And the way this particular tax and this bill works, it’s kind of like a surcharge on the property tax. 

So the — everyone, you know, you have your regular property tax rate, and then if you’re the owner of what’s designated an empty home in a Honolulu residential area, you have to pay a surcharge.

For the first year, that would be 1% of the properties assessed value; and then in the second year it would be 2% of the value; and 3% every year thereafter. So, let’s say you had a million-dollar home, you know, just a little over average, you’d be paying an extra $10,000 in taxes that first year and going all the way up to $30,000.

Miro: And, how would they define an empty home? How would they make sure people are paying the tax if the home is indeed empty?

Hill: You know, that’s really the core problem that you have to deal with when you come up with an idea like this. You know, what is an empty home? What’s empty enough to be worth thousands extra a year in taxes? 

You know, right now, the bill says that — quote — a dwelling unit on residential property is an empty home unless it qualifies for any of the following exemptions. And then there are 14 exemptions that they list.

And they’re things like [the] home is used as a principal residence for more than six months of the year; it’s rented for more than six months of the year; it’s for sale or recently sold; it’s a substandard building; it’s a halfway house; you know, other discretionary reasons like that. 

But, you know, if you’re thinking, “It seems a little arbitrary,” you know, it is. Like, they could add more exemptions; they could take them away.

And, you know, when, in terms of deciding, you know, which homes specifically are empty, that all lands in the lap of the Honolulu Department of Budget and Fiscal Services. They have to manage the whole thing.

They’re supposed to send forms to every residential property owner, and then the owner would have to declare whether or not the home is vacant. And then the department gets to audit and investigate and ask for information from owners for, you know, up to three years after the tax due, just to determine, “Yes, it’s empty.” 

That’s how you decide if the home is empty.

Miro: So that would be Andy Kawano’s job, if indeed this does go through, and he would have to bring on …

Hill: It’s a big job.

Miro: I imagine more people, more staff, right?

Hill: Oh, I can only imagine. It’s a — it’s a big job. And, you know, I think that’s one of the things that people are sort of struggling with.

Miro: OK. Malia, how is this tax supposed to help create more housing? That’s the big question.

Hill: Yeah, that is the question. I think the theory is — and you know, there is, there is reason to believe, you know, when you tax something, you make it less attractive. 

So the theory goes that by taxing empty homes, you make it less attractive to have an empty home. The owner will either sell the home or rent it in order to avoid the tax. 

And then this specific bill, it isn’t sorted out yet because the bill is still in process, but it is supposed to put some of that tax revenue toward projects related to housing.

Right now, it’s about 20% goes to the Affordable Housing Fund, but they are still working out the details. So, theoretically, it comes — the housing comes from people who don’t want to have empty homes because of the tax and money that goes to government projects on housing.

Miro: So I guess this has been tried. And, based on your research at Grassroot Institute, would there still be any reason to believe that this will work? Examples of it working? Or do empty homes taxes force people to fill their empty units?

Hill: Yeah, that’s really the big question. And Honolulu even has a study that they’re supposed to be working on, on this too but it’s not ready yet. 

We, Grassroot Institute, we did publish a study last year about this empty homes theory, and our researcher looked at vacancies and housing prices across the country and really found no correlation — no meaningful correlation — between vacancies and home prices.

You know, to put it simply, you know, you can have high home prices and low vacancies; you can have high vacancies and low prices. They’re not, you know, they’re not a really strong correlation. 

And other cities that have tried vacancy taxes — well, there’s not a lot of research on that yet. There’s really only two good studies, and they come to contradictory conclusions.

So there’s really no reason to believe that an empty home tax will do anything to help the housing crisis in terms of filling those empty units. 

Because, you know, these people with these empty units, they already made the decision. You know, they could have been renting it part of the year, but they didn’t. So they’ve made the decision that it’s worth losing that several-thousand dollars a year on that.

So you can’t just assume that this additional cost changes their behavior. You know, they had a decision, made a decision, to keep it empty. 

So the only thing you really know about an empty homes tax is that it will generate tax revenue.

Miro: All right. So people can go online to grassrootinstitute.org and see that paper, that study, if you need more corroboration on this. 

All right, Malia, if it will bring in more tax revenue for the county, what’s the downside of the tax people are saying, yeah?

Hill: Well, I mean, aside from — I, I’m not, I’m not a person who loves taxes, in general, so I try to tend to feel that most taxes are just downsides. But it is a good question, you know, beyond that. 

And I think one of the big things is that you don’t really know how much revenue it’s going to bring in. Not only do you have the whole question of what qualifies as an empty home and how many homes will actually be empty homes, but just administering the tax is going to be expensive and difficult.

You know, in 2025, there are some quarter-of-a-million parcels in the Honolulu Residential class, and then there’s another 28,000 Residential A class parcels, give or take. And, and this is all to the budget department to just check every year to determine, you know, who’s the tax and should we audit and do we investigate.

You know, that — just dealing with that practicality is going to cost the county money, and so you have to weigh that against how much you’re bringing in from the tax. 

And on top of that, it is a property tax hike. So you have to think about, well, what happens when you hike taxes, just sort of philosophically, in general.

You know, it could end up raising average rent, because you have landlords who own different kinds of units and they’re trying to absorb the cost of the vacancy tax. It could end up with empty homes leaving the market, in terms of being possible rentals and just being sold to someone who can absorb that vacancy fee better.

Miro: Mhm.

Hill: It could affect the housing market more generally in terms of price because you are changing the price of property.

Miro: Mhm.

Hill: So there’s a lot of ways that taxes affect the economy and the housing market in general, not just, you know, in terms of who moves and whether houses are empty or not.

Miro: All right. So, Honolulu City Council Chair Tommy Waters, he’s thinking outta the box, and it looks like he’s advocating for something like this. So what is happening with this bill, and do you think it’s gonna pass? What have you heard from the other City Council members?

Hill: Well, you know, this is — it’s not an easy route, but we have seen this idea before. You know, this is not the first empty home tax we’ve seen come through the Council, and they’ve been talking about it since 2020 or so. the mayor and …

Miro: Mhm.

Hill: Tommy Waters, various other council members have suggested, you know, suggested it, put it out there, said they support it. 

The last time it was heard was on Sept. 25, and that’s when it moved out of the Housing Committee by a 3-2 vote. So it did move forward, but it also wasn’t unanimous. It’s being heard again on Oct. 9 by the City Council.

So it has momentum. It is moving. But there aren’t enough serious questions being asked. If nothing else, the poor Department of Budget and Finance is asking some serious questions about what it takes to administer it.

Miro: Mhm.

Hill: And how to decide who’s empty. 

But, you know, these problems still need to be worked out before you can really move all the way forward with it.

Miro: All right. A few more questions for Malia Hill, the policy director at the Grassroot Institute of Hawaii, joining us this morning, of course. 

Neighbor island Maui — let’s talk about — [is considering] passing a rent stabilization bill as a way to deal with their housing crisis. Can you explain a little bit about what that would look like, Malia?

Hill: Yeah. Maui also, you know, they’ve had major issues with rent inflation. I mean, just like everyone. 

But it’s a very specifically difficult situation because, in addition to the housing crisis, they’ve also had to deal with the effects of Lahaina, and then the effects of the incentives and other programs that have sort of affected the rental housing market since the Lahaina fires. 

And so, as a result, you’ve seen some tenancy groups that have been pushing for what they call rent stabilization. And the County Council even had a hearing about it.

Miro: Mhm.

Hill: Now, rent stabilization, it’s just rent control. It’s just a new word for an old idea: government rules that limit rent increases. 

There’s several different proposals about it. But the one that seemed to get the most traction would be one that limited rent increases, linked them to the consumer price index, and then required registration of rental units.

And there was an indication that someone, one of — at least one Council member — would introduce rent control. But, since then, since the hearing in the last week or two, I think they’ve backed away a little bit because of concerns about how it would affect investment in housing on Maui.

Miro: Yeah. I saw the local news over there. A lot of people were worried about what it would do to them, the residents, so they were kind of voicing their opinions on that. 

So, would rent caps help, I guess, with the lack of affordable rental housing, these rent caps?

Hill: Yeah. This is actually one of those — I can see why it’s such an attractive idea, and for a very specific lucky kind of person, it does help you. You know, if you happen to be the one who manages to lock in the, you know, good unit. 

But the data is pretty clear on this. It’s — rent control ends up hurting people more than it helps. It basically causes scarcity and higher rent prices. Makes things worse, in short.

You know, when Buenos Aires tried it in 2021 — that’s one of the more recent examples — and when they announced that they were going to do rent stabilization, rent prices went up 67%. 

You know, people do what they do to avoid this thing. They take their homes off the market; they raise rent beforehand so that they’re not stuck; they look for loopholes, just rent to their family or friends in the kind of rental black market. And, you know, that’s what you could expect to see on Maui.

In Buenos Aires, it was only when the new president of Argentina took the rental controls off that the super expensive rental market in Buenos Aires went back down, started to decline again, and new properties came on the market. 

Because that’s what happens with rent control. It makes rents more expensive.

Miro: All right. Just to get back to Council Chair Waters, he says there’s some — according to the latest census — 34,000 vacant homes on Oahu, so determining an updated inaccurate count of the vacant homes is just one of the things the Department of Budget and Fiscal Services would need to do moving forward if this does pass.

And Waters says there is a study in the works to crunch the numbers and help create a plan. So that’s what they are discussing right now. 

So back to the discussion. So are these similar proposals — the rent caps, Maui, and the empty homes taxes, Oahu?

Hill: Yeah. They actually are. You know, they may not seem like at first glance, but they’re kind of coming from the same place. What they really are are these top-down responses.

Miro: Mhm.

Hill: To concerns about housing affordability. Basically, you know, things like the empty homes tax, you know, rent stabilization. 

It’s the government saying that they’re gonna use their powers — taxes and laws — about rent in order to just kind of force into existence more affordable rental housing. 

But that’s not really what happens. Because neither one — an empty homes tax or a rental stabilization — actually physically builds any housing. And more housing, more actual units, is what you need to bring down housing prices.

Miro: But Tommy Waters says that’s not the — that isn’t the, the way to go about combating this, the council chair. [He said] “We can’t build our way out of this.”

Hill: I — I’d like to differ. We actually have a report on our website — which, let me plug our website, grassrootinstitute.org — about ways to create more housing that do not require government spending of taxpayer dollars, and don’t require government projects of, you know, building it. 

And that’s things like allowing more density, allowing ADUs. Basically, you know, changing the barriers that make it hard to create more housing. There are plenty of ways to create more housing, and building is really the only way to create enough housing to bring down the cost. 

It is a supply and demand issue.

Miro: Mhm. All right, let’s bow this thing. Tie it up in a nice bow. It might be another follow-up question. 

If these kinds of laws, Malia, won’t work, then what can the government do to help create affordable housing?

Hill: You know, it — I wish that they, some of the, some of our policymakers and lawmakers have been really good about hearing this. But some have not. And it’s really just not a mystery.

A substantial portion of the cost of housing in Hawaii comes from government barriers — approvals, delays, things that hinder home building — and that’s what they should be focused on. Not new taxes, not new restrictions on rents. 

They can look at these regulations that basically hinder home buildings. Things like lot size rules and density requirements, and things that prevent people from adapting commercial buildings to residential or constructing ADUs. 

They can look at parking reform. And for goodness sakes, they can definitely look at permitting reform so things could happen more quickly. 

There’s a lot of things that you can do to basically spur more housing growth that don’t need to use taxpayer money and definitely don’t need to collect more of it.

Miro: All right. That pretty much wraps it up. The issue about housing, it’s, will there be an empty homes tax? Will there not be? And will there be a rent kind of a cap on Maui? I guess only time will tell. 

I think it might potentially might happen here. We’ll see what the city council decides. When is that hearing again? This next week, right?

Hill: Yeah, the next — yeah, the next hearing is next week the 9th.

Miro: OK, Oct. 9.

Hill: Oh, this week the 9th.

Miro: All right. Anything else to add to the discussion? And, of course, you have to plug the website, Malia.

Hill: Yes, please. Actually, there is a lot of good resources on this issue on the Grassroot Institute website, which is grassrootinstitute.org. And we’ve written a lot about how to grow housing in Hawaii without making it, you know, more expensive and without, you know, having to use a lot of taxpayer money to do it.

Miro: All right. Thanks for, once again, um, joining us this morning. Enjoy the rest of your Sunday, and we’ll be talking to you soon. That’s Malia Hill from the Grassroot Institute of Hawaii. 

Malia, once again, great job, and look forward to our next discussion.

Hill: Thank you.

Miro: The views and opinions expressed in this public access programming do not necessarily represent those of H. Hawaii Media’s family of radio stations. 

You’ve been listening to Sunday morning public access programming on the H. Hawaii Media family of radio stations on Oahu. Mahalo for listening to this H. Hawaii Media radio station. Have a great day.