A key Senate committee has approved an increase in the state conveyance tax on sales of high-end homes to raise an additional $56 million a year for development of affordable housing.

The tax increase would apply to sales of homes worth $2 million or more, and the proceeds would be handed over to Hawaii’s four counties to increase the supply of affordable housing by buying properties, building more units, or making grants to nonprofit organizations to develop housing.

The counties also would be allowed to use the money to develop infrastructure such as roads or sewer lines to serve affordable housing projects under Senate Bill 2188, which won tentative approval from the Senate Ways and Means Committee Friday.

Condominiums and single-family homes worth more than $2 million are already subject to a conveyance tax ranging from 50 cents to $1.25 per $100 in sale value.

The new tax would be set at 1 percent of the sale value, and would be in addition to the existing conveyance tax.

The state Department of Taxation calculates the new tax increase would generate an extra $52 million next fiscal year, and $56 million the following year. A spokesman for the department was unable to immediately estimate how many sales per year would be subject to the new tax.

The tax increase was proposed by Maui County, and Maui County Council Chairman Mike White described the measure as “a new way to generate additional revenue. Since the value is relatively high compared to average home prices, the transactions are not likely to adversely affect owners or working families.”

White said in written testimony that demand for affordable housing is “far outpacing supply, and creative solutions and resources are needed for each county to uniquely address the dire shortage of housing.” He added that “without a drastic change in the way affordable housing is supported, the ongoing housing supply crises will not be resolved.”

The tax increase was opposed by the Hawaii Association of Realtors and the Land Use Research Foundation of Hawaii, which described it as “inappropriate, improper and illegal.” LURF represents major Hawaii landowners and developers.

The original purpose of the conveyance tax when it was first enacted in 1966 was to provide money to cover the administrative costs the state Tax Department incurred in gathering data on home sales, according to LURF.

Lawmakers later increased the tax and used the extra money to fund land conservation, the Natural Area Reserves system and the Rental Housing Trust Fund. To further expand the tax to fund development of affordable housing “could be characterized as imposing an improper penalty, hidden tax, or surcharge, which may be subject to legal challenge,” according to LURF.

The Realtors’ association pointed out that the tax is imposed even on sellers who may have lost money on a property, and in some cases the sellers may not have the cash to pay.

The foundation proposed that the bill be shelved to give government agencies and the public an opportunity to come to a consensus with landowners and legal experts on alternatives for funding affordable housing. Those might include the state general treasury or some other “broad-based supplemental funding by Hawaii’s taxpayers and visitors,” LURF suggested.

The measure now goes to the full Senate for further consideration. The House is considering a similar bill in House Bill 1683, which is pending in the House Finance Committee.