The Honolulu City Council’s Bill 46, establishing a tax for residential properties left empty for more than six months of a year, has gone through a metamorphosis since its last public airing before the Council. It’s now far more palatable to locals and seems fully defensible against legal challenges.
Bill 46 will be considered by the City Council today, and approval is urged. It creates a tax classification that collects more revenue from owners who leave homes vacant, and serves as a strong statement: Oahu’s communities want homes to be available for residents, rather than serving as an empty investment or hoarded as part of a portfolio of things owned.
While Bill 46 is not expected to place families in every empty home on Oahu, or to lard city coffers with cash, it can lead to many additional families being housed, and it can raise revenues that are dearly needed for city operations.
At least 20% of revenues collected under the bill will go to supporting affordable housing initiatives managed by Honolulu’s Office of Housing, helping to address a crisis-level gap in housing availability.
Bill sponsor Tommy Waters, the Council’s chair, says revenue raised will also help to meet other municipal needs — among them federally mandated wastewater operation improvements, which are expected to cost the city more than $500 million over the next decade.
No longer proposed as an add-on (“supplement”) to the residential rate, the updated bill’s tax has been re-envisioned as a new residential “E” property tax class, specifically including empty homes, whether stand-alone single-family houses, condominiums, duplexes or apartments in multi-unit buildings. Units occupied for a total of six months over the course of a year, whether by owners or renters, will not be affected.
A slew of carveouts have also been added. Most notably, property owners with an Oahu home exemption could have a second home that’s left vacant, exempt from the new “E” classification. “Ohana” or accessory dwelling units would also be exempt.
The number of exemptions included in Bill 46 do cut back on potential revenues collected, but not to any extent that the bill should be abandoned. Independent surveys of Oahu’s housing stock indicate that tens of thousands of units are owned by people with an out-of-state ZIP code, and the majority of these are apartments or condos. The proportion of local residents owning second homes to be exempt from residential E classification is thought to be a relatively small slice of the pie.
Establishing a residential E classification has some big advantages, and some drawbacks, in comparison to earlier proposals, but on balance, it’s an improvement. A primary justification is that a singular property tax classification falls firmly within the legal definition of a “tax,” and taxes, despite the blustering of anti-tax activists, are almost universally constitutional under both state and federal law.
One issue with creating a new tax classification is that any change in the tax rate must be proposed then accepted by the City Council as part of the city’s budgeting process. Assuming that the initial residential E rate is 1%, amendments would be required in subsequent years to raise it higher — allowing for public participation, yes, but also for renewed pushback. So the City Council must not only approve Bill 46 in its meeting today, but also retain the courage to raise it to 3% over time, as originally proposed, since that won’t happen automatically.
Just as Honolulu recently added a new tax classification for short-term rentals, the city must now address empty homes. Details of implementation can and will be addressed over the next three years, since Bill 46’s new “E” tax would start on July 2027.
The City Council must act to preserve Oahu as an island home — not as a tax shelter for investors who can profit from the extremely low property tax here compared with other states and countries where investors might otherwise buy.
