An empty-homes tax meant to penalize real-­property owners who leave their Oahu residences vacant for extended periods of time was formally deferred Wednesday evening by the Honolulu City Council.

Following hours of blistering public testimony largely in opposition, Council Chair Tommy Waters garnered a full Council vote to postpone the latest version of Bill 46 until a city-commissioned study on the EHT matter is completed early next year.

Before that vote, Council members Esther Kia‘aina, Val Okimoto, Augie Tulba and Andria Tupola indicated they would not support the measure in its current form, now a floor draft.

Co-introduced by Waters, the measure’s stated aim is to ensure residential properties are used as actual homes instead of investments — particularly by those who may live outside the state, whether on the U.S. continent or in a foreign country.

But the level of opposition to Bill 46 appeared to make an impression.

“There’s been a lot of testimony today, and I take all of it to heart like I know you do,” Waters told his Council colleagues before the vote to postpone the measure. “But there’s a lot made about waiting for the study to be completed. And I’m going to recommend that we do exactly that. That we defer this until the study is completed.”

“The bill will stay alive,” Waters added, “We’ll be debating this another day, we’ll be taking testimony another day, but that’s what I’m suggesting.”

To that, a round of applause during the late meeting echoed from the Council Chambers’ gallery.

As drafted, Bill 46 would tax vacant real property by as much as 3%. That means a home valued at $1 million could receive a $30,000 tax bill each year it remains empty. The EHT would be levied, assessed and collected for each tax year — from July 1 to June 30 — for every parcel on which an empty home is situated.

Bill 46 as drafted also would introduce a new “Residential E” tax classification in Honolulu.

“The Residential E classification simplifies the original EHT proposal by integrating it into the city’s property tax system,” Council staff stated in a news release. “It targets vacant or underused residential properties, creating a clear and consistent way to support the underlying purpose of residential zoning.”

The effective date for Residential E classification was set for tax years beginning July 1, 2027.

Bill 46 also offered exemptions for properties not meant to be classified under the proposed Residential E category. Those include:

>> Properties with a homeowners exemption are unaffected. Those owners also will be eligible for an additional exemption to the EHT for a second property.

>> Accessory dwelling or ohana units.

>> State-licensed property used as a residential home for senior citizens, persons with medical or mental disabilities, or is a state-­licensed halfway house.

>> Property owned jointly by members of two or more local families.

As proposed, at least 20% of the revenues from the Residential E classification will be directed to affordable housing programs overseen by the city’s Office of Housing.

The remaining funds will support various housing-­related issues, including homelessness, cost-of-living increases, rental stability, existing city services, and cover the tax administration costs, Council staff stated.

Since its introduction in August, Bill 46 has received both praise and criticism within the community.

During the Council’s Budget Committee meeting Nov. 21, city Budget and Fiscal Services Director Andy Kawano asked the Council to proceed slowly on Bill 46.

Noting the burden to implement the EHT program, Kawano added that Ernst & Young LLP, the city’s consultant in this matter, is being paid nearly $500,000 to study the implications of Bill 46. He said the consultant’s work involved two phases.

Saying the first phase would be completed by the end of January, Kawano asked that the Council “slow down and not go to third reading until we have a report back from the consultants on the feasibility of the bill.”

But on a split vote, the Council’s Budget Committee pushed Bill 46 toward a final vote.

At Wednesday’s Council meeting, dozens of people spoke against the measure.

“I’ve been testifying at the City Council for over 20 years, and this is easily the most horrendous bill that I have ever seen,” Hawaii Kai resident Natalie Iwasa testified. “It is misleading, not transparent, it complicates the system, it’s confusing, multiple documents will be needed for each parcel … it’s unfair, some of this stuff is none of government’s business … and it leaves out details.”

Ted Kefalas, with the Grassroot Institute of Hawaii, also was in “strong opposition” to Bill 46.

“There’s just a lot of unknowns and namely why the city paid $500,000 for a study and we’re not going to wait for it,” Kefalas said. “I have concerns that I’ve heard from a few Council members and testifiers that have said ‘just pass the bill, and we’ll deal with it later.’ That does not seem like good policymaking to me.”

He noted there are no tax rates in Bill 46. “Again, this is not how we pass legislation … and it sounds like we’re supportive of the concept of an empty-homes tax,” Kefalas added.

William Deeb, a Kailua homeowner, said the measure is not about housing, “it’s about revenue generation” for the city.

Suzanne Young, CEO of the Honolulu Board of Realtors, also wanted the Council to defer Bill 46.

“While we say we’re opposed, you know the right thing is to defer it,” she said. “This bill is not ready.”

She asserted 100,000 homes without exemptions will be affected by the Residential E classification.

Others, like retiree Ellen Carson, supported Bill 46.

“Thank you to the Council for helping look for and be bold about finding solutions to our housing crisis. It hurts all of us,” she said. “It hurts the kupuna, it hurts the younger generation, it hurts working people and it hurts our businesses.”

Ben Sadoski, with UNITE HERE Local 5 which represents hotel workers, said his union has “been supportive of an empty-homes tax as one piece of a plan to address the affordable-housing crisis on Oahu.”

“We believe that by taxing vacant housing, large-scale real estate investors who treat housing as just another asset class could be discouraged from taking units out of the housing supply,” Sadoski said. “We do feel that it’s important to ensure that owners of empty homes are not given incentive to convert them into B&Bs or vacation rentals.”

Meanwhile, outside of Hawaii similar vacant homes taxes have suffered legal setbacks.

Notably, a lawsuit arose around the City and County of San Francisco’s Proposition M — a November 2022 initiative presented to voters in that city over a vacant-homes tax.

San Francisco voters passed the proposition — by 54.5% of the vote — that’s set to take effect in 2025.

As a new law, Proposition M means property owners would be charged an escalating amount for each “residential unit” that is “vacant” during the preceding calendar year.

However, in 2023 several plaintiffs — including the San Francisco Apartment Association, the Small Property Owners of San Francisco Institute and the San Francisco Association of Realtors — filed suit in the Superior Court of California over the pending city tax.

Last month a final judgment in the case was rendered.

California Superior Court Judge Ronald E. Quidachay on Nov. 26 ruled in favor of the plaintiffs, finding San Francisco’s vacant homes tax violated the “Takings Clause,” also known as the Just Compensation Clause, of the Fifth Amendment to the U.S. Constitution.

“The Supreme Court has held that the government can’t make you rent out your property,” Christopher Skinnell, the plaintiff’s lawyer, previously told the Honolulu Star-Advertiser. “And more broadly, they can’t make you allow other people onto your property.”

He said under the Fifth Amendment “the government can’t take your property without paying for it.”

As it stands, the vacancy tax has been enjoined. “So the city can’t enforce or collect it,” he explained.

But San Francisco, according to Skinnell, will likely appeal the state court’s decision.