The 2020 economic slump may have slowed the rate of increase in Oahu property assessments, but not for long. It was already clear before the pandemic struck that million-dollar properties were becoming more common, suggesting that reforms to the property-tax structure are needed urgently.
The Honolulu City Council’s response to that is Bill 20, a measure that would broaden the range of values for investment properties and second homes into tiers to be taxed at different rates.
Currently the “Residential A” Honolulu property tax rate for homes assessed at over $1 million owned by taxpayers who do not claim a home exemption. Those who use their property as a primary residence pay the basic rate of 0.35%.
For those who don’t, The rate how has two tiers, 0.45% rate for the portion of the property valued at under $1 million, added to 1.05% of the valuation above that threshold.
Under Bill 20, proposed by City Council member Radiant Cordero, the first tier of Residential A taxes would be paid on properties up to to $1.3 million. A second tier applies to the $1.3 million-$5 million property range, with a third tier kicking in above that.
The rates to be assessed at each tier have not been set. But the overall tax structure makes sense for a real estate environment in which so much of the inventory is in the investor class. It’s time the city makes a greater effort to capture revenue at that echelon.
The initial round of public comments on the bill, heard last week by the Budget Committee, were in support. When that panel holds its next hearing Aug. 25, the Council surely will get a more fulsome critique from the residential investment sector.
Some may point out that this plan may not reap anywhere near the revenues for Honolulu that a more broad-based tax restructuring could generate. But the political reality is that increasing the rate at the top level is more achievable.
For many years Honolulu real estate has been a relative bargain from the taxation perspective, given a property tax rate kept comparatively low; unlike other jurisdictions nationwide, the municipal taxes in the islands do not have to support public schools, which are funded by the state.
There is another line of criticism that the Council will need to address, however. Advocates for affordable housing have some concern that there could be a trickle-down effect on rents when investor landlords pass along the increase to tenants.
Testimony from the Church of the Crossroads, for example, favored waiting for results from a study of proposals to tax “empty homes,” data anticipated in December, which would not have the same effect on renters. These are second homes that are left vacant by their owners through at least half the year.
The study by the Department of Budget and Fiscal Services also would analyze the impact of the tiered system envisioned by Bill 20.
This worry was echoed by Foo Pham, who chairs the HousingNOW! project for the nonprofit group Faith Action for Community Equity. The progressive-tax concept should be paired with incentives to encourage affordable rents, Pham said in written remarks.
The tiered system got a vote of confidence, though, from Kim Coco Iwamoto, an attorney who noted she owns several residential investment properties on Oahu.
“There is a growing affordable housing shortage made worse by those who profit from real estate investments — with those greater profits, should come greater responsibility,” she wrote.
Agreed. A tax approach similar to what Bill 20 proposes could be a step toward achieving a more balanced policy approach to taxation, and housing, for Oahu.
