This is anything but a new experience for Oahu — property values rising, prefacing what likely will be an increase in property taxes — but the clouds on the horizon look especially dark this year.
The administration of Mayor Rick Blangiardi is anticipating the need to grapple with the effects of a steep rise in assessed property values when budgeting begins this spring. The conversation about how to get all this in balance should start now — including a discussion about managing costs of city services, to be sure.
However, covering the obligations of already-negotiated public- worker contracts, and ensuring solid baseline city services, will take revenue.
The goal should be providing some form of tax relief to those who need it most, largely those of limited income now paying the base rate of $3.50 per $1,000 of assessed value. The other aim: capturing more revenue from those best able to afford it — out-of-state investors, many of whom have realized a great deal of profit in their Hawaii ventures.
There is also the opportunity to collect the yield from a new revenue stream, the taxes that legal vacation-rental units will be paying. And there are other options, such as increasing the tiers of tax classification so that those at the top will pay more.
The formulas aren’t even in draft form yet, but in the meantime, the taxpayers themselves already have been talking up a storm. The city is looking for revenue to cover expected rising outlays for worker salaries and benefits, along with other expense increases.
The numbers tell the basic story. The Honolulu City and County property valuations jumped the highest on the North Shore (20.4%) and along the coast between Kahuku and Kaaawa (18.4%).
The tax rate to be applied to those higher assessments won’t be determined until the proposed budget is submitted in early March, with review by the Honolulu City Council extending through June. That’s when the Council and mayor will decide how to collect enough money to fund the spending plan, and when the tax bills go out.
But those affected are already nervous. Toby Allen, 81, lives on a fixed income, but one that in 2019 was enough to finance the purchase of his Hawaii Kai home, a residence that rose in value from about $1 million to $1.5 million. Saving enough to pay a property tax increase of that magnitude will be a struggle, he said.
Even more under duress would be people who bought their homes decades ago, when a moderate income could support the purchase.
The Honolulu Board of Realtors keeps historical data on sales prices (hicentral.com/oahu-historical-data.php). The average sale price for a single-family home on Oahu in 1985 was $205,400. That midpoint rocketed up to $1.25 million in 2021.
Condominium averages show contrasts that are just as shocking over the same time frame: from $105,900 to $558,057.
The household finances of the purchaser may have risen over time, but likely not to that degree.
How to address this problem is the challenge that awaits first the mayor, and then the Council. No political body seeks to distress resident homeowners, because those are their constituents.
In past years the largest increases in property tax, the city’s primary revenue source, have been directed to nonresidential categories. Calvin Say, who chairs the Council Budget Committee, said the city already has increased the tax on resort district properties, as well as on nonresident homeowners.
But that wouldn’t make tapping owner-occupied residential property any more palatable now, he said.
There are models Honolulu should consider, including one from neighboring Maui County, said Will White, director of the Hawai‘i Budget & Policy Center, a program of the nonprofit Hawai‘i Appleseed Center for Law & Economic Justice.
Maui has just remade its property-tax system so that the top tier, for a nonowner-occupied home valued at more than $4.5 million, is set at $12.50 per $1,000 of net taxable assessed value.
That’s significantly higher than the current top rate for the investor class on Oahu: $10.50 per $1,000 of assessed value for residential properties over $1 million. There’s room to move up. There should be tiers for higher property values, for starters, given the huge increases in valuations.
Additionally, Bill 9, introduced last year by Council Chair Tommy Waters, should get another look where it’s now idling in the Budget Committee. It would create a new “empty home” tax for investor homes that are vacant for six months of a year.
There are concerns about impacts on landlords and costs being passed through to higher rents, but all of that deserves full airing by the Council.
Due to relatively low property tax rates, investors still see Honolulu real estate as a bargain, almost sure to produce a healthy return. The low inventory of properties and pandemic economic shifts have driven prices up.
City leaders would be shortsighted unless they find a way to capitalize on that grim reality.
