In 2021, Congress considered imposing a national wealth tax, a constitutionally dubious concept wherein persons are taxed yearly on the current market value of their assets, such as homes, savings, investments and artwork.

Honolulu property taxes are essentially wealth taxes levied on theoretical home values, including any unrealized capital gains. Homes are assessed at sometimes inflated market prices, which are then multiplied by a mill rate to determine the amount due. Raising taxes in this manner is more politically opaque than increasing the rate outright. The practice often leads to revenue windfalls for local governments, which are shielded from accountability in setting rates premised on budgetary needs.

The Honolulu Real Property Assessment Division (RPAD) is tasked with assigning market values to more than 278,000 housing units on Oahu. Using models complemented with a lot of hard work on the part of the assessors, each property first receives a market estimate, which is then revised to yield a market value. When possible, unique characteristics for selected properties are taken into consideration.

Oddly, these market values rarely match consummated sale prices, even for properties sold within the immediately preceding year. Property holders are provided the opportunity to challenge their calculated assessments, and around 2,000 have done so in 2023. Comparable sales are presented to either refute or support assessor determinations.

While comparable sales are relatively easily obtained for condos and large homogeneous housing developments, the same cannot be said for many Oahu communities. This can result in a seriously flawed valuation methodology. To impute RPAD market appraisals to properties that have not recently been sold, there must be a statistically significant sample count within the relevant housing population.

For example, if there are 200 same-neighborhood homes similar to a property being assessed, at least 66 must have been recently sold to ensure a 95% confidence level for the derived market value. Even a near failing 70% confidence level requires that at least 24 must have changed hands. In numerous instances, these thresholds are unmet.

Honolulu property tax assessments sent out in December 2022 frustrated many property owners with average increases ranging from 10.1% in Zone 1 to 20.4% in Zone 6 and 13.3% islandwide. California initiative voters addressed their own soaring property assessments in 1978 with Proposition 13. Under Proposition 13, all real property has fixed base year values, a restricted rate of increase on assessments of no greater than 2% each year, and a limit on property taxes to 1% of the assessed value (plus additional voter-approved taxes).

Unfortunately, when there are insufficient comparable sales, there is no statistically valid foundation for revising assessments either up or down from one year to the next. The City and County of Honolulu does have a potential solution to the problem, under the Real Property Tax Credit for Homeowners template. At present, on-property titleholders with incomes under $80,000 can apply to have their tax adjusted to the lesser of the billed amount or 3% of their gross income. This program could be modified and expanded for all residential-class homeowners, with income tiers above $80,000 charged a higher percentage, if necessary.

Ideally, property values should be frozen at transaction prices and mill rates established according to the amount budgeted to be collected. Transitioning to a universal real property tax “cap” system could ultimately eliminate the need for many annual homeowner assessments. The process would become more transparent and less contentious for all, while easing the administrative burden on the City and County of Honolulu. That’s called a win-win.

North Shore resident Barney Wilson, who holds an MBA in statistics and international finance, has worked as an analyst for public and private transportation organizations on Oahu.