Report backs empty-homes tax to address housing crisis on Oahu

The Hawaii Appleseed Center for Law &Economic Justice is recommending that the Honolulu City Council impose a 3-5% empty-homes tax, citing a worsening housing crisis on Oahu where more than 8 in 10 renters now spend at least 30% of their income on housing costs.

The Honolulu City Council is considering Bill 46, which would impose a 3% EHT on properties vacant for more than six months each year, including both nonowner-­occupied and nonrenter-­occupied homes, and require that properties occupied for six months be occupied for at least three consecutive months.

Appleseed on Monday released its 2024 report exploring an EHT to address Honolulu’s housing crisis, saying Honolulu’s housing market, “is increasingly catering to non-resident investors at the expense of local families searching for affordable homes.”

To address investment-­driven purchases and support affordable housing for working families, Appleseed recommended a 3% to 5% EHT, which could generate annual revenue ranging from $183 million to $305 million.

Currently, investment owners who convert their properties into vacation rentals or leave them vacant for most of the year are not subject to additional taxes, but it is believed that they are contributing to rising real estate prices and the reduced availability of rental units.

While Oahu already allocates a portion of its property tax revenues to support long-term affordable housing, proponents say implementing an EHT could provide extra funding for developing more affordable housing for local residents and discourage investors from using Oahu’s housing supply purely as an investment.

Appleseed also recommended that the revenue generated from EHT be dedicated exclusively to affordable housing initiatives, after covering administration costs — typically supporting affordable housing and homelessness services, as well as addressing broader social issues related to housing.

According to Appleseed, wealthy investors increasingly buy homes as investment properties and roughly 13% of Oahu’s housing units are now owned by people who don’t live in the state. Across Oahu, around 35,000 homes and apartments sit vacant as investors leave properties unoccupied rather than renting them out, making it more difficult for local residents to find affordable housing.

The report says that in 2023, 10.1% of single-family homes and 17.3% of condominiums in Honolulu were sold to out-of-state buyers. On Oahu, properties purchased by out-of-state buyers in 2018 were priced 46.6% higher than those sold to local residents.

Vacant homes shrink the available housing supply, drive up prices and make it more challenging for local residents to afford housing. In 2024, the median rent for a one-bedroom apartment on Oahu climbed to $2,100, compared to the U.S. average of $1,600, according to the report.

Appleseed’s report found that high rent has led 80% of Oahu renters to spend at least 30% of their income on housing, making them “severely housing cost-­burdened,” meaning that they have limited funds left to cover other essential needs, such as food and transportation.

“By taxing properties that remain vacant for extended periods, an EHT would help to address the severe housing crisis on O‘ahu,” Susan Le, Hawai‘i Appleseed Senior Policy Analyst for Affordable Housing, said in a statement. “The EHT does this by generating substantial revenue to fund affordable housing initiatives, and by shifting the housing market dynamics away from speculative investment.”

Appleseed reported that the EHT in Washington, D.C., generated $58 million in revenue in 2022.

The EHT in Washington, D.C., requires property owners to register vacant buildings with the city’s Department of Buildings as “Class 3” for the Office of Tax and Revenue — owners have one year to find a buyer or lessee; otherwise, the tax will be applied. Properties are considered vacant if unoccupied for 30 consecutive days and failure to register or pay the EHT properly can result in a maximum fine of $5,000.

The EHT rate is 5% of the assessed value for vacant properties and 10% for condemned properties, with the revenue generated directed to the General Fund.

In contrast, Appleseed reported that Maui County experienced a $13 million revenue loss in 2023 due to its policy of offering a long-term rental subsidy to reduce the real property tax for investment owners who commit to renting to residents, provided they submit a valid one-year lease agreement during tax filing.

“There’s not a tax on empty homes on Maui, which would essentially be a repercussion of leaving that unit vacant,” Le told the Honolulu Star-Advertiser. “However, they do the opposite. They try to incentivize homeowners to have a long term renter in their property. So essentially, a homeowner will get a tax credit if they can provide a long term lease when they’re filing for property taxes.”

Le stated that it is “incredibly important” for the state to implement EHTs, especially given the persistent issue of unaffordable housing in the state.

Despite the significant impact of speculative investment on housing availability, Honolulu’s current tax policy does little to deter this practice, as property tax rates remain among the lowest in the nation.

If Honolulu had applied the national average effective real property tax rate of 0.87%, the county would have generated 120% more tax revenue per home.

The low property taxes create an environment where wealthy investors can afford to keep properties vacant, focusing on long-term appreciation rather than contributing to the local housing supply.

Appleseed’s report highlights that Honolulu’s real estate market has become increasingly attractive to wealthy investors.

Since 2000, home prices statewide have surged by nearly 400%, far exceeding the national average. For those who can invest, the returns have been substantial. A single-family home bought for $295,000 in 2000 could sell for $1,050,000 in 2023, representing a gross profit of over 250%.

Condominiums have seen a similar gross profit of around 300% over the same period. These substantial returns draw speculative buyers who often do not intend to occupy or rent their properties to local residents.