The prospect of an “empty homes tax” — a higher tax bill for homeowners who leave a residence standing empty for long periods — has been tossed around in Hawaii for a few years now, provoking serious consideration by the state Legislature in 2018 and again in 2023, and by the Honolulu City Council in 2022. The idea seemed somewhat radical, early on, as opponents raised questions about enforcement and benefits to be realized, so earlier efforts fizzled before reaching the finish line.
Circumstances are very different now. Public understanding of the affordable housing crisis in Hawaii has grown considerably. Significantly, a 2024 Ward Research survey of Honolulu voters finds that a solid 74% of respondents support a higher tax on residential properties left vacant. Eyes have been opened by the Lahaina wildfire of Aug. 8, which displaced 14,000 people in one day and left about 5,000 people still sheltered in hotel rooms six months later, revealing just how little housing was available.
Today, there’s an outpouring of sentiment that governments need to intervene against a trend that’s causing kamaaina to come up short in affording adequate housing. The City Council is now considering Bill 46, which would tax empty homes on Oahu at increasing multiples of the current rate — which, by the way, is much lower than the U.S. average. This is an idea whose time has come.
Bill 46 would tax residential units — single-family or multiple-family houses, or condominiums — that sit empty for more than half the year at an increased rate, beginning with 1% during the first year. In the second year, the tax would rise to 2%, and in the third year, to 3%.
Higher taxes on homes left vacant can not only induce owners to make them available as residences, marginally increasing the housing supply; they can also bring in a not-insignificant amount of funding for public use. Bill 46 would mandate that the tax revenue collected be used exclusively for affordable housing and homelessness services, including up to 5% that can be spent on enforcement and administration of the law.
On a pragmatic level, it’s a plain fact that an empty home is a home not utilized for the housing Hawaii needs. Bill 46 would give owners a reason to either get their homes occupied, or sell them.
A strong basis exists to support increasing the tax over time, as well — because this not only increases the pressure on owners of vacant homes, but also allows owners who can afford to let a home be vacant to contribute more to Honolulu’s housing efforts in lieu of making their properties available as long-term homes.
Under Honolulu’s current property tax schedule, investors have increasingly been purchasing housing units as investment properties and purposefully allowing them to sit empty. This trend accelerated during the COVID-19 pandemic, and post-COVID, U.S. investors who are not Hawaii residents purchased an estimated $4 billion to $5 billion in Hawaii real estate annually.
New aspects to Bill 46 address some former criticisms and should neutralize those objections. These include: a public education program to inform property owners about the law; a phase-in of tax rates over three years; a grace period and available extensions for filing property tax status; and strict penalties for flouting the law that align with penalties for skirting short-term rental rules, at up to $10,000 per violation.
Today at 10 a.m., the City Council holds its first reading on the empty homes tax proposal. For the good of the city, the Council must forward Bill 46, so that it can advance to committee and full Council hearings on its way to passage.
