Honolulu City Council members have struggled for six years to pass a tax on vacant homes. Their 2018 attempt fizzled. It was revived almost a year later, and fizzled again. A 2022 version got to a first reading but went no further.

Now, an empty homes tax is closer to reality than ever, with a final vote on the latest version scheduled for Wednesday. But building the political support this time meant carving out exemptions – no fewer than 17 of them. While some interest groups and individuals who lobbied the council celebrate the exemptions, others worry they dilute the intent of the empty homes tax and make it harder to administer. 

“The number of exemptions that have been added to the bill … could extremely water down the amount of homes that are, quote, ‘empty’ based on what we can actually validate,” Department of Budget and Fiscal Services director Andrew Kawano testified at a recent budget committee hearing.

Council members say Honolulu’s housing crisis, which a 2019 state-commissioned study estimated requires adding more than 22,000 units by next year to meet demand, spurred the empty homes tax.

Tax those units sitting vacant, the thinking goes, and owners will have incentive to sell or rent them out.

But a raft of opposition caused lawmakers to narrow their scope, including through one amendment that exempts second homes for Oahu residents. Residents who own multiple homes are now largely shielded from the tax in favor of targeting offshore investors, a philosophy council members say is the intention.

The U.S. Census estimates Honolulu has about 34,000 vacant units — almost half the state’s total — but it’s unclear how many qualify for the tax and what effect each exemption has on that number. The University of Hawaii Economic Research Organization, known as UHERO, estimates that between 4,000 and 20,000 currently empty units could be added to the island’s housing supply, with annual revenue between $50 million and $400 million, given reasonable assumptions. This summer, the city commissioned a yearlong study by the consulting group Ernst and Young on how to most effectively implement the tax, which lawmakers hope will answer some of these questions.

Exemptions In Other Cities

If passed, city administration would propose the empty homes tax rate. Previous versions of the bill started it at 1% of assessed value in fiscal year 2027 before climbing to 2% the next year and leveling off at 3% the year after that – almost 10 times the tax rate of normal residential properties. Correction: A previous version of this story said the tax rates were written into the bill. That was the case in previous drafts, but not in the current draft. That would mean an extra tax bill of over $30,000 in 2029 for a median priced single-family home.

At least 20% of the revenue would be dedicated to affordable housing initiatives under the city’s office of housing.

Instead of being an additional tax on top of normal property taxes, it would be its own property tax category. Supporters hope that will insulate it from legal challenges like those faced in San Francisco, where a judge recently blocked the city’s empty homes tax that was supposed to take effect next year.

Honolulu wouldn’t be the first locale to implement an empty homes tax, and exemptions vary where they have been implemented. 

In Washington, D.C. — where vacant properties are taxed at 5% of assessed value — five exemptions give residents leeway. Buildings can qualify for exemption if they are under renovation; are the subject of litigation; are on the market for no longer than one or two years, depending on if they are residential or commercial; are awaiting city approval for development; or are owned by people experiencing economic hardship due to extraordinary circumstances.

Vancouver – which charges owners of vacant homes 3% of assessed value – lists 10 exemptions.

In addition to most of D.C.’s list, Vancouver exempts residences left empty because their occupant is undergoing medical care or if the property was transferred within the tax year, among other cases.

Honolulu’s latest draft lists 17 exemptions. Along with the ones it shares with Vancouver and D.C., it also includes exemptions for owners on military duty; for accessory dwelling units or ohana units; for properties owned and used by nonprofits or governments; the second-homes exemption for Oahu residents; and an amendment exempting properties owned by people with majority Oahu-based incomes as long as they owned the properties before 2024. 

In addition, a September amendment introduced by North Shore council member Matt Weyer excluded short-term rental owners from having to pay the tax, turning the Oahu Short Term Rental Alliance from strong opponents to consistent supporters.

Local Families Versus Offshore Investors

The Oʻahu resident exemptions have sparked the most backlash from supporters of the tax. They were introduced by council chair Tommy Waters, a co-introducer and longtime champion of the bill, but some who testified at the most recent council hearing thought those exemptions sounded too broad.

No limit is listed for the number of homes somebody with a majority Oʻahu-based income can own without having to pay the tax. Civil Beat talked to a Waters staffer, but the council member was out of the office and unavailable for comment.

“Exempting people that already have empty homes that have local connections really seems to be the goal,” resident Keith Webster said in an interview. “I have a problem with that.”

Webster has supported passing an empty homes tax since 2018, and he still supports passage of this year’s bill. But he wishes there weren’t so many exemptions.

“They’re doing what they think is right,” he said of the council members’ amendments. “But I wish it had been stronger and had covered more homes.”

At hearings, council members have said they want to target off-island investors. Members want to fill empty homes, as long as those empty homes aren’t owned by local residents. 

“How do we know which homes are from outside investors versus those that are owned locally?” council member Val Okimoto said at a September bill hearing. “Because I do have concerns that this would penalize local families that have either worked hard or have inherited through their families.”

Over several hearings, hundreds of residents have testified for or against the bill. Some opponents said they own extra housing units and like to use them for hosting people who have moved away. 

“I have a second condo that I utilize for my family that have moved off island, and friends as well,” Mary Anne Bruno testified. “And I’d like to continue to give them the opportunity to come back home to visit and be here with me.”

Others took issue with the principle of being heavily taxed for owning empty housing units. 

“Many people do not want to be landlords, and they shouldn’t be forced to be a landlord,” Donna Kohls testified.

Robert Perkinson, a professor in American studies at the University of Hawaii Manoa, has been bringing his students to the hearings as a way to gain civic experience. Many of them, including him, support a strong version of the bill that doesn’t give leeway to residents. 

“The number of people in Hawaii that can have an entirely empty home and give up all of the possible rental revenue from that investment … that’s a small set of the population that can afford to sit on an asset like that and to leave it fallow,” Perkinson testified.

With so many exemptions and uncertainties about their effects, some opponents of the bill urged the council to wait for the results of their study on the topic by consultant group Ernst and Young. Initial findings are supposed to be released in January, and the final report of the yearlong study is due next summer.

But council member Radiant Cordero, who co-introduced the bill with Waters, said she’s worried about delaying passage any longer. She thinks there would be plenty of time to pass the bill and then amend it before it takes effect, if necessary.

“It’s not like one, and done, and we’re going to close our eyes and not even think about it later,” she said during November’s budget committee hearing. The tax, if passed, could be tweaked when new information comes out. 

Webster, the longtime empty homes tax supporter, said he’s not concerned about short-term rentals being exempt because they already have to pay more taxes. Still, he wishes council members didn’t make so many concessions.

“It’s going to raise less money and put fewer people into homes initially because of that. Because of the changes they made,” Webster said. “But, you know, that’s what the political process is all about.”