Bill 46, CD2, the proposed tax on empty homes, is on the agenda for the City Council’s regular meeting on Wednesday, December 11 for third and final reading. This means that the council is expected to vote the bill up or down at this meeting. Their action will have consequences that will reverberate through the community for years.
I’m opposed to this measure, although the idea that we can magically solve the housing crisis by finding and filling homes left empty for one reason or another is appealing. It just isn’t realistic.
Many supporters of the bill believe that it targets those homes bought by out-of-state or foreign investors, who flaunt their wealth by casually buying and holding these empty properties.
In fact, the bill targets a wide range of residential properties, and it creates an assumption that the dwelling units are empty unless the owner can prove they were actually occupied at least six months out of the year.
As critics have raised issue after issue, the bill has been amended to create numerous exclusions or exceptions. A bewildering number of hard-to-understand exceptions, including a broad exception for properties owned by people who live and work in Hawaii, including their empty second homes.
The exceptions, obviously necessitated by the need to make the bill acceptable, dramatically reduce it’s breadth and scope, along with any hope that it will make any dent in the housing crisis.
Several things need to be underscored.
1–The proposed “tax” is not really meant to produce income. It isn’t like a surcharge on existing property tax rates. It is, simply, an incredibly high penalty that will have to be paid not only by outside investors, but by local people who find themselves unable to meet the complex bureaucratic requirements to obtain exemptions they are otherwise entitled to. With median home prices hovering around $1 million, property owners will be paying $30,000 and up for homes declared “empty” because they miss a deadline, can’t meet the demands for documentation that haven’t been defined yet, and have to pay approximately 10 times their normal real property tax payment. It’s hard to call that a simple “tax” with a straight face. It’s a punishment, a penalty.
2–The burden of proof is flipped against the individual homeowner. As a property owner, you won’t be “innocent until proven guilty.” The city will assume your home is empty and subject to the penalty unless you prove to their satisfaction that it is not empty, using as-yet-undetermined paperwork to support your claim within the short time periods called for by the bill.
3–I doubt this point is understood. This isn’t a one-time application for an exemption. It is an application process that will have to be repeated every single year for every property. Remember what a pain it was to renew your drivers license after Honolulu moved to a “Read ID” requirement, where you had to prove your residence, dig out utility bills, tax returns, or other items to prove you live where you say you live. That was bad, but you only have to do it once. The empty home application dance will have to be repeated each and every year. And, if you’re late or make a mistake, the hammer of that huge penalty will come crashing down.
That’s an annual burden for any homeowner, and an annual nightmare for those employees tasked with sorting through all the claims.
4–We know that most city offices and departments are understaffed and barely able to keep up with their current workloads, and often fall behind, like the now notorious Department of Planning and Permitting. How is the tiny real property tax office and its small group of staff and appraisers going to cope with an annual inundation of paperwork? Not well, is my prediction. And, in the process, there’s going to be a lot of collateral damage. Some people will lose their homes in the process, or their situations will cause new rounds of scandal.
Take a simple example. There is an exemption for property owned by someone undergoing medical care or being cared for in a location other than their home for more than six months in a tax year. But is that owner in a nursing home or convalencent hospital going to be able to submit their annual application to claim their exception? It’s more likely they will get out of the hospital or facility and find that they now owe the city and additional $30,000+ for leaving their home empty, and either pay it or else. It’s not a pretty picture. And similar scenarios involving other exceptions are not difficult to foresee.
5–The bill is modeled after a similar empty home tax in Vancouver, Canada. There experience has been mixed. Vacancy rates have declined modestly, although how much is due to the tax isn’t clear. But rental costs have not gone down. Housing is no more affordable than it was without the tax. The same thing is likely to happen here.
Public interest advocate Natalie Iwasa spelled out some of her opposition to Bill 46 in a Civil Beat commentary (“A Vacant Homes Tax Is Not Good Public Policy“).
It’s an intriguing idea with far too many real world problems to work efficiently and fairly.
It’s time for the council to step back from the brink and rethink how to make housing more affordable and available. This tax bludgeon isn’t the way.
