An empty home tax intended to penalize property owners who leave their Oahu properties vacant for extended periods of time was formally postponed by the Honolulu City Council on Wednesday evening.
After hours of blistering public testimony, much of it in opposition, Council President Tommy Waters won a full council vote to delay the latest version of Bill 46 until a city-commissioned study on the EHT issue is completed early next year .
Before that vote, council members Esther Kia ‘aina, Val Okimoto, Augie Tulba and Andria Tupola indicated they would not support the measure in its current form, now a floor design.
The measure, co-introduced by Waters, aims to ensure that homes are used as actual housing rather than as investments – especially by those living out of state, both in the Americas and abroad.
But the level of opposition to Bill 46 seemed to be impressive.
“There has been a lot of testimony today, and I take them all to heart, as I know you do,” Waters told his Council colleagues before the vote to delay the measure. “But there is a lot of talk about waiting until the investigation is complete. And I’m going to recommend that we do just that. That we postpone this until the investigation is complete.”
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“The bill will stand,” Waters added, “we will debate this another day, we will have testimony on another day, but that is what I am suggesting.”
This was followed by applause from the gallery of the Council Chamber during the late meeting.
As drafted, Bill 46 would tax vacant properties by as much as 3%. That means a home valued at $1 million could receive a $30,000 tax bill every year it sits vacant. The EHT would be levied, assessed and collected for each tax year (July 1 to June 30) for each plot of land on which a vacant house is located.
Bill 46, as drafted, would also introduce a new “Residential E” tax classification in Honolulu.
“The Residential E classification simplifies the original EHT proposal by integrating it into the City’s property tax system,” Council staff said in a news release. “It targets vacant or underutilized properties and creates a clear and consistent way to support the underlying purpose of residential zoning.”
The effective date for the Home E classification has been established for tax years beginning July 1, 2027.
Bill 46 also provided exemptions for properties not intended to be classified under the proposed residential E category. These include: – Properties with a homeowner exemption are not affected. These owners are also eligible for an additional exemption from the EHT for a second home. – Accessory dwelling or ohana units. – State-licensed home that is used as a home for seniors, persons with medical or mental disabilities, or is state-owned -Licensed halfway house. -Property owned jointly by members of two or more local families.
As proposed, at least 20% of residential E-rated revenues will be spent on affordable housing programs overseen by the city’s Office of Housing.
The remaining funds will support a variety of housing-related issues, including homelessness, cost-of-living increases, rental stability, existing city services, and cover tax administration costs, Council staff said.
Since its introduction in August, Bill 46 has received both praise and criticism within the community.
At the Nov. 21 Council Budget Committee meeting, Andy Kawano, the city’s Director of Budget and Fiscal Services, asked the Council to move slowly on Bill 46.
Kawano noted the burden of implementing the EHT program and added that Ernst & Young LLP, the city’s counsel on the matter, is being paid nearly $500,000 to study the implications of Bill 46. He said the consultant’s work consisted of two phases.
Kawano said the first phase would be completed by the end of January and asked the Council to “slow down and not go to the third reading before we have a report from the consultants on the feasibility of the bill.”
But after a split vote, the Council’s Budget Committee pushed Bill 46 toward a final vote.
Dozens of people spoke out against the measure during Wednesday’s Council meeting.
“I have been testifying on City Council for over 20 years, and this is by far the most horrible bill I have ever seen,” Hawaii Kai resident Natalie Iwasa testified. “It’s misleading, it’s not transparent, it complicates the system, it’s confusing, it will require multiple documents for each package… it’s unfair, some of these things are not the government’s business… and it leaves out details.”
Ted Kefalas, of the Grassroot Institute of Hawaii, was also in “strong opposition” to Bill 46.
“There’s just a lot of unknowns, namely why the city paid $500,000 for an investigation and we’re not going to wait for that,” Kefalas said. “I have concerns that I’ve heard from some Council members and witnesses who have said, ‘Just amend the bill and we’ll deal with it later.’ That doesn’t seem like a good policy to me.”
He noted that there are no tax rates in Bill 46. “Again, this is not the way we pass legislation… and it sounds like we support the concept of an empty housing tax,” Kefalas added.
William Deeb, a homeowner from Kailua, said the measure is not about housing, but about generating revenue for the city.
Suzanne Young, CEO of the Honolulu Board of Realtors, also wanted the Council to delay Bill 46.
“Even though we say we’re against it, you know it’s the right thing to do to delay it,” she said. “This bill is not ready yet.”
She claimed that 100,000 homes will fall under the residential E classification without exemptions.
Others, like retiree Ellen Carson, supported Bill 46.
“Thank you to the Council for helping us seek and be courageous in finding solutions to our housing crisis. It hurts all of us,” she said. “It hurts the Kupuna, it hurts the younger generation, it hurts working people and it hurts our businesses.”
Ben Sadoski, of UNITE HERE Local 5, which represents hotel workers, said his union “supports a vacant home tax as part of a plan to address Oahu’s affordable housing crisis.”
“We believe that taxing vacant homes could discourage large-scale real estate investors who treat homes as just an asset class from removing homes from the housing supply,” Sadoski said. “We believe it is important to ensure that owners of vacant homes do not have an incentive to convert them into B&Bs or holiday homes.”
Meanwhile, similar vacancy taxes outside Hawaii have suffered legal setbacks.
In particular, a lawsuit emerged around the City and County of San Francisco’s Proposition M – a November 2022 initiative presented to voters in that city over a vacancy tax.
San Francisco voters approved the proposal – with 54.5% of the vote – which should take effect in 2025.
As a new law, Proposition M means property owners will be charged an increasing amount for each “dwelling unit” that is “vacant” during the previous calendar year.
However, in 2023, several plaintiffs—including the San Francisco Apartment Association, the Small Property Owners of San Francisco Institute, and the San Francisco Association of Realtors—filed a lawsuit in the Superior Court of California over the pending occupancy tax.
Last month, a final decision was made in the case.
Judge Ronald E. Quidachay of the California Supreme Court ruled in favor of the plaintiffs on November 26, ruling that San Francisco’s vacancy tax violated the Takings Clause, also known as the Just Compensation Clause, of the Fifth Amendment on the US Constitution.
“The Supreme Court has ruled that the government cannot force you to rent out your property,” Christopher Skinnell, the plaintiff’s attorney, previously told the Honolulu Star-Advertiser. “And more broadly, they can’t force you to give other people access to your property.”
He said under the Fifth Amendment “the government cannot seize your property without paying for it.”
As it stands now, the vacancy tax has been introduced. “So the city can’t enforce it or collect it,” he explained.
But San Francisco will likely appeal the state court’s decision, according to Skinnell.
Correction: Ben Sadoski, of UNITE HERE Local 5, which represents hotel workers, said it is important that owners of vacant homes “are not given an incentive to convert them into B&Bs or vacation rentals.” An earlier version of this story incorrectly quoted him as saying that owners of vacant homes should not be given incentives to convert them into rental properties.
