Honolulu City Council Considers a Vacant Residential Property Tax

Honolulu City Council Considers a Vacant Residential Property Tax

On October 1, 2020, Honolulu City Councilmember Alan Kekoa Texeira introduced Bill 76 at the Honolulu City Council (the "Council"). The purpose of Bill 76 is to create a new tax category for vacant residential properties in the City. If Bill 76 is enacted into law, it will apply to tax years starting from July 1, 2022.

Bill 76 passed First Reading and was referred to the Council's Committee on Budget (the "Committee"), which recommended passage on Second Reading. Public hearings were held on November 5th. Bill 76 passed Second Reading and was referred back to the Committee.

What is a vacant residential property?

Bill 76 proposes the creation of a "vacant residential" taxation class, to include properties or portions thereof that:

• Would otherwise be classified as residential by the City's Department of Budget and Fiscal Services (the "Department");
• Are either condominium dwelling units, or have been improved with a duplex unit or detached dwelling; and
• Have been unoccupied for more than 180 consecutive days during the previous tax year.

Are there exceptions to the vacant residential classification?

Yes. Bill 76 provides exceptions to properties for which:

1. The owner or tenant of the parcel, or portion thereof, is undergoing medical care that requires the owner or tenant to reside in a place other than on the parcel, for longer than 45 days during the previous tax year;
2. Title to the property was transferred during the previous tax year;
3. The owner of the parcel, or portion thereof, is deceased and a determination of ownership is pending before a probate court;
4. The dwelling unit on the parcel is undergoing major renovations that require the owner or tenant of the parcel, or portion thereof, to vacate the parcel for longer than 45 days during the previous tax year; or
5. The parcel, or portion thereof, is subject to a court order that prohibits occupancy.

Bill 76 does not include a proposed tax rate for the vacant residential class. The Department annually submits proposed tax rates to the Council for approval. If Bill 76 is adopted, the Council will set the tax rate in the year in which the new classification takes effect.

What are the potential benefits of Bill 76?

Supporters of Bill 76, including Councilmember Texeira, have cited a report on housing in Honolulu prepared for the City by the University of California, Los Angeles, as evidence of the potential benefits of Bill 76, including:

• An increase in affordable housing inventory;
• An increase in the City's housing supply, in general; 
• Lower vacancy rates; and
• An increase in City revenues.

What are some concerns regarding Bill 76? 

Although the Mayor's Office of Housing ("Office") supports the introduction of a vacant property tax class, the Office believes that the matter should be handled by the new administration, which will be in place in January 2021. Prior to his election to office, Honolulu Mayor-elect, Rick Blangiardi, has expressed his willingness to consider a tax on vacant homes owned by persons whose primary residence is located outside of the state.

The Department's Real Property Tax Assessment Division has expressed concerns regarding the resources available for implementation of the Bill and the unaddressed topic of uninhabitable properties.

The Honolulu Board of Realtors opposes Bill 76 for many reasons, including:

• Lack of clarity as to the intent of the Bill;
• Lack of a proposed tax rate for the vacant residential class;
• Lack of details regarding implementation of the Bill; and 
• The resulting infringement on property rights. 

The Committee's next meeting is scheduled for Wednesday, November 18th. Status updates for Bill 76 can be found here.