Honolulu is considering imposing a charge beyond property taxes on owners who leave their residential property vacant more than six months out of a year as a funding source to address the affordable housing crunch on the island of Oahu.
If it's approved, Honolulu would join a handful of other cities with a similar tax, including Vancouver, Canada and Washington, D.C.
The island needs to build 24,000 residential units to meet demand, with most of the need being among residents making less than 80% of the island’s $103,000 median income, according to the city. Officials want to either use the tax revenue to support an affordable housing fund or give investment homeowners an incentive to rent their properties rather than leaving them empty most of the time.
The median sale price for a single-family home in Honolulu was above $1 million in December 2023, city officials said in an overview of the draft bill to create a vacant homes tax. The overview also cites a recent study that ranks the city as having the third worst “impossibly unaffordable” housing in the U.S.
The tax would apply to the city and Oahu, which the city government administers. The draft bill is set to be considered by the Honolulu City Council on Oct. 9 after the council’s housing committee approved it in late September. If the council passes the bill, the tax would take effect in 2026.
“How do we encourage the owners of vacant homes to rent them out or sell them to a local person?” Honolulu City Councilor Tommy Waters said at the committee meeting. “You can invest your money from the mainland [U.S.] if you like, but you can pay the higher tax.”
The Oahu Short-Term Rental Alliance initially challenged the bill but agreed to support it after being assured that short-term rentals like Airbnbs would be exempt from the tax.
Residential property owners would have to fill out a form declaring their house or building meets the definition of a vacant home, or is eligible for an exemption. The city would then tax empty properties at a rate of 1% of their assessed value in the first year and 2% in the second, to a cap of 3% in subsequent years. Officials say the tax is reasonable given the city’s low property tax rate, which a 2023 study found is less than half the average of most large U.S. cities.
One question city officials must answer is which houses are actually vacant, though they estimate the number to be more than 34,000. The city is paying a contractor to develop a method to identify these houses.
Hawaii Appleseed, a housing advocacy group that supports the Honolulu bill, issued a recent report that estimated the tax would raise at least $180 million annually.
The group also looked at how the tax has worked in two cities. Vancouver and Washington, D.C. each collected $40 to $50 million in a recent year from the assessment, the group found. A third locality the report analyzed, Hawaii’s Maui County, does not have such a charge but offers a tax exemption to owners if they commit to renting out their property for one year.