The following testimony was submitted by the Grassroot Institute of Hawaii for consideration by the Honolulu City Council Committee on Housing, Sustainability and Health on Aug. 21, 2024.
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Aug. 21, 2024, 1 p.m.
Honolulu Hale
To: Honolulu City Council, Committee on Housing, Sustainability and Health
Matt Weyer, Chair
Esther Kiaʻāina, Vice Chair
From: Grassroot Institute of Hawaii
Ted Kefalas, Director of Strategic Campaigns
RE: Bill 48 (2024) — RELATING TO REAL PROPERTY TAXATION
Aloha Chair Weyer, Vice-Chair Kiaʻāina and other members of the Committee,
The Grassroot Institute of Hawaii offers comments on — and amendments to — Bill 48 (2024), which would create a long-term rental dedication for long-term rentals in the Residential A tax class.
Any property dedicated to long-term rental use for a period of 10 years or more would be taxed at the Residential tax class rate, currently $3.50 per $1,000 in assessed value, instead of the Residential A rate, which is $4 per $1,000 for the first $1 million of the property’s value and $11.40 per $1,000 on any value greater than $1 million.[1]
Using the property tax to incentivize property owners to rent long-term is a good idea that could help with Honolulu’s high housing costs. Each county in the state already has some variant of a tax break for certain long-term rental properties.
However, Grassroot is concerned about some of the bill’s language pertaining to tax rollbacks.
We suggest the Council consider changing the wording of the tax rollback provision. As written, if a property owner stopped using the property as a long-term rental during the 10-year dedication, the bill would roll back all taxes retroactive to the date at which the property was dedicated.
The owner would have to pay the city the difference between what they paid at the Residential rate and what they would have paid at the Residential A rate. This provision could be punishing for property owners who stop letting long-term.
Provisions should be added to the bill to cancel the rollback in cases where emergencies — such as death of an owner — create legal issues where it is more practical to leave the property vacant for a time.
Language should also be added that would allow a property owner to move into the property and use it as a principal residence without fear of a rollback.
The Council should also amend paragraph (i) of the bill, relating to transfer of property. As written, a purchaser would need to pay rollback taxes if they bought a dedicated property and decided not to continue its use as a long-term rental. At the very least, this paragraph should be amended to include an exemption for an individual or family buying the house to use as a principal residence.
Last, we urge the Council to consider revising the 10-year dedication period. A shorter term, perhaps five years, might be more appropriate, since many owners might be wary of committing their property to long-term rental use for 10 years — especially with the rollback language as currently written.
By comparison, Maui’s long-term rental exemption operates on a yearly basis, requiring property owners to file for an exemption each year and allowing them not to renew without fear of a tax rollback.[2]
We thank the Council for introducing this bill and starting a dialogue on what could be a promising reform. We look forward to future conversation about this topic.
Thank you for the opportunity to testify.
Ted Kefalas
Director of Strategic Campaigns
Grassroot Institute of Hawaii
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[1] “City and County of Honolulu Real Property Tax Valuation for Fiscal Year 2024-2025,” City and County of Honolulu, July 2024.
[2] “Real Property Tax – Long-Term Rental Classification & Exemption,” Maui County Frequently Asked Questions, accessed Aug. 2, 2024.
