April 1, 2026, 10:03 a.m.
Hawaii State Capitol
Conference Room 211 and Videoconference
To: Senate Committee on Ways and Means
Sen. Donovan M. Dela Cruz, Chair
Sen. Sharon Y. Moriwaki, Vice Chair
From: Grassroot Institute of Hawaii
Ted Kefalas, Director of Strategic Campaigns
TESTIMONY IN OPPOSITION TO HB2049 HD3 SD1 — RELATING TO HOUSING
Aloha Chairs, Vice Chairs and other Committee Members,
The Grassroot Institute of Hawaii opposes HB2049 HD3 SD1, which would modify the structure of the conveyance tax as it applies to residential properties.
The stated intent of the bill is to increase tax revenues in order to fund certain projects, but the SD1 draft of the bill does not contain specific tax rates or value thresholds. The previous draft would have attempted to achieve this goal by imposing a sizable tax hike on high-value residential properties.
Grassroot appreciates and generally supports the change to a marginal tax rate; however, we are concerned that the proposed tax hikes could harm the economy, negatively affect Hawaii’s housing market and reduce the amount of tax revenues the state and counties collect.
For example, a property sold for $2.5 million to a buyer eligible for a county property tax home exemption would face a tax bill of $12,500 under the current conveyance tax system. Under the previous draft of this bill, that buyer would pay $26,750 — more than double the current tax bill.
When applied to high-value properties, transfer taxes reduce investment in residential properties, leading to lost jobs and reduced economic activity.
A report by the Sage Policy Group on real estate transfer taxes — exactly the type of tax proposed in this bill — noted that such laws can “lead to decreases in population, real incomes, real estate transactions, investment in structures, and quality of the built environment.”[1]
Further, this measure could discourage the conversion of old buildings to new purposes, which is already taking place in Honolulu.[2] These so-called adaptive reuse projects have the potential to add to the state’s housing stock. But higher conveyance taxes could chill the sale of old buildings, which might not necessarily qualify as “multifamily residential property” at the time of sale.
Moreover, higher taxes will be a significant burden to businesses in general, regardless of whether they are planning to adapt a property for residential use. The Sage report stated: “Many properties will need to be upgraded and/or adaptively reused to remain viable. Excessive transfer tax rates can frustrate the exchange of property that is often required to return to commercial viability.”[3]
It is also important to note that this measure could actually wind up reducing the amount of tax revenues the states and counties collect because higher conveyance taxes have been shown to reduce sales prices.[4]
Furthermore, language in this bill could make it more difficult to convert short-term rentals into owner-occupied housing. Section 3 of the bill states that “any conveyance of property that is used for transient accommodations, as defined in section 237D-1, for any period during the two years before the date of conveyance shall be taxed at the rates under paragraph (2), regardless of whether the purchaser is eligible for a county homeowner’s exemption on property tax.”
This bill deserves some praise for seeking to adjust the tax for multifamily residential properties to reflect value on a per-unit basis, which would help address some concerns related to the purchase of property for affordable housing or rentals. However, it would not fully mitigate the potential harm that could come from increasing the conveyance tax.
Thank you for the opportunity to testify.
Ted Kefalas
Director of Strategic Campaigns
Grassroot Institute of Hawaii
1050 Bishop St. #508 | Honolulu, HI 96813 | 808-864-1776 | info@grassrootinstitute.org
[1] “The Unintended Consequences of Excessive Transfer Taxes,” Sage Policy Group, Inc. on behalf of the Community Coalition for Jobs and Housing, June 2022, p. 3.
[2] Lana Teramae, “Local Architects Talk About Repurposing Existing Buildings in Post-Pandemic Hawai‘i,” Hawaii Business Magazine, Sept. 6, 2021.
[3] “The Unintended Consequences of Excessive Transfer Taxes,” p. 3.
[4] Mathias Dolls, Clemens Fuest and Carla Krolage et al., “Who bears the burden of real estate transfer taxes? Evidence from the German housing market,” Journal of Urban Economics, Vol. 145, January 2025; and Gilles Duranton, Lu Han and Matthew A. Turner, “The Negative Impact of a Massachusetts Real Estate Transfer Tax on Fiscal Revenue and Household Mobility,” Research supported by the Massachusetts Community Alliance, June 17, 2024.
