LIHU‘E — With one in eight homes on Kaua‘i empty, a bill attempting to incentivize filling these vacancies passed through the Kaua‘i County Council on Wednesday.
Bill No. 2814, first introduced by councilmember Luke Evslin by request of the administration in late November 2020, amends the county’s code relating to real property taxes by reducing the minimum assessed value for the “residential investor” tax class from $2 million to $1.3 million.
“The intent of this bill is not to create another revenue source or generate revenue for the county,” County of Kaua‘i Finance Director Reiko Matsuyama said when the bill was introduced last year. “It is really to create more housing and throw the vacant homes into the housing pool for long-term rentals.”
The residential investor tax class applies to vacant properties that are not rented on a long-term basis valued at or above the reduced $1.3 million rate. There are just over 400 properties at the $1.3 million level affected.
The residential investor tax rate in 2020 was $9.40 per $1,000 net assessed valuation. The residential rate was $6.05. If signed, the ordinance will take effect until the 2022 tax year, with rates to be determined in the coming months.
One of the ideas is that this tax would incentivize property owners to lease out the vacant housing to remain in a lower tax bracket. This is a step toward a vacancy tax, but not quite.
“There is plenty of evidence that these taxes work to incentivize,” Financial and Economic Development chair Evslin said in December. “Empty homes don’t have any forms of state and local taxes. Are they really contributing to our local economy?”
Evslin expressed hesitation of similar homes being valued differently but felt this was a step in the right direction to fill up homes. He also suggested taxing all vacant homes at the residential investor rate at a tiered system.
Honolulu’s residential investor class starts at $1 million, which the administration wanted to avoid at the start, Matsuyama said, noting that would require the county to begin processing a higher volume of long-term lease agreements.
“We would not want to go any lower than that only because of the administrative burden that would be carried with it would be heavy,” Matsuyama had explained.
For properties with just a caretaker, Matsuyama recommended those owners create a lease agreement and submit it to the Real Property Tax Office by the end of September to remain in the residential tax class.
Councilmember Felicia Cowden pointed out that in some communities on the island, smaller homes could be assessed at the $1.3 million threshold rather than the assumed target: wealthy, empty homes.
“When family homes that are fishing houses, and things like that, no matter how humble that property is, it tends to force that sale, or force a shared use of the property,” Cowden said in December. “I just wanted to acknowledge that.”
On Wednesday, Cowden said the lowering of the threshold for the non-resident investor class is “never an easy choice.”
“I think it’s important that if it encourages people to have someone in their house when they are not here, I support that,” Cowden said. “I feel comfortable in that the Real Property Tax Department is going to reach out to the affected people so that they know with good advance notice.”
Correction: This article was corrected on Thursday, Jan. 28 to correct a quote that came from councilmember Luke Evslin, not Council Chair Arryl Kaneshiro.