Council passes lower residential investor threshold evaluation

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.

  1. Khsgrad January 28, 2021 7:24 am Reply

    I find it interesting that the County Council addresses this problem only from a revenue stance, that is exactly what this is. Reduce taxes so individuals will rent their homes- Well, how about the so very biased laws which protect the renter leaving landlords with very little recourse? 1 month security deposit won’t cover the damage some renters cause to property, eviction takes forever, meanwhile they live rent free AND good luck recovering any of that money- the renter doesn’t get reported late to credit bureaus, the land lord carries all of the risk. My parents had a tenant here in Kauai, whose wife allowed baby pigs to live in their house in Aliomanu Estates, completely destroying Brazilian Cherry floors, the home was full of garbage and maggots, these tenants didn’t pay 4 months of rent, and the 15k judgement issued by a local judge remains unpaid to this day.
    Why don’t you offer some protection to landlords and maybe people would be more likely to rent out their vacant homes! This attitude that “landlords” have money so they can absorb the cost of destructive tenants, is untrue and very biased and unfair. As for me, I am selling and the island will lose another 2 homes to rich investors, depleting an already scarce rental situation.

    1. DryThoseEyes January 28, 2021 10:47 pm Reply

      Aww, the poor people with multi million dollar houses in Aliomanu Estates lol. Not the Brazilian Cherry! If an off island investor wants to rent out their house, they usually are smart enough to screen their tenants, or pay a company that will do it for them. I’m sure you aren’t selling because the real estate market is sky rocketing right now and you stand to make a lot of money. Nah you are definitely selling because of the laws not protecting landlords from taking a hit from bad tenants.

      The reason they are making laws to encourage rentals is because that’s what we need. There already exist laws protecting landlords.

  2. jkh January 28, 2021 8:44 am Reply

    Bunch of takers taking from makers.

  3. Robin January 28, 2021 9:43 am Reply

    This just proves how many homes are being rented out to tourists. What is the biggest way to create more housing available at a cheaper rate? Stop all the short term illegal rentals, stop all the residential Airbnb’s.
    This is a start but this won’t be enough. What you can collect from a tourist short term versus a long term rental is too significant. Plus it’s easy, a tourists goes back home after prepaying and leaving deposits, a renter you have to worry about collecting rent and evicting if they don’t.
    One of the fastest ways to help our housing crisis is too make it more expensive to rent to a tourist, but it needs to be enough to make sure it’s a better investment to rent to a local long term renter. Right now that’s a huge gap.

    1. Yup January 28, 2021 10:55 pm Reply

      Exactly. A simple tax on short term rentals can be used to subsidize long term rentals. Find the right balance and encourage more long term rentals.

      1. TAT & GET January 29, 2021 3:12 pm Reply

        “a simple tax on short term rentals” -yeah, we already have that, it’s called Transient Accommodation Tax.
        How would you balance the loss of vacation-rental support jobs if some homes are rented long-term? Or do they not fit your opinion of worthy jobs on Kauai?

    2. flawed logic January 29, 2021 2:16 pm Reply

      Robin, what do you say to all the people who work to support short term rentals? are their jobs expendable?

  4. Shannon January 28, 2021 9:50 am Reply

    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.

    ………..So it’s easier to deal with all the aid that goes into dealing with the homeless, besides the people that don’t want to be homeless, than increasing administrative help with long term lease applications? That doesn’t even make sense.

  5. steven January 28, 2021 11:00 am Reply

    One factor in the vacancies is the moratorium on evictions. Many in the private sector are not willing to face the many problems that can occur with a bad tenant. Even when the moratorium is lifted, there is little support for a property owner who has a problem tenant. Frequently previous landlords are not forthright.

  6. WestKauai January 28, 2021 3:46 pm Reply

    So the Council expects people that have purchased second homes at substantial cost will rent them out to avoid increased property tax? I don’t think so. First of all, these are expensive properties that would require a rent far above what the county considers “affordable”. Secondly, the property owners are unlikely to rent the homes they have decorated with their own furnishings, subjecting them to unwarranted wear and tear. These owners have purchased these homes for their own use, as they see fit. This is simply a “money grab” by the council, trying to offset the losses due to COVID and overspending. Finally, it is likely that the county will be facing lawsuits due to the discriminatory nature of this action. It simply is an attempt to subvert the rights of property owners to legally do as they wish with that property.

  7. LMat January 28, 2021 3:51 pm Reply

    I don’t think someone who can afford a 1.3 million dollar home AND keep that home as a short-term rental will care too much about increased taxes.
    The county is trying to make it sound like these homeowners will be scrambling to offer these million-dollar homes as long-term rentals just to avoid increased taxes. Never going to happen!!! And even if they did, how much do you think they would charge for rent…? I’ll wager a guess it won’t be what any local would call “affordable”. Has anyone on the County Council ever had to jump on Craigslist to search for housing? A STUDIO goes for about $1600. These million-dollar houses would remain vacant, because $5000 a month for rent is just a fantasy for most people.
    So, really, this is just a waste of time and effort. County Council, you guys need to get a little more drastic if you really want to solve the affordable housing crisis. These inconsequential, insufficient bills are just more smoke and mirrors and you know it.

  8. Everythingisawesome January 28, 2021 7:31 pm Reply

    “Empty homes don’t have any forms of state and local taxes. Are they really contributing to our local economy?”

    Do the owners not pay property taxes? Says right in the article that they do.

    Do empty homes not require upkeep by gardners, repair persons and caretakers? Who pays those people and doesn’t that contribute to the economy?

    Do these “investors” require more, or fewer, services from the county government? It would appear they already pay more and take less. And Evslin wants less of that?

    Sounds like you are just making off-island owners a scapegoat because you don’t have a solution to the perceived housing problem.

    Common sense is hard to come by.

  9. Dt January 28, 2021 8:44 pm Reply

    What doesn’t see, to be addressed is the ever increasing house prices. 20 years ago nobody imagined the prices that houses cost now. Imagine the prices in 20 years from now. Many homes will be in this category. Will the level increase every year as valuations increase?

  10. I saw a Vampire once January 29, 2021 3:29 am Reply

    You got strange county councilmen. Do they actually live in a house? What’s his name? Carvalho jr. or Decosta. Which one was it? I was just curious to see where the heck was the discussion heading. Just me anyway.

  11. Kana Kauai January 29, 2021 7:02 am Reply

    Kauai is the only county with no districting therefore most of these residential investors (Princeville, Poipu) who vote elsewhere really have no representation.

    Kauai is the only county that does not now break out land value and residence value separately (as it had done previously), making it more difficult to “protest” an assessed value – try protesting your assessed value sometime when you are off-island.

    Kauai just passed and has some of the most restrictive “resident” requirements (271 days, HI license, pay Hi income tax, etc.), so even if you lived full-time for 8-month you are still a residential investor and not a resident. When you acquire a property as a homesteader, you will be stuck with the residential tax rate until you try and change your tax rate the following year – so if you move to Kauai as a full time resident in October of the year, you cannot now change your rate theoretically until September 2-years later and are stuck with the residential investor rate.

    Kauai went from a zoning tax rate to a use tax rates a number of years ago. The residential investor class initially was approximately 199 residences going from $6 to $7 – at least the Finance Director was transparent according to Garden Island in 2014: “The philosophy behind this was, essentially, if you can own a property worth a million dollars or more and you’re not living in it as your primary residence, it’s somewhat of a luxury for you,” Hunt said. “So, if you have the ability to afford that, you should be able to afford a little bit higher tax rate as opposed to the lower tier, which is struggling to make their mortgage payments and hang on.” “Somewhere in between, we’d have the ability to set another rate, saying if you are just using this as a second home and are not vacation renting, then you have that luxury, because you can afford to leave it vacant and only use it seasonally, so the rate should be a little higher than what I would call the rental stock,” Hunt said.

    At least Councilperson Yukimura was transparent according to the Garden Island: “To me, there’s a very logical nexus that these high-end properties are causing problems for affordability in our lower-end properties, and to be able to tax them — and that will be up to us during budget time — will give us another option on revenue that we need to look at,” Yukimura said.

    Councilperson Bynum had this to say “With this amendment, limiting this to 199 properties that are most likely sitting vacant — these are the super wealthy people, these are the stars who own homes here — I can support this bill,” Bynum said. “Given the parameters, we’re really talking about very wealthy people who choose to have their homes sit vacant.”

    But not everybody agreed.

    Councilmen Gary Hooser, Ross Kagawa and Mel Rapozo cast the dissenting votes against the measure. Council Chair Jay Furfaro cast a silent vote, which went toward the majority vote in favor of the new tax class.

    Opposed to Evelin’s comment “what are they adding to the community?”, what they are not adding is cars on the road, bodies on the beach and trash in the landfill.

    The residential investor tax rate then went from $7.05 to $8.05 and this past summer to $9.05, almost as high as the vacation rental tax rate. And as an aside for those vacation rental property owners who could not rent their property due to the mayor not allowing them to do so for quarantine purposes will they get a rebate on their taxes or will they get a rebate on their $100 per month refuse bill since there was none?

    Why doesn’t the county focus their energies on ensuring that those who currently get the homestead rate actually qualify for it?

    The county can adjust their assessment algorithms to ensnare more defenseless second-home owners to increase property tax revenue whenever they like. This tactic is unlikely to provide much more in the way of affordable home rentals.

    These second homes are just that and when these folks want to utilize them how are they going to do so and navigate the minimum 180-day rental period. Do you really want to submit a lease to the county for tax relief purposes?

    So in a matter of a few years the county has raised the tax rate on these homeowners from $6.05 to $9.05 and lowered the threshold from $2M assessed value to $1.3M assessed value. With the least expensive home currently for sale (of the 9 available in Princeville as an example) is $1,395,000 it won’t be too long before the residential investors rolls swell. And unlike the law of gravity – that which goes up does not always come down.

    I am a longtime, full time resident, but many of my neighbors are not and there are those who are retired with fixed incomes who spend a great deal of time here, volunteer, donate to our charities, etc. and are good citizens but who either unable to qualify under the new bill as full-time residents or choose not to rent their homes because they do want to use their own private properties when they like. For some, this bill will be a financial hardship.

    “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?”

    I for one would like to see this evidence and disagree that these homes are all empty like this logic.

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