There are many aspects to the housing crisis on Kaua‘i, but here are two of them: First, we need more affordable housing. Not many would dispute that affordable housing must be a priority for Kaua‘i.
However, there is a second and intertwined aspect to the housing crisis, and it is rising housing prices on this island in the general housing market. Real estate speculation fuels rising housing prices and feeds on the huge profits that can be made by speculating in land or housing.
In addition, it increases short-term rentals and hurts the long-term rental market. We see all these things happening on Kaua‘i. My argument is as follows: Raising the capital gains tax rate on real estate investment profits has been linked to lowering the demand for housing and to lower housing prices. This is partially because it discourages real estate speculation (see “Fuel on the fire: Negative gearing, capital gains tax and housing affordability” Australian Council of Social Service, 2015).
Here is the goal. If you love being on Kaua‘i, come buy a first or second home here, but any capital gain you realize over time will be taxed very heavily if you sell it. Or if you (or a real estate hui) are buying a home or property here for speculation, any capital gain you realize will be heavily taxed. So, if you want to make big money on real estate speculation, you can choose one of the other 50 states.
In addition to this, we need to protect the housing investment of Kaua‘i residents who already own homes and live in them, and that can be done in many ways, such as adjusting property tax rates for residents, or through adjustments to inheritance policy and taxes.
But if nothing is done to curb real estate speculation on Kaua‘i, rising housing prices and the increased property tax rates that follow will continue to force resident families out of their homes at an increasing rate, and make it impossible for young families to afford a home here, whether to rent or to purchase.
There are many complex forces at work in Kaua‘i’s housing market that will need different solutions, but I see no value in letting real estate speculation continue to drive Kaua‘i land and housing into the hands of the most wealthy and out of reach for too many of our residents. We need to consider the capital gains tax rate on real estate investment an important lever to use.
House Bill 232 would increase the capital gains tax rate on O‘ahu from 7.5 percent to 11 percent. Some are concerned that even this increase will reduce investment and speculation. But that is the goal. A far greater increase in the capital gains tax rate on real estate speculation is necessary as one strategy to help improve the affordability and accessibility of land and housing on Kaua‘i.
Those benefiting from real estate speculation will scream this is capitalist heresy and an assault on the free market, but real estate speculation on Kaua‘i is an ongoing assault on our quality of life. We need solutions, and sharply raising the capital gains tax should be on the table.
I have to disagree. The primary reason our real estate values are increasing is that we have placed so many, too many, hurdles in front of building new moderately-priced housing. So many of us, particularly those who already own their homes, exemplify the “drawbridge effect”. “I’ve got my place and I don’t want to see any more housing built.” If you actually think raising the capital gains tax on selling your property, you are sadly mistaken. All the tax increase will do is to pump more dollars into the gaping mouth of local government with little if anything to show for it. Build more homes so our children can have a place of their own.
John Brekke You are foolish. Taxing your way to affordable housing is the worst idea and an attempt to reduce housing prices that will fail. First, you must have forgotten Hawaii is heavily invested in the tourist market. That means those individuals must have a place to stay while visiting and bringing those much sought after tourist dollars that are so heavily needed for Hawaii’s economy, especially jobs. You must have forgotten to short term rent a property, that property must be located in a vacation rental zoning. A large amount of local residents rent out rooms to supplement their income due to the cost of living there and that comes from food costs, power costs and durable goods which NONE of those have anything to do with affordable housing. Livable wages from jobs that create durable goods, technology is what helps resident locals. Hawaii imports 95% of its goods. They don’t make anything there anymore. Land costs, building materials, utility connections and labor rates are the main problem. NOT TAXES! Bottom line: if you raise taxes again (which Hawaii has some of the highest in this country) you will destroy tourism and all the employment that comes with it. Raising taxes to steal from one to give to another is barbaric and very close minded. YOU ARE FOOLISH!
Thank you for this post. I agree this is one of the many policies we need to look to. I also agree with manawai but we must do both and not either or. We need to attack this issue with every tool in the toolbox at county and state levels. Those that cry about reduced investment or the decline in tourism due to higher tax rates are crying wolf. High value properties will always be at a premium on this island. Even realtors admit those properties will continue to move regardless. Tourist destination areas are at high risk of being completely converted to TVRs. Residents in those areas must be protected.
I agree that this is complicated stuff. But it seems that we all want the same things. We want more affordable housing built, and we want to see lower prices for existing housing and land on Kaua’i. How we do those two things is the issue. My argument concerns ways to lower existing housing and land prices on Kaua’i so that they are within reach of more of our residents. Raising the capital gains on real estate profits has been shown to reduce the demand for housing which results in lower and more stable housing prices. Real estate speculation also drives prices higher and raising the capital gains tax rate has been shown to reduce speculation in land and housing. The Hawaiʻi Tax Fairness Coalition is dedicated to ensuring a prosperous future for our communities through smart and fair tax policy. Here is what they say about the capital gains tax rate in Hawai’i. First, they note that the capital gains tax rate is lower than the income tax rate on Kaua’i. Second, they go on to state that…, “The capital gains tax loophole is a tax break for the richest and most privileged people in Hawai’i.” “Capital gains are heavily concentrated in the high end of the income distribution especially for nonresidents. This capital gains tax loophole benefits the highest-income taxpayers, including non-residents who profit from investing in real estate in Hawaiʻi.” A recent state report given to House Committee on Finance by E. Tian found that 25% of 2022 home sales in Hawai’i were to non-residents (a steep increase over previous years), and that they generally purchased the most expensive homes whether condos or houses. So, one current proposal in the state legislature is to significantly raise the capital gains tax rate on land and home purchases by non-residents. In my opinion, that is a great place to begin.
John Brekke, You continually push a false narrative that outsiders are the sole reason for high housing and land costs and that somehow increasing taxes will lower overall pricing. Ask any realtor about land and housing costs in this entire country and if they will ever significantly lower to a point where middle- and low-income residents can afford them. They will tell you how far off base you are. The Hawaii legislature just voted down a measure to eliminate GET tax on food and medicine. Why don’t you and your constituents focus on reducing the cost of living there by actually lobbying for measures that will actually put money back into the pockets of Hawaii residents quicker than hoping housing costs come down, THEY WONT!? Why are you not telling the truth to the readers that Hawaii has a budget surplus meaning they are collecting and adding to their savings account by collecting more tax money then thy need to operate but still refuse to help Hawaii residents with their living costs by eliminating food and medicine taxes. Idaho has little problem in returning tax surplus money to its residents, why not Hawaii? it’s TRUE, look it up! As I said before, tax tax tax more more more is ludicrous. Ask any realtor there, what will bring down housing costs significantly enough for the first-time buyer, lower- and middle-income individuals to be able to afford it. Guarantee they will not tell you Raise taxes! Vote for politicians that actually care to help those that put them into office by lowering taxes.