Honolulu Council Delays Empty Homes Tax, Extends Sprinkler Deadline!

In a surprising turn of events during the City Council’s monthly meeting on Wednesday, homeowners in Honolulu celebrated a notable victory. The council opted to delay a contentious vote on the empty homes tax and granted an extension for high-rise condominiums to comply with costly fire safety sprinkler regulations.

The proposed empty homes tax, which aimed to increase property taxes on homes left unoccupied for six months or more each year, sparked a heated debate. The council meeting was buzzing with concerned residents and industry experts, leading to a decision to postpone the vote until a thorough fiscal study is completed, with preliminary findings expected by January.

This tax would have imposed higher property tax rates on Oʻahu homeowners with vacant properties, set to take effect in fiscal year 2027. Advocates argued it would help alleviate the housing crisis by encouraging property owners to either fill their homes or put them on the market, targeting offshore investors often blamed for exacerbating the local housing shortage.

The proposed tax was designed as a lever to boost the local housing market by incentivizing homeowners to bring their properties back into use. However, the potential burden on property owners, particularly those with second homes or vacation properties, raised alarm bells across the community. Under the previous proposal, a median-priced single-family home owner could have faced a staggering $30,000 annual tax bill.

In another pivotal discussion, the council addressed fire safety regulations, initially set in motion after a tragic fire incident at the Marco Polo high-rise in 2017 that claimed four lives. The requirement for older high-rise condos to install fire sprinklers or successfully pass a fire and life safety evaluation has been postponed yet again, now pushing the deadline to 2038, with an interim plan due by 2030.

The empty homes tax faced significant pushback from various stakeholders, including real estate professionals who rallied against the measure. In a nod to the concerns raised, the council has included 17 exemptions, protecting individuals in the military, those receiving medical treatment, and homeowners undergoing renovations.

The Great Debate: Weighing Pros and Cons

As the empty homes tax bill continued to be scrutinized over the months, voices from both sides made their presence felt. However, opposition was notably louder during Wednesday’s hearing, with many realtors and industry representatives expressing their concerns.

Realtor Robert St. Onge highlighted the personal impact of the tax, stating that it would limit his ability to spend time with family while maintaining residences in both Hawaii and New Mexico. “It feels like a financial ankle bracelet enforced by the city,” he lamented.

Critics stressed that not all vacant homes belong to affluent investors and that many homeowners’ situations are more complex. They argued that merely taxing empty homes wouldn’t provide solutions for local residents struggling economically. “Selling my property won’t magically fix your homelessness issue,” stated William Deeb, a local property owner. “Individuals aren’t interested in renting or buying homes priced at $2 million or more.”

Despite some supporters expressing concerns over the multitude of exemptions that could undermine the bill’s effectiveness, many urged the council to move forward. “Let’s take action for Honolulu, even if the bill isn’t perfect,” urged Ellen Carson, a proponent. “We have a chance to build a better future for our community.”

Former state representative Matt LoPresti echoed urgency, emphasizing the need for legislative action given the anticipated reduction in county revenue from the general excise tax.

The bill’s enforcement logistics will fall to the Department of Budget and Fiscal Services, which recently contracted Ernst & Young to devise an administration plan. The comprehensive study is expected to conclude next summer, but the initial report is anticipated in January, further fueling the debate. Some council members, like Esther Kiaʻāina, have expressed hesitation about proceeding without this critical information, fearing it could lead to unintended consequences.

In a recent estimate, the University of Hawaii Economic Research Organization projected that implementing the empty homes tax could free up between 4,000 to 20,000 vacant homes, generating annual tax revenues of $50 million to $400 million, with a commitment to direct at least 20% of these funds towards affordable housing initiatives.

The empty homes tax has been a topic of discussion for years, with various iterations failing to gain traction in the past. Opponents are already bracing for potential legal challenges, drawing parallels to San Francisco’s similar tax law that was struck down in court. However, supporters remain optimistic that recent amendments will fortify the bill’s legal standing.

Sprinkler Deadline Extended Again

In addition to the empty homes tax discussions, council members voted to delay the deadline for fire safety evaluations in high-rise condominiums once more. This decision follows the tragic 2017 Marco Polo fire that highlighted the urgent need for improved fire safety measures.

The retrofitting mandate was put forth after the devastating fire, which spread rapidly due to the absence of sprinklers. While new residential high rises have been required to implement sprinklers since 1975, many older buildings remain unprotected.

However, the financial burden of retrofitting has met with resistance from condo owners, who face costs that can skyrocket depending on their building’s specifics. For instance, the Marco Polo spent a staggering $6 million on sprinklers, translating to about $10,500 per unit! For the Kahala Towers, estimates range from $4 million to $5 million, or $17,000 to $21,500 per unit.

As a compromise, the council permits condo associations to opt for a fire and life safety evaluation instead of installing sprinklers. Unfortunately, as of August, only around 20 out of 300 high-rises had passed the evaluation, leading to further delays and extensions of the deadline.

In a move that garnered little attention, this delay was folded into amendments of the extensive fire code, initially introduced by council members. The aim is to ensure clear legal language and provide resources for building compliance.

Additionally, the City Council passed a resolution to condemn the dilapidated Queen Theater in Kaimukī, a landmark that has stood mostly vacant for the past four decades since its controversial past.