Maui council urged to raise tax on second homes, short-term rentals to raise money for affordables

27 Lae Place | Paia, HI | Luxury Real Estate

Leaving property taxes at the lowest in the nation could actually spur investment home buys in Maui County, according to a presentation Monday afternoon at council’s Affordable Housing Committee. 

About 70% of purchases in 2020 were non-owner occupied, second homes, Hawaiʻi Information Service said. Meanwhile, Hawaiʻi this year ranked lowest in the nation for property taxes by state, according to a WalletHub study published this month. 

“If you have a lower property tax rate than the Mainland average, you are actually incentivizing investment property ownership,” said Kenna StormoGipson, director of housing policy at Hawaiʻi Budget and Policy Center. “People do talk to real estate agents and say, ‘Oh they have a lower rate? Let me buy my investment home in Maui instead of New York or California or wherever.’ ” 

At the meeting, StormoGipson presented ideas on raising property taxes on second homes and short-term rentals to generate money for affordable homes in Maui County.  

She was part of the county-commissioned Maui County Comprehensive Affordable Housing Plan released last year that outlines ways to create 5,000 affordable homes in five years. A part of that plan recommends funneling about $58 million yearly to the county’s Affordable Housing Fund. 

StormoGipson said one way to generate that revenue is to hike property taxes for investment homes to align with the national average. An investment home is typically considered a second home and not the owner’s primary residence; property tax data shows that it is not owner-occupied.  

“Even from an economics perspective, if you own a second home on Maui, that’s not an essential good — that’s some version of a luxury good, a nonessential good,” she said. “We have a lot of people on Maui who don’t have the essential good of a house. And so it makes a lot of sense to provide for local residents something thatʻs essential and increase the revenue from people who have really a classic definition of a luxury good.” 

StormoGipson added that she receives questions on out-of-state homebuyers, whose purchases have increased in recent years. A state report said 38 percent of homes last year were bought by offshore buyers, with many from Canada and California.  

However, out-of-state buyer data represents property tax bill addresses that are not in Hawaii, and data can be skewed. 

“It is important to note that, although mailing addresses provide a barometer for estimating out-of-state residents with property in Hawaiʻi, it’s only a very rough measure,” StormoGipson said, citing a state Department of Business, Economic Development and Tourism analysis in 2017. 

The housing policy director also recommended raising property taxes on short-term rentals to align with hotel or timeshare rates. 

Council Vice Chairwoman Keani Rawlins-Fernandez and other council members said the county homeowner demographics are nuanced. Rawlins-Fernandez encouraged the presenter to consider longterm renter dwellings, which are non-owner occupied, along with kuleana land concerns, in future presentations.  

“In Hawaiʻi, we have generational land that has been in the family, I know you’re calling it a luxury item because we have a lot of people who don’t have houses. I get that completely, which is why this council supported the passage of ʻĀina Kūpuna language last year. In making these recommendations, it’s really important to understand our culture and our history. That’s an important component that I feel is not considered in the presentation because of how long land has been in families that may not be owner-occupied, we don’t want to continue to price out generational families from living in our county.” 

Also, council Chairwoman Alice Lee said revenue can’t be generated without a plan to spend it.

Maui County Comprehensive Affordable Housing Plan outlines ways to create 5,000 affordable homes for residents below 120% over the next five years. Portions of the plan continue to be discussed in the Affordable Housing Committee.

Maui County has some of the highest median sales prices in the state. Driven by record-low inventory and fierce buyer demand, the county breached the $1 million median sales price threshold last year and has continued to climb. A new record-high median sales price of $1.16 million for single-family homes was set in January, and the median for condos reached a new high of $730,500 last month.

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