Council lowers tax rate for owners of second homes used for rentals
The Honolulu City Council has approved giving real property tax relief to property owners who may own more than one home and use another residence for rental income on Oahu.
The Council voted unanimously June 7 to approve Resolution 33, which is expected to lower the city’s real property tax rate for the first million dollars of value of Residential A properties and, in so doing, reduce taxes by $500 under that two-tier taxpaying class.
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The Council’s action — which covers about 30,000 owners of Residential A property and runs from July 1, 2023, to June 30, 2024 — means the tax paid on an individual property owner’s second home goes from $4.50 per $1,000 of value to $4 per $1,000 of value. Effectively, property owners will pay $4,000 a year in property taxes instead of the current $4,500.
The move is supposed to aid owners of Residential A properties on the island — which typically have a minimum assessed value of $1 million and do not have a home exemption — to continue to rent those properties without the need to increase rents.
Hawaii, according to real estate sites such as ApartmentList.com, has the most expensive rental market in the United States, ahead of other high-rent states such as New York, California and New Jersey. In 2022, the average rent for a one-bedroom unit here was more than $1, 700 a month, the site states.
“In an effort to address rising rental costs, we included a reduction in the real property tax rate for Tier 1 of the Residential A properties (applicable to the first million dollars of value of Residential A properties) as part of the 2023 tax relief package,” Council Chair Tommy Waters told the Hono lulu Star-Advertiser via email after the June 7 Council meeting. “The median home price in Honolulu is $1.1 million. These are typical homes in Kaimuki, Aiea, Waialua and all over Oahu.”
He added that these are homes rented to local families.
“As we know, approximately 40 % of Honolulu’s residents are renters, and for some, they have been renting the same home for decades,” Waters said. “We wanted to provide tax relief to those homeowners who are providing much needed rental housing for our local families.”
Waters, who introduced the resolution, said the Council “wanted to ensure targeted tax relief could be provided this year” to residents.
“The rates are something that will directly affect our residents this tax year,” he said, adding that the change to the Residential A tax rate is permanent. “However, the tax rates for real property are set annually by resolution, and like any other measure is subject to change from a future Council. That said, this is the first change to the rate since 2019.”
Still, Waters said the Council is “required to pass a balanced budget that aligns projected tax revenues with expenditures.
“This particular component of our tax relief package will encompass most if not all of our available long-term rental properties, ” he added.
