Hawaii grapples with a daunting challenge: the urgent need for 4,000 to 5,000 affordable rental units annually over the next five years to tackle our lack of affordable housing. This acute shortage of housing drives both the houselessness and outmigration crises. The state Legislature has a pivotal opportunity to address this situation by reevaluating conveyance tax rates on the sale of multimillion dollar investment properties.
The conveyance tax, a one-time levy on property sales, is currently underutilized in its potential to fund critical initiatives such as affordable housing, land conservation and infrastructure development. Compared to similar high-value property markets in cities like Seattle, San Francisco and Los Angeles, Hawaii’s conveyance tax rates are disproportionately low. This low tax rate incentivizes wealthy investors to capitalize on the market, which drives up home prices for locals.
House Bill 2364 is a promising solution, proposing a progressive adjustment to conveyance tax rates. Under this bill, rates for owner-occupied sales starting at $6 million and above would increase, alongside adjustments for investment properties sold at $2 million and beyond. This is a carefully targeted increase point that would not burden local residents looking to purchase or sell. These adjustments could potentially triple the revenue collected from the conveyance tax, offering a sustainable financial backbone for crucial housing initiatives.
The bill allocates a significant portion of the increased revenue to funds essential to the development of affordable housing and the preservation of Hawaii’s natural resources, and lifts arbitrary revenue caps in our state statutes that limit the effectiveness of these funds:
• The Rental Housing Revolving Fund — the primary source for financing for affordable rental housing construction — consistently faces shortfalls against its $38 million cap. HB2364 seeks to simplify allocation by dedicating a flat 50% of conveyance tax revenue to the RHRF, ensuring a steady stream of funding for affordable housing projects.
• The Land Conservation Fund, vital for preserving Hawaii’s natural landscapes and cultural heritage, has likewise been hampered by its $5.1 million cap. The bill proposes to remove these limitations, dedicating a flat 10% of revenue to the LCF.
Additionally, HB2364 also adds the Dwelling Unit Revolving Fund to the conveyance tax’s statutory earmarks, allocating 10% of conveyance tax revenue to finance infrastructure improvements crucial for housing development.
Infrastructure deficiencies pose a significant barrier to meeting Hawaii’s diverse housing demands. Without adequate infrastructure, the state cannot effectively address its housing needs or support sustainable community growth. HB2364 addresses this challenge head-on by ensuring that infrastructure improvements receive the attention and funding they require.
HB2364 represents a progressive and equitable approach to taxation, compelling investment property owners to contribute more toward ensuring that Hawaii residents can thrive in their communities. The bill awaits a required joint hearing in the Senate Housing and Water and Land committees, chaired by Sens. Stanley Chang and Loraine Inouye, respectively. Its passage could mark a transformative step forward in bolstering the state’s revenue and addressing its most pressing housing needs.
Hawaii stands at the critical decision point in investing in our housing needs: The enactment of HB2364 holds the promise of a brighter, more inclusive future for all residents. It’s time for lawmakers to seize this opportunity and prioritize the well-being and stability of Hawaii’s communities.
Arjuna Heim is senior policy analyst for affordable housing at Hawaii Appleseed Center for Law and Economic Justice.