Honolulu lawmakers are considering imposing a so-called empty homes tax as a way to make housing more available and generate taxes for affordable housing projects, and its proponents claim that a 2020 report by graduate students from the University of California-Los Angeles supports their proposal.
But this reference is problematic on multiple levels.
First, the UCLA report was more like a manual about how to implement the tax rather than a study about whether to implement it.
The report did examine some alleged “potential policy alternatives,” but they all had to do with imposing more government taxes or zoning restrictions, not fewer, which research overwhelmingly shows would be the best way to resolve Hawaii’s housing crisis.
In particular, the alternatives were “increasing the property tax,” “increasing the real estate conveyance tax,” “decreasing the mortgage interest deduction” and “inclusionary zoning.” It’s as if these UCLA students and their academic advisors had blinders on in relation to possibly lowering taxes and loosening or removing zoning regulations to facilitate more homebuilding and rental housing.
Beyond that, the methodology of the UCLA report contained critical flaws, particularly in comparing Honolulu to Washington, D.C.
The report compared neighborhoods considered to be statistical “twins” based on characteristics such as median income and housing costs, assuming the matched pairs were identical in every meaningful way.
But this matching methodology oversimplifies the distinct factors that shape housing markets. D.C.’s housing ecosystem is deeply influenced by its role as the nation’s capital, with demand driven by civil servants, policymakers and private sector employees. The city benefits from its location within the densely populated Northeast corridor, with extensive public transit options and access to a broader regional labor market.
Honolulu, by contrast, is an isolated island city with unique constraints. Geographic isolation limits access to regional labor markets and necessitates reliance on tourism and the military. Strict zoning laws and environmental protections further restrict development, leading to a persistent mismatch between supply and demand.
The report’s choice of comparison cities raises additional concerns. The report excludes Vancouver from its analysis, arguing it is too different from Honolulu, yet includes Washington, D.C. — a mainland federal district with fewer geographic or economic parallels.
Vancouver, like Honolulu, is a Pacific Rim city with significant Asian investment in real estate and a tourism-driven economy. If Vancouver is considered too different, then Washington, D.C., warrants even greater scrutiny as a valid comparator.
More rigorous research provides better insights. A 2020 report of France’s national vacancy tax found it reduced vacancies by 13% over four years, but house prices increased long-term.
Similarly, 2023 research on Vancouver’s vacancy tax showed that such a tax can reduce vacancies but also distort market incentives, potentially increasing house prices and reducing homeownership rates.
Auckland, New Zealand, offers more relevant lessons for Honolulu. Like Honolulu, Auckland is an island city with limited land availability, high construction costs, and strong cultural and environmental considerations.
The city’s 2016 Auckland Unitary Plan upzoned three-quarters of the city, tripling the potential for new housing development. As a result, construction rates doubled, housing prices fell by up to 39%, and rents decreased by as much as 33%.
This evidence highlights comprehensive zoning reform as the most effective way to address Honolulu’s housing crisis, rather than pursuing a complicated vacancy tax proposal that could have unintended consequences.
By focusing on evidence-based, transformative reforms rather than policies with unclear outcomes, Honolulu could create a resilient housing market that meets residents’ needs while ensuring long-term affordability.
Joe Kent is executive vice president at the Grassroot Institute of Hawaii.
